Legal Updates| The Firm Dubai

Verbal Statements Before Court-Appointed Expert May Waive An Arbitration Clause

Thu, 30 May 2024 10:10:25 GMT

Introduction

It is an established legal principle of the UAE mainland courts that making a submission, or an argument

related to merits of the case before challenging the court’s jurisdiction based on arbitration clause will

be considered as a waiver of this clause and acceptance of the jurisdiction of the court. This principle is

founded on Article (8) of Federal Law No.6 for year 2018 regarding Arbitration and Article (86) of Decree

by Law No 42 for year 2022 regarding Civil Procedures. Recently, Dubai Courts have issued a judgment

which appears to reinforce and broaden the application of this principle.

The Case before the CFI and the CA:

A Claimant filed a lawsuit before Dubai Courts (Case No. 87/2023) to claim AED 3,600,000 arising from

an investment agreement with the Defendant, a retail shop owner, who agreed to maintain financial

accounts and provide access to the Claimant to these accounts and profits when due. The Claimant

submitted that the Defendant failed to honour his obligations and closed the business. The Defendant

attended the first time in the lawsuit during a hearing with the court-appointed expert where he

answered few questions of the expert, and following the end of the hearing, submitted his defence,

whereby he relied on the arbitration clause to challenge the jurisdiction of the court, to the expert.

Following the submission of the expert’s report, the Court of First Instance (“CFI”) dismissed the

Defendant’s jurisdiction challenge, decided to cancel the investment agreement and ordered the

Defendant to refund the investment amount to the Claimant.

The Court of Appeal (“CA”) overturned the judgment of the CFI and dismissed the lawsuit for lack of

jurisdiction due to the presence of an arbitration clause.

The Judgment of the COC

The Court of Cassation ("COC") accepted the Claimant’s argument that the Defendant waived his right to

rely on the arbitration clause.

The COC stated that a party maybe considered to have waived an arbitration clause directly or implicitly

by not bringing it up after discussing the merits. It added that, in the instant case, the Defendant who

participated in a meeting with the court-appointed expert and verbally responded to the expert's

questions regarding his liability for the debt claimed by the Claimant, as recorded in the minutes of

meeting before the expert, is considered to have relinquished his right to invoke the arbitration clause.

The COC did not accept the defendant's argument that it had made a written submission to the expert,

invoking the arbitration clause before any other substantive arguments, because this submission

occurred after the defendant had commented verbally on the merits of the case in the said meeting.

Conclusion

The instant case asserts that Dubai Courts apply strictly the relevant provision of the law regarding the

waiver of arbitration clause to include verbal and written arguments not only before the court but also

before the court-appointed expert. While the judgment does not come as a surprise to us, however, it

appears to broaden the legal principle stated above to include even verbal argument before the expert

which is not the right forum to determine legal submissions of the parties because the court-appointed

experts are tasked only with determining certain technical aspects of the dispute.

Therefore, next time when you have a case before the court, remember the Arabic saying: “if speech is

silver then silence is gold.”

“Contents of this article are for general informational purposes only. It is not intended as professional

advice and should not be used as such.”

If you would like more information about this update, please feel free to contact Head of Commercial

Disputes and Investigations Samer Abou Said.

Year 2023 Brings Significant Amendments to Several UAE Legislations

Fri, 13 Jan 2023 07:59:26 GMT

Year 2023 Brings Significant Amendments to Several UAE Legislations

By Samer Abou Said -12 January 2023

Introduction

The UAE has introduced several legislative changes for the year 2023 similar to those we saw in

2022. We summarize in this article some of the changes, and we underline “some” because this

should not be considered a comprehensive list or the only significant amendments.

1. New UAE Civil Procedures Law

The UAE has issued a new Decree by Federal Law No.42 for the year 2022 for the promulgation

of Civil Procedures Law (new “CPL”) which repeals the old Civil Procedures Law, Federal Law No

11 for the year 1992 (old “CPL”). The new CPL came into force on 2nd January 2023.

The significant amendments include the following:

All cases submitted before the court of the first instance are to be adjudicated by a sole judge. Under the old CPL, it used to be adjudicated by a single judge for cases under the value of AED 10M, and a 3-judge panel for cases above that value.
Cases with a monetary value that does not exceed AED 500,000 cannot be appealed before the Court of Cassation. It used to be AED 200,000 under the old CPL.
The period for appeal of a judgment to the Court of Cassation is 30 days reduced from 60 days under the old CPL.
The court shall return 90% of the court fees paid by the claimant if it dismisses the case for lack of jurisdiction.

2. New UAE Evidence Law in Civil and Commercial Transactions

The UAE has issued a new Decree by Federal Law No.35 for the year 2022 for the promulgation

of Evidence Law in Civil and Commercial Transactions (new “Evidence Law”) which repeals the

old Evidence Law, Federal Law No. 10 for the year 1992. The new Evidence Law came into force

on 2nd January 2023.

The significant amendments include the following:

Introduction of a standard of proof “more probable / more likely” if there is conflicting evidence in the case.
Introduction of a wider scope for document disclosure in commercial disputes where a party may apply to the court to order the opponent to present evidence. This might be a game-changer to enhance good faith and efficient litigation and will assist parties immensely, subject to the court’s discretion.
Party can rely on custom to establish their claim.
Court-appointed experts are under an obligation, before commencing their mission, to disclose any relationship with the parties or interest in the case.

3. New UAE Commercial Transactions Code

The UAE has issued a new Decree by Federal Law No.50 for the year 2022 for the promulgation

of Commercial Transactions Law (new “CTL”) which repeals the old Commercial Transaction

Law, Federal Law No 18 for the year 1993 (old “CTL”). The new CTL came into force on 2nd

January 2023.

The significant amendments include the following:

Reducing the legal age to practice commercial activities to 18 years down from 21 years.
Reducing the cap on interest in commercial transactions in the absence of an agreement to 9% down from 12%.
Prohibiting compounded interest as supplementary compensation in addition to the simple interest.
Reducing the time limitation on bringing new claims to 5 years down from 10 years.

4. New UAE Criminal Procedures Law

The UAE has issued a new Decree by Federal Law No.38 for the year 2022 for the promulgation

of Criminal Procedures Law which repeals the old Criminal Procedures Law, Federal Law No. 35

for the year 1992. The new Criminal Procedures Law comes into force on 1 st March 2023.

The significant amendments include the following:

Granting the public prosecution, the power to take conservatory measures regarding the suspected assets of the crime such as tracing it, locating it, freezing it, and/or appointing a custodian…etc.
Introduction the concept of “plea bargain” by granting the public prosecution the power to offer plea bargains where the defendant makes a clear admission of culpability in exchange for reducing the penalty in certain felonies and crimes.

5. New UAE Unemployment Insurance Law

The UAE has issued a new Decree by Federal Law No. 13 for the year 2022 Unemployment Law

and Cabinet Resolution no. 97 of 2022 concerning the procedures and controls for implementing

the unemployment insurance scheme.

The Federal Law No. 13 of 2022 and Cabinet Resolution no. 97 of 2022 came into force on 01

January 2023 and stipulates the following:

It applies to all employees in the private sector and federal government sector should subscribe except the following: investors, domestic workers, temporary contract workers, juveniles under the age 18, and retirees who receive a pension and joined new employment.
The insured period of subscription in the unemployment insurance scheme should not be less than 12 consecutive months before they are entitled to the coverage.
The insured must be committed to paying the monthly subscription which ranges between AED 5 and AED 10 per month.
The insured should provide evidence of unemployment due to reasons other than resignation and the insurer should not be dismissed for disciplinary reasons according to the applicable laws.
The amount of monthly compensation if the employee become unemployed is at a rate of 60% of the subscription salary for a maximum period of 3 months provided that the monthly compensation does not exceed AED 10,000 for the first category and AED 20,000 for the second category.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Abu Dhabi Courts Set Aside an Arbitration Award For Failure Of Arbitrator To Disclose Potential Conflict of Interest

Wed, 15 Jun 2022 09:01:01 GMT

By Marc Massihi, Imad Kassir and Samer Abou Said

Introduction

This article considers, with reference to two recent Abu Dhabi courts judgments, the obligation of an Arbitrator to disclose the fact that he was working in the same law firm as the representative of one of the parties, and the impact of his failure to disclose this past relationship on his mandate and the validity of the arbitral award.

Background of dispute

An Arbitration Center (the “Center) nominated an Arbitrator based on Abu Dhabi Court’s request to resolve a dispute brought before the said Court, in accordance with the arbitration clause in the agreement.

The appointed Arbitrator accepted the appointment after submitting a statement of acceptance, impartiality and independence.

Before the Arbitral Award due date, the secretary of the arbitral tribunal sent a resignation email to the parties stating that her resignation was due to reasons related to the Arbitrator and the arbitral procedures. Shortly thereafter, the arbitral award was issued ordering the Respondent to pay AED 62M.

The Respondent was uncomfortable with this announcement and commenced its own investigations and came to know that the Arbitrator used to previously work as a lawyer in the same law firm with the legal representative of the Claimant in the dispute, and that he might have been subject to disciplinary measure by the regulating authority.

Consequently, our firm representing the Respondent filed before Abu Dhabi Appeal Court, two different petitions: first one to revoke the Arbitrator and terminate his mandate for failure to disclose that he used to work with the legal representative of the Claimant, and the second done for nullification of the Arbitral Award. The grounds for the two petitions were:

First petition to revoke the Arbitrator’s mandate for the Arbitrator’s failure to disclose to the parties a fact that would likely give rise to doubts as to his impartiality and independence in accordance with Article (10.4) of the UAE Federal Law No. 6 for year 2018 (“Arbitration Law”);
Second petition to set aside the arbitration award in accordance with Article (53)(f) of the Arbitration Law of 2018 due to the composition of the Tribunal being in breach of the Arbitration Law .

Judgment of the Court of Appeal (“CA”) of Abu Dhabi

The CA joined both petitions and issued in one judgment its decision regarding the two petitions to terminate the mandate of the Arbitrator and to nullify the Arbitral Award, in October 2021.

The CA highlighted in its reasoning that the obligation of disclosure is essential to ensure impartiality of the arbitration process and the Arbitrator. Such obligation shall remain until completion of the arbitration procedure, and the Arbitrator is obligated to disclose to the parties without delay, all the events that would likely to give rise to doubts as to his impartiality or independence, referring in its reasoning for comparative purposes to two foreign judgments that dealt with conflict of interests disputes.

The CA further highlighted in its reasoning the validity of the Respondent’s claims: (i) nullification of the Arbitral Award due to the Arbitrator’s failure of disclosure as per article (10.4); and (ii) illegality of the Arbitrator’s mandate as a consequence of the illegality of his appointment in accordance with article (16) of the Arbitration Law of 2018. The CA considered these reasons sufficient for the nullification of the Arbitral Award in accordance with Article (53) of the same law.

The Claimant appealed to the Court of Cassation on the basis of error in the application of the law and flawed reasoning, focusing on two procedural aspects: The CA erred in (i) joining the two cases filed by the Respondent: termination of the Arbitrator’s mandate and nullification of Arbitral Award; (ii) ruling the nullification of the Arbitral Award based on the decision of terminating the mandate of the Arbitrator.

Judgment of the Court of Cassation (“COC”) of Abu Dhabi

The COC issued its judgment in January 2022. It stated that the joining of the two petitions to issue one judgment in both is merely a decision for the good conduct of justice, while preserving the independence of each of the cases and the means of appeal related to each of them.

Furthermore, the COC considered based on Article (15) of the Arbitration Law that the CA judgment regarding the termination of the Arbitrator’s assignment is not subject to challenge before the COC and approved the CA ruling regarding the nullification of the Arbitral Award based on Articles (10.4) and (53) of the Arbitration Law.

Conclusion

The CA and COC judgments underline the importance of the declaration of conflict of interest to the integrity of the arbitration proceedings. Furthermore, both courts determined that non-disclosure would lead to revoking the arbitration and nullification of the award regardless whether the failure to disclose a potential conflict of interest had an impact on the arbitration award or not.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Dubai Moves to Regulate Virtual Assets

Tue, 24 May 2022 11:15:16 GMT

The New Law

In line with Dubai’s vision to become a key player in the virtual assets industry, the Government of Dubai issued new Law No. 4 of 2022 Regulating Virtual Assets (“the Law”), which came into force on the 11th of March 2022. The Law will apply across the Emirate of Dubai, including its freezones with the exception of Dubai International Financial Center (DIFC).

The Law establishes a general framework in which it introduces the Dubai Virtual Asset Regulatory Authority (“VARA”) as the competent body to oversee and regulate all matters related to the industry. VARA will have a separate legal personality, and it will be affiliated to Dubai World Trade Centre Authority.

What is a “Virtual Asset”?

Article 2 of the Law broadly defines Virtual Assets (“VA”) as a “digital representation of the value that can be digitally traded or transferred, or can be used as an instrument for exchange, payment or investment purposes, including Virtual Tokens, and any digital representation of any other value specified by the VARA in this regard”.

It appears that the definition under the Law is wide enough to encompass both, cryptocurrencies (such as Bitcoin, Ethereum, etc.) and crypto tokens (such as non-fungible tokens referred to as NFTs).

Competencies of VARA

VARA will regulate, supervise, and control VA services. In doing so, VARA will:

Organize the issuance and offering of VA and Virtual Tokens
Organize and authorize Virtual Asset Service Providers
Ensure the highest standards of protection for beneficiaries’ personal data
Organize the operation of VA platforms and portfolios
Monitor transactions to prevent price manipulation of the VA

VASP Conditions

The Law sets out a preliminary framework for the licensing of individuals and entities who wish to provide VA services (“VASPs”). In order to conduct the activities outlined in Article 16 of the Law, individuals and entities intending to become a VASP must:

Have the headquarters of their business in Dubai;
Obtain prior approvals and permits from VARA before commencing the procedures for licensing it from the competent commercial licensing authority; and
Comply with the limits of the requirements, rules and controls that are specified in the permit that is granted by VARA.

Conducting or providing any VA related service listed in Article 16 is strictly prohibited without first obtaining a license. As per the Law, the prohibited activities are:

VA Platform operation and management service;
Services of exchange between VA and currencies, whether national or foreign;
Services of exchange between one or more form(s) of VA;
VA transfer service;
VA custody, management, or control services;
Services related to VA Portfolios; and
Services related to offering and trading in Virtual Tokens.

VASPs Obligations to Share Data with VARA

The Law provides that VASPs must cooperate with any requests from VARA to enable it to carry out its competencies and achieve its objectives. It is believed that this obligation is meant to secure VASPs implementation of Anti Money Laundering regulations, and to reduce concerns that VASPs platforms might be misused for suspicious activities. This may suggest that personal information available with VASPs, such us personal identity information, utility bills etc., which are required to open an account, will be accessible to VARA.

Latest Developments

Housed in Dubai World Trade Centre, VARA has already commenced its operations on a minimum viable product stage and is simultaneously drafting implementing decisions in collaboration with international experts in the Virtual Assets Industry. Although the requirements for obtaining a license are not publicly available yet, it is predicted that VARA will publish the regulations by second half of 2022.

Nonetheless, VARA has already granted two provisional licenses to Binance, one of the most renowned crypto exchange platforms, a special license to offer its VA services to pre-qualified investors, and to BitOasis, a leading VASP founded and headquartered in Dubai.

How To Apply For A Uk Passport?

Thu, 14 Apr 2022 21:24:13 GMT

Getting a Uk Passport

Make sure you have them, as you will be asked to provide information such as your passport number, date of issue, registration, etc. If you have previous passports, you can add this information to this section. It will list the documents that must be submitted to the passport office.

You will need to send the original documents to the Passport Service after completing the online application. Online software can generate a valid and completely acceptable image for a UK passport application or PS7 renewal only. One of the most rewarding things you can now easily do online is apply for a new passport.

Applying for a new British passport has never been easier, this guide will show you how to apply online on the GOV.UK website. Online passport service If you are a resident of Ireland, Northern Ireland, the United Kingdom, the European Union, the European Economic Area or Switzerland, you can use the online passport service to apply for your first Irish passport. If you live abroad, in a country/region where Passport Express or Passport Online is not available, you can apply for an Irish passport in person or by mail or registered mail to the nearest Irish embassy or consulate. If you are already British, you do not need to apply for citizenship-you can apply for a British passport immediately.

You can apply for British citizenship by quick naturalization if you are married to a British citizen and have lived in the UK for at least three years. If you are from any other country, you can usually apply for citizenship 12 months after receiving an indefinite residence permit (or an indefinite travel permit) if you are not married to a British citizen. If you are from the EU, Eastern Europe Region or Switzerland, you can apply for this option after living in the UK for five years, obtaining status for one year and meeting the general requirements for UK citizenship. Irish and EU / EFTA citizens who already have an ILR in the UK do not have to apply for the Settlement Scheme and can obtain British citizenship through ordinary naturalization.

Once you become a UK citizen, you will be able to apply for a UK passport (currently ranked 36th in the Global Passport Index). If you are a British citizen and need to renew your passport from the United States, you must apply for a British passport renewal overseas to renew your British passport from the United States. You will then need to apply for a standard UK passport renewal from the US for your new passport. Any other passport outside the UK relevant to the applicant. Recent changes in the UK passport system need to be considered when preparing documents for a UK passport renewal in the United States.

Issued in your current name, or if you changed your name after the passport was issued, you can provide legal documents to support this change. If you are applying outside of Ireland, the completed form may be certified by Passport Online or one of the occupations listed on the confirmation form itself.

Apply in advance to give the consulate enough time to process your visa. If you have no plans for upcoming travel, you will not need to apply for an emergency travel document and you can apply for a replacement passport. If this is not necessary, you must receive your new passport 10 weeks after applying by courier or delivery with signature tracking.

If you are currently in the United States or another country and your US passport has expired or is about to expire, you should renew your passport before traveling to the UK. If your passport expires between conceiving your child and applying for a UK passport, get a color copy before requesting a replacement or keeping your old document when issuing a new one.

For a new passport application, you need to find a guarantor to sign the application, one of your passport photos, and all copies of all supporting identification documents that you submitted with the application. It depends on where you are applying and the type of passport required.

The cost of a standard passport when applied online is £ 75.50 for an adult passport and £ 49 for a child passport. The cost of a child's first passport currently ranges from £ 56 to £ 65.50 plus a courier fee of £ 19-25. The London Embassy continues to accept regular adult passport renewal requests by mail from all UK citizens.

If you are a citizen of a country participating in the Visa Waiver Program, you do not need to apply for a visa, but instead you will need to apply for an ESTA. To travel to the United States, you may need to apply for a United States visa to the United Kingdom, depending on your citizenship. Citizens of these countries must apply for other types of visas if they wish to come to the UK for other reasons or for a longer period.

The visa applies to people who have lived outside the UK for at least 2 years and now want to return, or their passport has been lost. This visa provides the opportunity to apply for a long-term transit visa if the applicant has sufficient proof that he needs to travel regularly through the UK to reach his destination, but has no plans to stay or live there permanently.

Citizens of the EEA, Switzerland and Commonwealth countries are not required to apply for a UK visa prior to entering the UK. US citizens must enter and leave the US using a valid US passport. An official passport can only be obtained if the participant travels to a country that requires an official passport and / or visa upon entry, as per the Overseas Authorization Guidelines. A visa is usually a stamp that you get on your passport or document issued by the British Consulate or Embassy in your country of residence.

Applying for a passport depends on the country you are applying from and the country in which you were born. Before applying for a UK passport, you need to collect some of the required paperwork for your first UK passport. You can apply for British citizenship by descent if you were born outside the UK and one of your parents is a British citizen by birth, naturalization, registration or adoption.

For example, if you were born in the UK and one of your parents was British or resident at the time of your birth, you are (with some outdated exceptions) British, but not by descent. Pursuant to section 2 (1) (a) of the British Citizenship Act 1981, if your child was born outside the United Kingdom and at the time of birth you or the other parent are British “out of descent”, the child will automatically acquire British citizenship. Naturalization is the most common way to obtain citizenship if you were born outside the UK and do not have UK parents. While you can obtain British citizenship in other ways, such as by descent, this article will focus on naturalization as it is the most common way to obtain British citizenship.

Most Significant Amendments to the UAE Civil Procedures Law Adopted on 29 August 2021

Sun, 05 Sep 2021 18:34:00 GMT

Notification through the Court’s website

This amendment allows the Court to take the decision to notify a litigant, whether an individual or a company, if not found on their address and under certain conditions, through the Court website. This new amendment will facilitate notification and, depending on how access will be organized, it could form a valuable means to look up cases by names of defendants or plaintiffs which is only available currently through a POA. Finding out names of litigants will increase transparency and enhance due diligence for concerned parties.

One-day-court for claims up to AED 1,000,000

The amendment raised the value of claims that could be resolved before the one-day-court from AED 500,000 to AED 1,000,000. The hearing should take place within 15 days of finalizing the registration of the case.

Three levels of litigation in one court or the “Special Courts” or “C ³ Courts”

Finally, after several reports during the past years, the legislator introduced the articles regarding the setup of the “Special Courts” which merge the three levels of litigation into one court composed of three judges who attend pleadings simultaneously, so that there is a judge from each degree of litigation (first instance – appeal – cassation), where lawsuits are heard by three judges. News coverage have previously referred to the concept of those courts as the C ³ Courts.

Jurisdiction of the Special Courts

The amendment provides that the Special Courts have jurisdiction to resolve civil, real estate, commercial and estate disputes, subject to a minimum value of AED 500,000, which are determined by the justice minister or the head of judiciary in the respective Emirate, or pursuant to the parties’ agreement to opt into its jurisdiction. The following is excluded from the jurisdiction of the Special Courts:

The first hearing should take place within 30 days of finalizing the registration of the lawsuit. However, there is no provision on the term within which the judgment or order of the Special Courts should be issued.

Judgments and orders of the Special Courts are final, immediately enforceable, not appealable and subject to Re-trial in accordance with Article 169 of the Civil Procedures Law or if the notification of the statement of claim is considered null.

Recourse against judgments and orders of the Special Courts

As an exception to the irrevocable nature of the judgments and orders of the Special Courts, the legislator stipulated that the Special Courts can, sitting in-camera, revoke its judgment on its own or pursuant to a demand by the judgment obligor in any of the three following circumstances:

Conclusion

The introduced changes appear to be geared towards expediting the resolution of disputes and present a very innovative way of settling the disputes before the Special Courts which combine the three levels of litigation in one court and one hearing.

It remains to be seen when the Special Courts will see the light of the day. Some might be disappointed that the amendment does not put a time limit for issuance of the judgments or orders before the Special Courts, however, given the novelty of the proceedings, the decision of the legislator appears to be carefully considered.

The UAE legislator asserts again their courage to adopt once more innovate ideas that sets global trends and encourages others to follow suit.

Should you wish to learn more about the new amendment please get in touch with our lawyer Samer Abou Said .

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

أهم التعديلات التي طالت التعامل بالشيكات في دولة الإمارات العربية المتحدة

Tue, 19 Jan 2021 18:14:00 GMT

:نظرة سريعة على الشيك كوسيلة سداد تعطي الدائن ضمانات هامة

شكلت الشيكات إحدى ركائز التعامل التجاري في دولة الإمارات ولا تزال نظرا للحماية القانونية التي خصصها بها المشرع الإماراتي. فبالإضافة الى أن ساحب الشيك يكون مسؤولا مدنيا عن الوفاء بقيمة الشيك، هناك عقوبات جزائية مثل الحبس والغرامة التي يمكن أن تنزل بالموقع على الشيك في حال إرتجاع الشيك سواءً لعدم وجود رصيد كافٍ أو لأي سبب آخر سندا للمادة 401 من قانون العقوبات الإماراتي التي تطلّبت أن يكون إصدار الشيك بسوء نية، وقد درجت المحاكم على إعتبار أن كل إصدار لشيك دون رصيد يتصف بسوء النية دون الحاجة للتثبت من وجود سوء النية. وهذه العقوبات تطال الموقع على الشيك أيضا في حالة التوقيع على الشيك بالنيابة عن الساحب كأن يوقع مدير الشركة بالنيابة عنها على شيك لسداد مستحقات على الشركة

فضلا عن ذلك، فإن الموقع على الشيك بالنيابة عن الشركة كالمدير مثلا يكون مسؤولا في أمواله الشخصية عن الوفاء بقيمة الشيك سندا للمادة 599 من قانون المعاملات التجارية الإماراتي. وإن العقوبات والمسؤولية تطالب ساحب الشيك والموقع ليس فقط في حال إرتداد الشيك لعدم كفاية الرصيد، إنما أيضا في حالة إقفال الحساب أو تسليم شيك مع تعمد تغيير الإمضاء لمنع صرفه. وإن المسؤولية المالية عن سداد قيمة الشيك، تسمح للدائين أو المستفيد من الشيك من إصدار أمر بمنع من السفر بحق الموقع على الشيك لمنعه من مغاردة الدولة

ومؤخرا قام المشرع الإماراتي بتخفيف العقوبات الجزائية المتعلقة بالشيكات المرتجعة بحيث ألغى عقوبة الحبس فيما يتعلق بالشيكات التي تساوي أو تقل عن مائتي ألف درهم (200,000) درهم، فيما إحتفظ بعقوبة الغرامات المالية. والجدير بالذكر هنا أن الكثير من الدول الغربية ألغت من قوانينها العقوبات الجزائية على الأشخاص فيما يتعلق بالدين الناشىء عن إلتزام تجاري أو مدني

وقد أدت هذه الضمانات للمستفيد من الشيك في ملاحقة الموقع على الشيك جزائيا داخل دولة الإمارات العربية المتحدة الى جعل الشيك وسيلة سداد لها قيمة تقارب الدفع بالنقود، فبات الدائنون يعتمدونها في الدفعات مع الأجل، وصارت تغنيهم في بعض الأحيان عن ممارسة واجبهم بالتحقق من ملاءة أو صدقية من يتعاقدون معهم

أهم التعديلات على التعامل بالشيكات التي أدخلها المشرع الإماراتي في العام 2020

بتاريخ 27 سبتمبر 2020 صدر القانون بمرسوم إتحادي رقم 14 لسنة 2020 بتعديل بعض أحكام قانون المعاملات التجارية الذي أدخل تعديلات هامة على التعامل بالشيكات تماشيا مع الإتجاه المستمر في تطوير الإقتصاد الإماراتي، بحيث حافظت تلك التعديلات على مكانة الشيك كوسيلة للوفاء وعدلت العقوبات بجعلها عادلة أكثر وتساعد في ترسيخ الثقة بإستعمال الشيك والتعامل التجاري كما نشرح أدناه. ونلفت نظر القارىء أن التعديلات المشار إليها فيما يلي تدخل حيز التطبيق إبتداءا من 2 يناير 2022. ورغم المسافة الزمنية بين القانون وتاريخ تطبيق التعديلات، إلا أنه على التجار والشركات أخذ الحيطة فيما يتعلق بالشيكات التي لها تاريخ إستحقاق لاحق لـ2 يناير 2022 ودراسة موقفهم القانوني ليبنى على الشيء مقتضاه

إلغاء جريمة إصدار شيك دون رصيد: ألغى المشرع الإماراتي المواد 401 و402 و403 من قانون العقوبات الإماراتي التي تتناول جريمة الشيك دون رصيد، وفرّق بين فعل إرتداد الشيك دون رصيد الذي أزال عنه صفة الجريمة، وإرتداد الشيك بسبب قيام الساحب بسحب قيمة الشيك أو إقفال الحساب بعد إصدار الشيك أو تعمد توقيعه بطريقة تمنع صرفه حيث تم الإبقاء على العقوبات الجزائية مع تعديلها. وإن إزالة الصفة الجرمية عن إرتداد الشيك دون رصيد في الحالة الواردة أعلاه لا يخل بمسؤولية الساحب المدنية أو وكيل الساحب الذي يوقع على الشيك لمصلحة غيره سندا للمادة 599 من قانون المعاملات التجارية

عقوبات بديلة تتعلق بالشيكات المرتجعة: تعاقب المادة الجديدة 641 (1 مكرر) بالحبس مدة لا تقل عن ستة أشهر ولا تزيد على سنتين، وبالغرامة التي لا تقل عن (10%) من قيمة الشيك وبحد أدنى مبلغ (5,000) درهم، ولا تزيد على ضعف قيمة الشيك، أو بإحدى هاتين العقوبتين، كل من يرتكب أحد الأفعال التالية:

أمر المصرف قبل تاريخ السحب بعدم صرف الشيك إلا في حال ضياع الشيك أو إفلاس حامله.أقفل الحساب أو سحب كل الرصيد الموجود فيه قبل إصدار الشيك أو قبل تقديمه للمسحوب عليه للسحب، أو كان الحساب مجمدا.

تعمد تحرير الشيك أو توقيعه بصورة تمنع من صرفه.

إذا يظهر أن المشرع لم يلغ العقوبات بالكامل إنما قام فقط بإلغاء عقوبة سحب شيك دون رصيد التي لا تتصف بسوء النية. وبالتالي، فإن العقوبات الجزائية عدلت وأصبحت تطال فقط الساحب الذي يتصرف بسوء نية كأن يقوم بسحب قيمة الشيك بعد إعطائه للمستفيد، أو كان يقفل الحساب أو يتعمد تحرير الشيك بطريقة تمنع من صرفه، وهذه أفعال لا يجب أن تكون جزءا من أعمال التجارة المشروعة. ويلاحظ أيضا أن العقوبة المالية تم تشديدها تماشيا مع قيمة الشيك بحيث أنها لا تقل عن 10% من قيمة الشيك ولا تزيد على ضعفي قيمة الشيك. وهذا يعطي للمحكمة التي تنظر في القضية صلاحية تطبيق الغرامة المالية التي تراها متناسبة مع الفعل المرتكب. وتمنح المادة 643 (مكرر 2) الجديدة المحكمة الحق بحظر المحكوم عليه من ممارسة نشاط تجاري أو مهني لمدة تصل الى ثلاثة سنوات في حال إرتكب الفعل خلال ممارسة النشاط

إرتكاب إحدى جرائم الشيكات لمصلحة الشخص الإعتباري (كشركة مثلا): نصت المادة 644 مكررا (1) أنه في الأحوال التي ترتكب فيها إحدى الجرائم المنصوص عليها في هذا الفصل، بإسم ولحساب الشخص الإعتباري، لا يعاقب المسؤول عن الإدارة الفعلية إلا إذا ثبت علمه بالجريمة أو إرتكبها تحقيقا لمصلحة نفسه أو غيره. ومؤدى ذلك أن مدير الشركة لا يسأل عن الفعل إلا في حال ثبت علمه فيها أو إرتكبها بنفسه. ويشير نص المادة إلا أنه على جهة الإدعاء إثبات علم المدير أو تحقق مصلحته من الجريمة
وقد شُددت الغرامات على الشخص الإعتباري بحيث يعاقب في حال ثبتت مسؤوليته بمثلي الغرامة المقررة للجريمة أي لا تقل عن 20% من قيمة الشيك ولا تجاوز خمسة أمثاله

إعتبار الشيك سندا تنفيذيا: نصت المادة 632 مكررا الجديدة على أن يعدّ الشيك المثبت عليه من المسحوب عليه أي المصرف بعدم وجود رصيد له أو عدم كفايته سندا تنفيذيا ولحامله طلب تنفيذه كليا أو جزئيا، جبرا. وهذا يعد تعديل هام يسرع إجراءات التنفيذ والتحصيل المعمول به سابقا حيث أنه كان يتطلب تكليف ساحب الشيك بالوفاء عن طريق البريد المسجل خلال خمسة أيام عمل، يمكن للمستفيد عند إنتهاء المهلة تقديم عريضة للإستحصال على أمر أداء، وعند صدور أمر الأداء يصار الى التنفيذ. وتستهلك هذه الإجراءات وقتا لا يستهان به قد يزيد عن الشهرين ويصل الى عدة أشهر في حال لم يكن للساحب عنوان معلوم إذ يتوجب إلإستعلام عن عنوانه من الجهات المختصة وإجراء النشر في الجريدة

وجوب وفاء المصرف بقيمة الشيك جزئيا: ألزمت المادة 617 الجديدة المصرف بالوفاء الجزئي لقيمة الشيك بالقدر الموجود لديه مع التأشير بالوفاء الجزئي على الشيك إلا في حال رفض المستفيد ذلك. ويعيد المصرف اصل الشيك الى المستفيد لإستعماله إذا شاء في المحكمة أو لإعادة تقديمه مرة أخرى في حال توفر رصيد قيمة الشيك. وهذا تطور هام حيث أن المصارف كانت تفسر نص المادة 617 القديمة بأنها تعطيها الحق برفض الصرف الجزئي للشيك، حيث كان يؤدي ذلك الى عدم قدرة المستفيد على إستلام الأموال الموجودة في المصرف في حال كانت تقل عن قيمة الشيك، وكان عليه رفع الدعوى للمطالبة بكامل المبلغ وتكبد مصاريف قانونية أكبر عن كامل قيمة الشيك والتأخر في تحصيل أمواله. وقد ألزمت هذا المادة المصرف المسحوب عليه أن يخطر المصرف المركزي في حال رجوع الشيك لعدم كفاية الرصيد كليا أو جزئيا أو في حال إسترداد الساحب للرصيد بعد إصداره الشيك. ويبدو أن هذا الإجراء يهدف الى تسجيل المخالفات التي يقوم بها الساحب بغرض مراقبة ملاءته أو منعه لاحقا من الإستفادة من التعامل بالشيكات وفقا لتعليمات المصرف المركزي

الخلاصة

يظهر إستعراضنا أعلاه للتعديلات التي طالت التعامل بالشيكات أن المشرع الإماراتي أزال صفة الجريمة عن الشيك دون رصيد في حالة واحدة فقط في خطوة تعزز إنسانية وذكاء العقوبات لتطال فقط جرائم الشيك الأخرى التي تتصف بسوء النية التي تم رفع قيمة الغرامات المالية على مرتكبيها لردعهم. وتم تسريع إجراءات التنفيذ الجبري على أموال ساحب الشيك. بالخلاصة، تبدو التعديلات الجديدة وأنها جاءت إستجابة للتطور في التعامل التجاري الحاصل، حيث أنها سترسخ الشيك كوسيلة وفاء تحظى بحماية المشرع في حال سوء إستخدامها. وإن المتعاملين بالشيك مدعوون الى إعادة تقييم موقفهم القانوني على ضوء تلك التعديلات لإتخاذ الإجراءات اللازمة لحماية مصالحهم

لطفا التواصل مع المستشار القانوني سامر أبو سعيد في حال الحاجة لمزيد من المعلومات أو المشورة القانونية التي تتعلق بالموضوع الوارد أعلاه

“إن المعلومات الواردة أعلاه هي على سبيل الإسترشاد ولا تشكل ولا يجب إعتمادها كإستشارة قانونية”

Gender Pay Gap: She Deserves The Same

Mon, 11 Jan 2021 18:16:00 GMT

By Samer Abou Said and Minal Naseem – The Firm

Introduction
In the words of the Late H.H. Sheikh Zayed bin Sultan Al Nahyan, “ Nothing pleases me more than seeing a woman take on her distinguished role in society, and nothing should hinder her progress .” In 2015, in line with this objective, the UAE Gender Balance Council was established to further develop and implement gender balance in the UAE. Since then, the UAE has taken significant steps to promote gender equality by enforcing equal wages and salaries for men and women in the public and the private sector.

Equal pay for governmental sector
Federal Law No 27 of 2018 concerning gender wage equality in the public sector provides that federal government bodies should not discriminate between the wages of employees working in the same position based on their gender. The law recognized that salaries may vary depending on other factors such as the knowledge, skills or experience of the employees.

Equal pay for private sector
Recently, article 32 of Federal Law No. 8 of 1980 was amended by Federal Decree No. 6 of 2020 (“Labour Law”) to provide that a “ female worker shall be granted a wage equal to that of the male worker should she be performing the same work, or another one of equal value.”

We discuss below the impact of Article 32 and the challenges for its enforcement.

The Government: guidance and requirements
Article 32 further provides that “ by virtue of a Cabinet Decision – based on the proposal of the Minister of Human Resources and Emiratisation – the procedures, controls and standards necessary to evaluate the work of equal value ” will be developed. This indicates that the Government will be working alongside the Ministry of Human Resources and Emiratisation (“MOHRE”) to issue a well-rounded guidance and monitoring system to ensure that businesses are complying with Article 32 and that employees are aware of their rights and the procedures to follow should their employers fail to conform with the requirement of this Law.

So far MOHRE has not issued any instructions or guidance on the application of Article 32. Therefore, in the interim, it would be up to the UAE Courts to determine how damage and loss to the employee would be calculated, what remedies would be granted to the employee and what penalties would be imposed on the employer, if any.

It should be noted that Article 181 of the Labour Law provides that whoever breaches any imperative provision of this Law or its relating regulations or decisions shall be sentenced to imprisonment and a minimum fine of AED 10,000. Although this Article is not commonly used, It appears that it might be applicable to any employer in breach of Article 32 which is considered binding until and unless the Government issues any specific penalties for breaching Article 32.

Employees: How to determine whether you are receiving equal pay or not?
At present, many workplaces do not have a culture of openly discussing or sharing information on salaries. Thus, it would be challenging for an employee to ascertain whether she is receiving equal pay in comparison to her male counterparts.
The two obvious routes to obtain an answer to that question would be to either ask her employer or male colleagues in the same or similar position. However, often such conversations are considered intrusive and may be uncomfortable. In this regard, equal pay activists believe that secrecy around salaries makes it difficult for employees to learn about salary disparities. It will be interesting to see how the Government will address this issue and create a means for female employees to gauge whether they are receiving an equal pay or not.
In organisations where only females are hired for certain roles or where there is no male counterpart in a certain role, it would not be easy to verify whether the female employee is receiving an equal pay. However, per the wording of Article 32, the fact that an employee’s salary should be compared to that of a male conducting work of equal value, does not necessitate that the male be working for the same employer.

Employers: Does the change create an obligation to disclose salaries?
It is uncertain at this stage whether the Government would require Employers to take any steps to disclose the job descriptions and relating salaries (or salary grades) of their employees internally or externally to MOHRE. While MOHRE can monitor the salaries of a company’s employees through the Wage Protection System (“WPS”), the current WPS system does not indicate whether the wages relate to the level of seniority or work performed.
Nevertheless, it is clear going forward that some form of disclosure will be required, either to the employees or to MOHRE, in order to ensure compliance with Article 32 of the Labour Law. Such disclosure could be based on the size of the company as a starting point with bigger companies being the first to apply disclosure requirements.

Comparison: Equal pay laws in the United Kingdom
Various countries have implemented equal pay laws, and while they have not successfully eradicated unequal pay, they show that stringent monitoring measures must be put in place to ensure that businesses abide by the regulations and implement an equal pay policy.
In the UK, equal pay was enforced in 1970 and the current Equality Act 2010, like Article 32 of the Labour Law, gives women and men the right to equal pay for similar work. The Advisory, Conciliation and Arbitration Service (ACAS) provides some guidelines for employers to reduce the risk of unequal pay, which includes:

ACAS also encourages companies to conduct a company-wide or department specific equal pay audit (or review) to check for equal pay issues. The companies are required to share the results of the audit with the employees who were included in the audit. Furthermore, employers with 250 or more employees must publish and report specific figures about their gender pay gap.

How to approach implementation of Article 32?
It would be reasonable to assume at this stage that a guidance will follow, which would lay out the steps that companies should adopt to ensure equal pay among their staff at the same seniority level and the process for employees’ grievance should they think they are receiving an unequal salary.

One beneficial solution for employers to show compliance with the law would be to issue salary grades internally so that employees would be well informed about whether their salary falls within the bracket allocated to their seniority and level of work.

Best practices in other jurisdictions provide useful guidance for employees who feel they may not be receiving equal pay. As a preliminary step, employees are encouraged to resolve the issue by having informal discussions with the employer. If no acceptable solution is reached, the employees have the option to raise a formal grievance with the employer and if not resolved, a complaint can be filed with the competent court. The employee filing the complaint would have to prove that they are at a disadvantage in comparison to their male colleague who does equal work. Until the Government issues a guidance on how to remedy an unequal pay claim, UAE female employees might benefit from following a similar approach as stated above.

Conclusion
Studies show that equal pay laws have not entirely eradicated gender pay gap, but such laws have had a great impact in reducing it.

The World Economic Forum’s 2020 Global Gender Gap report ranked the UAE as a leading country with regards to gender equality in the region. The introduction of Article 32 is a very positive development which will undoubtedly reflect the growth mindset of the country.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Creditors of Drake and Scull International PJSC Are Invited to Lodge Their Claims Against the Company

Mon, 11 Jan 2021 18:01:00 GMT

By Samer Abou Said

Introduction
It was announced that Drake and Scull International PJSC (“DSI”) made an application pursuant to Federal Decree Law No. (9) of 2016 on Bankruptcy for its financial reorganization process to be conducted under the supervision of the Financial Reorganization Committee (the FRC) which has accepted DSI’s request.

Companies falling under DSI
Pursuant to the announcement addressed to creditors, the following companies are considered part of DSI group, and thus creditors of those companies are concerned with this announcement:
–        Drake and Scull International PJSC;
–        Drake & Scull International LLC;
–        Drake & Scull for Contracting Oil & Gas Fields Facilities LLC;
–        Drake & Scull Engineering LLC (formerly Drake & Scull Water and Power LLC) (each a Company and together the Companies)

Once the reorganization plan is approved, Creditors of DSI group would be invited to vote on the plan after having the opportunity to review it.

Lodging of claims and participation in voting on the reorganization plan
In order to participate in the voting process, each creditor must lodge with the FRC appointed expert by no later than 28 September 2020 a proof of its claim(s) (as at 30 June 2020) together with any available documents which support such claim(s). In the event that any such claim is disputed by the relevant Company, that Company may request that the creditor submit additional documentation supporting the relevant claim (which may be required to include documentation approved by a reputable auditor).

Should you wish to learn more about the restructuring process or if you need assistance with lodging your claim or lodging an objection to the decision of the appointed expert of the FRC regarding your claim please get in touch with our lawyer Samer Abou Said .

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Employers’ and Employees’ Rights and Obligations under Resolution 279/2020 of the MOHRE

Fri, 08 Jan 2021 18:11:00 GMT

By Imad Kassir , Samer Abou Said and Minal Nasseem

Introduction
Federal Law No. (8) of 1980, as amended, governs the UAE Labor Law (the “Law”) and sets out the grounds upon which an employment contract may be terminated. However, it did not provide clear guidance on the options that would be legally available in the current circumstances.
To address the growing concern within the community, the Ministry of Human Resources and Emiratisation issued the “Ministerial Resolution No. 279 of 2020 concerning the Employment Stability in Establishments of the Private Sector During the Application of Precautionary Measures to Control Novel Coronavirus Outbreak” (the “Resolution 279”). It should be noted that this resolution only applies to non-Emirati onshore employees and its validity is solely for the period during which precautionary measures are being applied.

Application to Free Zone Entities
It is unclear at this stage whether any guidance would be issued regarding free zone entities. However, it is recommended that free zone entities use the Resolution 279 as guidance in the event they wish implement any employment measures because they court might take it into consideration should a dispute arise between the employer and the employee.
Free Zone entities affected by the crisis would be still able to use termination for economic reasons as we explain below.

Termination for economic reasons
It is prevalent in the UAE that the termination of any employment contract for grounds other than those set out in Article 120 of the Law would be considered unfair, and consequently the employee would be entitled to a compensation that does not exceed the equivalent of three months’ salary.
However, Article 117 of the Law allows termination for a “valid” reason. The UAE Courts have accepted that an employer can terminate employment of an employee for economic reasons subject to the following:

The employer carries the onus to prove such losses before the Court.

Re-organization of employment relationship based on Resolution 279
The Resolution provided onshore employers with an avenue to re-organize their employment relationship. Article 2 of the Resolution stipulates that employers in the private sector who have been affected by the precautionary measures to control Covid-19 may progressively and subject to the consent of the employee opt for the following options:

The wording of this Article provides the order of actions which should be taken by the employers, as necessitated by their business, and indicates that temporary and then permanent reduction in salaries should be the last resort. Furthermore, a temporary reduction in salary shall be made in writing as an addendum to the labor contract per the template provided by Resolution 279 and will expire at the end of the term of the addendum or enforceability of the Resolution, whichever occurs first. On the other hand, a permanent reduction in salary requires the Ministry’s approval as per the applicable procedures for amending a labor contract.

Employee’s consent to use any of the options is required
Save for paid leave which can be split once by the employer pursuant to Article 76, Resolution 279 requires the consent of the employee for its other options. If an employee is not willing to accept a justified option offered by the employer, the employer may terminate the employee and give the employee end of service benefits. If the employee files a complaint against the employer, it is believed that the Court will take into consideration that the employer tried to avoid termination by relying on Resolution 279 in order to reduce or reject completely ordering unfair dismissal compensation.

Employer has to provide housing and other entitlements for terminated employees
Article 3 emphasizes that the employers will remain responsible towards the employees who have been made redundant as a result of the precautionary measures to control Covid-19 with regards to their housing and entitlements (other than wages) until they either leave the UAE or become authorized to work for someone else. If the employer distribution of the gross salary does not provide a separate allowance for housing as part of its package, it is unclear whether the employer will be or will not be obliged to provide housing. Moreover, employers should register the redundant employees on the Virtual Labor Market System to help them find alternate roles.

Adoption of measures under Resolution 279 should be gradual, justified and proportional
Resolution 279 requires that the employer gradually adapt the options it provides. Thus, if giving the employee paid leave saves the business, the employer may not resort to unpaid leave or the reduction of salary. Should a dispute arise between the employer and the employee regarding measures taken under Resolution 279, the employer should be able to justify that the measures it adopted were fair and proportional. If the employer fails to justify, the court is likely to order compensation to the employee.

Employees should pay attention that reduction of salary is proportional to the break-down of the salary
When entering into discussions with their employers, employees are recommended to pay attention that the addendum they sign to reduce their salaries includes a proportional distribution of the reduction. If the salary breakdown includes the basic wage and other allowances, the reduction should not be from the basic wage only because it would reduce their end of service gratuity which is calculated based on the basic wage.

Conclusion
If an action is required by an employer during this period with regards to their employees, the employer should follow the guidelines provided in Resolution 279, first by implementing a remote working system, if possible, then granting paid leave, followed by unpaid leave, if necessary. It is advised that employers should not rush to make temporary or permanent reductions in salaries unless it is justified and proportional.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Dubai Courts Adjourn Hearings

Thu, 07 Jan 2021 18:21:00 GMT

By Samer Abou Said

Dubai Courts issued a decision (No. 30 for year 2020) on 17 March 2020 to adjourn all hearings before Courts of Cassation, Appeal and First Instance falling in the period from 22 March 2020 until 16 April 2020. These hearings will be adjourned to a date after 16 April 2020.

The courts will continue to adjudicate matters in summary procedures and provisional matters cases as well as online requests, and criminal cases and appeals related to persons in custody and prisoners.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

The UAE Allows 100% Foreign Ownership of 122 Business Activities

m_abbasy@outlook.com (Moataz Abbasy) — Thu, 07 Jan 2021 18:18:00 GMT

By Samer Abou Said

Introduction
The Federal Law by Decree No. 19 of 2018 regarding Foreign Direct Investment (“FDI Law”) aimed to encourage foreign investment in certain sectors in the UAE through removing the requirement that 51% of the shares of a company be held by an Emirati individual or 100% Emirati owned company.
On 17 March 2020, the UAE Cabinet issued Resolution No. 16 of 2020 Defining the Positive List of the Economic Sectors and Activities in which Foreign Direct Investment is Permitted and their Ownership (“Resolution 16”). Resolution 16 included a complete list of the sectors and activities in which foreign investors can own 100% of the shares (the “Positive List”).

List of business activities open to 100% foreign ownership
The Positive List entails 122 activities which specifies required minimum capital for each activity and other requirements. We provide below a summary of the activities:

Excluded activities:
The FDI Law does not apply to projects in the Free Zones. Furthermore, the Law incorporates a “Negative List” which comprised of sectors and activities which will not be altered by the Law. The Negative List includes the following:

Should you wish to explore your options of restructuring your business or to have a copy of the entire list of the 122 activities, please get in touch with one of our lawyers.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Important Update for Insurers and Insured: Insurance Disputes to Be Referred to Committee prior to Filing a Case in the Competent Court

m_abbasy@outlook.com (Moataz Abbasy) — Mon, 06 Aug 2018 19:38:00 GMT

Introduction
On 25 April 2018, His Highness, Sheikh Khalifa Bin Zayed Al Nahyan, the President of the UAE issued Federal Law No. (3) of 2018 on the Amendment of Certain Provisions of Federal Law No. (6) of 2007 Concerning the Establishment of the Insurance Authority & Organization of its Operations. The new Law went into force on 01 May 2018.

Establishment of Committee to Resolve Insurance Disputes
The most significant amendment was the establishment of a special Committee in accordance with new Article 110. The Committee shall resolve the dispute and issue its decision. An unsatisfied party to the dispute may appeal its decision before the First Instance Court within 30 days of being notified of the decision.

Referring Insurance Disputes to Committee is Mandatory before Filing a Law Suit
Article 110 provides that an insurance dispute shall not be heard by the court if the claimant does not file the dispute first with the Committee and obtain a decision.

Abu Dhabi Court Dismisses a Case Filed by An Insurer
Subsequent to the amendments, the Abu Dhabi Court of First Instance issued a judgment on 29/07/2018 which dismissed a case filed by an insurer against the insurance company who sought recovery of damages to his insured car. The Court dismissed the case observing that the Claimant/Insured has not followed the route prescribed by Article 110 of the Federal Law No. 3 for Year 2018 that set up a committee to resolve insurance disputes.

Other Amendments
Furthermore, in accordance with new Article 28 insurance policies shall be issued in Arabic accompanied by a true translation to another language if needed.
In line with modern legislations, Article 28 stated that the policy`s articles exempting the company from the liability shall be written in bold letters and different colour and must be acknowledged by the insured. This amendment is meant to protect the insured against onerous exemptions.

Get in touch with our lawyers Samer Abou Said or Imad Kassir for more information on how you would be affected by the provisions of the new Law.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

The Current View of Dubai Mainland and DIFC Courts Regarding Capacity to Sign Arbitration Agreements

Wed, 01 Aug 2018 08:12:00 GMT

01 August 2017

By Samer Abou Said , Counsel, The Firm

Introduction
The validity of arbitration agreements in Dubai remains subject to the strict observance by the courts of the formalities set out in the law and repeated case law of cassation courts. Many litigants learnt this the hard way when awards involving hundreds of thousands, and even millions, of pounds of legal expenses were set aside due to the failure to observe such formalities. And such oversight is recurring. However, recently a diverging position was pronounced by the DIFC Courts.

The Current Position of DIFC Courts
The DIFC courts of Dubai have veered in a different that varies from direction professed by main land courts. In Ginette Pjsc v (1) Geary Middle East FZE (2) Geary Limited [2016] DIFC CA-005, Justice Roger Giles accepted the authority of an executive director of a joint stock company (the appellant) who signed a settlement agreement that contained an arbitration clause to enter into arbitration agreement on behalf of his company, despite that the said director was not explicitly authorized by the board of the company as per the requirements of the article 103 of the old UAE Commercial Company Law.

Commenting on case law of Dubai Courts submitted by the appellant in support of its attempt to set aside the award, the DIFC judge distinguished the case before him from those submitted by the appellant as evidence on how Dubai main land courts dealt with the matter to justify reaching a different decision. Furthermore, the judge shifted the onus of proof to the party seeking to set aside the arbitration clause that the executive director was not authorized to agree to arbitration to the shoulders of the appellant.
Apparently, the DIFC court diverged from the consistent interpretation of Dubai courts opining that “it would be odd, and scarcely conducive to commercial efficacy, if entry into a contract containing an arbitration clause did not carry with it agreement to arbitrate in accordance with that clause.”

The following case litigated before Dubai courts reflects a different if not opposite opinion of Dubai courts to that expressed in the aforementioned DIFC judgment.

The Case
The claimant, a supplier of building materials, filed a claim before Dubai courts in 2016 seeking a judgment to commit the defendant to pay outstanding amount for delivered materials. The defendant challenged the jurisdiction of Dubai courts on the grounds that the schedule of the supply contract contains an arbitration agreement. While the position of the claimant was that the schedules were not signed and that the signatory of the supply contract does not have the capacity to enter into arbitration agreements.

The First Instance Court upheld the arbitration clause and dismissed the case for lack of jurisdiction.

The Court of Appeal, in its judgment on 28/11/2016 quashed the judgment of the first instance court and decided that the arbitration clause is not valid for two reasons.

The first ground is that arbitration clause is a special clause that requires the parties to sign the schedules and hence it is not enforceable because the schedules do not carry signature of the claimant. The court implicitly rejected the defendant’s argument that the arbitration clause is valid because the schedules were mentioned in the main supply contract and that they carried the stamp of the appellant.

The second ground is that the signatory of the agreement was a manager of the claimant but not the director whose name was mentioned on the commercial license. Pursuant to the law, only the director whose name is on the commercial license is authorized to enter into arbitration agreements unless provided otherwise in the constituent documents of the claimant / company. The court affirmed that the onus to prove that the signatory of a contract was authorized to sign an arbitration clause rests with the party that invokes the arbitration clause.

The Court of Cassation of Dubai upheld the decision of the Appeal Court in April 2017.

Conclusion
Those two judgments issued by the two courts, which are only several kilometers apart, do look to be much farther apart in their legal reasoning. Whilst the DIFC Appeal Court have dealt with the decision of the Dubai Courts invoked by the appellant cautiously by distinguishing its case, to avoid being seen as opposing the decisions Dubai Courts, the difference in the reasoning and the placement on the onus of proof to prove the validity of the arbitration agreement is significant and stands obvious.
Litigants should be mindful of this difference that does not seem to be fading anytime soon, so that they can draft their dispute resolution clauses accordingly, and when such disputes arise to make the correct strategic decision on which jurisdiction to have recourse to.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

The Use of Experts Reports Before Dubai Courts prior to Litigation and Arbitration

Wed, 01 Aug 2018 08:10:00 GMT

01 August 2017

By Samer Abou Said , Counsel, The Firm

Introduction
Some UAE companies that are owed monies by the opposing parties are increasingly resorting to filing applications before UAE courts for the appointment of experts to assess the amounts owed in order to put pressure on the other party and in a desperate attempt to avoid costly litigation or to obtain better terms for settlement.
In another article of this issue, we explain how many subcontractors are running into recovery problems due to the high costs of legal proceedings, particularly if the dispute is subject to arbitration. One of the recent trends that we have witnessed is the use of expert reports as a means of putting pressure on the other party. The outcome of this method is rather controversial and not always effective.

Can the Application for Expert Appointment Enhance the Claimant’s Position?
It is very common for UAE courts to appoint experts to prepare a report in the case before them pursuant to Article 69 of the UAE Federal Evidence Law for Civil and Commercial Transactions. This practice is widely relied upon in the overwhelming majority of the cases, even where the expertise requirement is not obvious.

This overreliance stems on many occasions from the lack of sufficient documents in the hands of one party that supports their claim in the absence of a discovery process like that available in common-law jurisdictions.
The ordinary practice is that the court would either suo moto appoint an expert through a preliminary judgment following the end of submissions, or upon the request of a party.

However, following the establishment of the Dubai Amicable Dispute Resolution Centre, litigants now have a new forum (it is an option and not mandatory) in which they may request the appointment of an expert through the Centre before filing their claims before the relevant court.
Under the Centre’s rules, a party can request the appointment of any expert for a sum of AED 12,000 if it is not seeking a monetary claim. The trending practice is seen by some as a way in which a claimant can put pressure on the opposing party prior to issuing the claim before Dubai courts.

An expert report that favours the applicant may enhance its position and could persuade the other party to settle the dispute amicably having had a glimpse of what the evidence against them would be if the case proceeded to the court.

The applicant can rely on the expert report later before the court if it decides to commence proceedings and the court would admit it as evidence where the probative value is subject to its sole estimate. However, the court is not bound to accept the expert report’s conclusions, and it has the discretion to appoint another expert.

Notwithstanding the outcome of the expert’s report, the report itself can be a way to evaluate the strength of the case and act upon it accordingly. However, it should be noted that the parties can still proceed directly to the court without appointing an expert, or can request to appoint an expert during the proceedings.

Appointing Experts in Disputes Subject to Arbitration
Similarly, we have seen that some parties make applications before the Centre (Dubai) or directly before the court (Abu Dhabi) to have an expert appointed even where the dispute is subject to arbitration. The effectiveness of such practice is questionable and it is usually relied upon to avoid the arbitration fees or in an attempt to avoid the arbitration clause in the event the defendant commits a mistake indirectly by recognizing the jurisdiction of the courts.

Notwithstanding that it can be a way to put pressure on the opposing party, the expert report would have lower probative value before the arbitral tribunal because the expert has no duty towards the tribunal.
This is because the appointment of the expert is under the supervision of the Centre (affiliated to Dubai courts) or the courts if in Abu Dhabi where the appointed experts are selected from the roll of experts maintained by the court, hence providing a certain degree of credibility to the expert’s opinion. However, this does not apply to the tribunal that is not necessarily prone to recognise the professionalism or neutrality of the expert.

On the other hand, UAE courts have recognised the right of a party to appoint an expert in a dispute subject to arbitration. In a ruling issued in Petition No 475/2016 (Commercial) in 2016, the Court of Cassation of Abu Dhabi reversed a judgment of the Court of Appeal, deciding that a party can apply for the appointment of an expert in spite of the presence of the arbitration agreement if such agreement does not expressly state that the tribunal has the jurisdiction to rule on conservatory and precautionary measures related to the dispute.

The Court added that the arbitral tribunal cannot decide such matters (conservatory and precautionary) without the agreement of the parties to grant it such right.
The Court’s decision explained that the application to appoint an expert is tantamount to a request for “determination of the status” pursuant to Article 68 of UAE Federal Law No 10/1992 (“Evidence Law”). Such determination does not have any impact on the merits of the case, the adjudication of which remains subject to the substantive case.

Conclusion
Seeking a court-appointed expert report through the Centre in Dubai or through the courts in Abu Dhbai prior to the substantive claim appears to be more relevant if the claim is to be filed before the courts, particularly if the dispute is complicated and a party lacks the supporting evidence.

That being said, the efficacy of appointing an expert in a dispute subject to arbitration seems questionable due to the reasons mentioned above and because it is likely to result in additional expenses and delay of proceedings for several months without reaching the expected outcome. Nevertheless, even where the dispute is subject to arbitration, appointment of an expert before courts may serve other goals of the party seeking it

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Ten Things You Need to Know About the New Arbitration Law in the UAE

Tue, 15 May 2018 15:24:00 GMT

H.H. the President of the United Arab Emirates issued Federal Law No. 6 for the year 2018 regarding Arbitration on 03 May 2018 which goes into force one month after the second day of its publications in the official gazette. The new law repeals Articles 203 to 218 of the current Civil Procedures Code dealing with arbitration.

The new law is considered to be modern, arbitration friendly, and bolsters the UAE’s position as a regional arbitration seat; consequently it will encourage investments.

We enumerate below ten important points of the new law:
Formation of the arbitration agreement : the new law allows for the formation of arbitration agreements through email exchanges. Thus, there is no need to have a formal contract for a valid arbitration clause. Capacity to enter into arbitration agreements: the new law retains the requirement that the person who enters into an arbitration agreement should have the capacity to dispose of rights or be the authorized signatory of a corporate person. Arbitration by referral : the new law states that an arbitration agreement is valid by referral provided that it is made clearly i.e. if a contract that does not contain an arbitration clause refers to another document or a template contract (such as FIDIC in construction contracts) which contains such clause, the arbitration clause will be valid, provided that the referral states clearly that arbitration shall be in accordance with the clause mentioned in the other document or template contract. Under the old law, this matter was not regulated and resulted in the annulment of arbitration agreements by courts. Challenging the court’s jurisdiction by invoking the arbitration clause : the new law allows the defendant to challenge the court’s jurisdiction as long as this is done before the defendant makes any substantive arguments. Under the old law, the defendant was required to invoke the arbitration clause in the first hearing regardless of what happened in that hearing even when the defendant would appear to request time to appoint counsel. This has resulted in an onerous waiver of arbitration agreements. Restriction of grounds for suspension of arbitration proceedings : the new law makes it difficult for a party to suspend arbitration proceedings through recourse to the court to challenge jurisdiction or claiming forgery of a document presented before the arbitral tribunal. Arbitral tribunal has the right to take temporary and conservatory measures : unless agreed otherwise by the parties, the arbitral tribunal can make decisions to order one party to do or refrain from doing any act that harms the arbitral proceedings and preserve evidence or goods. The applying party may seek the court’s assistance to enforce such order. The court must answer such requests within 15 days of receiving it. Use of electronic means of communication for arbitral proceedings : Unless agreed otherwise by the parties, the new law allows the arbitral tribunal to hear witnesses remotely and hold hearings and deliberations using electronic means for communication. This would allow the use of video-conferencing technology which will save considerable time and costs on the parties. Arabic as default language of arbitral proceedings : Unless agreed otherwise by the parties, Arabic shall be the default language of arbitral proceedings. Confidentiality of arbitral proceedings : the new law clearly states that arbitral hearings and awards are confidential. However, confidentiality will not apply to the court’s publication of judgments regarding arbitration awards. For example, a court judgment that annuls or endorses an arbitration award. Reducing the time and costs to enforce arbitral award : the new law considerably reduces the time for enforcing arbitral awards as follows:

In general, the new law makes arbitration awards less prone to annulment and vests in the arbitral tribunal wide authorities to administer and arbitrate the dispute.

Get in touch with our lawyers Samer Abou Said or Imad Kassir for more information on how you would be affected by the provisions of the new law.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Abu Dhabi Commercial Court: Articles of Association of a Limited Liability Company Is Null if It Provides for A Fixed Interest for Any of The Partners

Wed, 09 May 2018 14:34:00 GMT

09 May 2018

By Samer Abou Said , Counsel, The Firm

Introduction:

A considerable number of foreign investments in the UAE are done through the setting up of limited liability companies for activities where such companies are mandatory. This is done in order to satisfy the binding provisions of the UAE Commercial Companies Law which stipulates that at least 51% of the share capital should be held by an Emirati partner; the usual allocation of shares is 51% for the local partner and 49% for the foreign partner/investor. On many occasions, the local partner is a silent partner who is not involved in the operations or management of the company and that partner would usually receive a fixed fee in return for his nominal partnership, i.e while the local partner is the registered owner of the shares, the actual owner of the shares is the other foreign partner who holds 49% of the share capital.

To protect their interests, investors would usually resort to bilateral agreements in order to ensure that they would have full control and uninterrupted management of the company. Such bilateral agreements (referred to as “scheme”) can be very complicated and include several sub-agreements designed to mitigate the risks of the foreign investor in the event of a dispute with the local partner or should the latter decide to exercise more control of the company.

The Case:
A foreign investor entered into a joint venture agreement (JVA) with an Emirati corporate partner (100% Emirati- owned company) to set up a limited liability company to provide fire safety consultancy services where the local partner owns 51% and the foreign investor owns 49%. Amongst other stipulations, the JVA provided that the foreign partner would manage the company and contribute financially for any expense required for licensing and other matters, and that the local partner would assist in obtaining governmental licenses for the company, the sponsoring of employees` visas and securing projects for the company.

The articles of association signed before a notary public provided for the distribution of annual dividends before deduction of any partners’ loans, expenses or management fees with the exception of the local partner’s services fees which should be deemed as part of general expenses and not as dividends. The dividends would be distributed 75% for the foreign partner and 25% for the local partner.

Furthermore, the JVA elaborated on the fees of the local partner and stipulated that they shall be paid annual fees of AED 500,000 in two installments and that such fees shall not be considered dividends, and that the fees of the local partner shall be paid before the distribution of dividends which in turn would be made before the deduction of any partners’ loans, expenses or management fees.

Disputes arose between the partners less than one year of setting up the company and the local partner filed a claim to demand the payment of the due annual service fees agreed upon and to compensate them for damages they had sustained due to bad management by the foreign partner. The court appointed an expert who reached the conclusion that the local partner had met all their obligations pursuant to the articles of association and the JV save for securing projects or business for the company.

Following the expert’s report, the foreign partner (defendant) filed a counterclaim whereby they requested to declare the articles of association and the JVA null because they exempted the local partner of losses and included a clause which provided for a fixed revenue on their shares in violation of articles 359 and 662 of the UAE Civil Transactions Code and article 29 of the UAE Commercial Companies Code, and to dissolve the company and refund the amounts paid by the foreign partner.

The Judgment
In its judgment in 2018 in Case No. 1790/2017 Commercial, the Commercial Court of Abu Dhabi observed that

“ the nature of companies contracts and the spirit of cooperation between the partners requires the distribution of dividends and losses whereby each partner bears their share of loss and benefits of their share of profit, and that it will be contradictory to this aforementioned fundamental principle if one of the partners is privileged with most of the entire profits of the company or most of it, or if the partner shall not bear any amount of the loss which is referred to in other words as (leonine clause). The aforementioned applies also if the partners agreed to pay a fixed interest to any of them regardless of the company’s financial situation (which is referred to as fixed interest condition or fixed revenue condition). The forms of fixed revenue can be different but it concurs in that it all provides for a minimum profit for one of the partners vis-à-vis the other partners, such as the partners’ agreement to grant one of them a fixed interest or a fixed sum regardless of whether the company achieves profits or sustain loss.”

The court referred to article 29(3) of the Commercial Companies Code which states that:
“ 3- If it is agreed in a company`s Memorandum of Association that one of the partners is to be deprived of the profits or exempted from loss, or to receive a fixed percentage of profits, such Memorandum shall be deemed void.”

And went on and stated that the UAE legislator
“ equated between the leonine clause and fixed interest clause by applying the same legal consequence which is the nullity of the contract of the company and not only the clause itself.”

Then the court found in favor of the foreign partner and ruled that the aforementioned clauses in the articles of association of the company as elaborated by the JVA are in contravention of article 29(3) and consequently they are null.

In respect to the request of the foreign partner to dissolve the company, the court stated that the company did not exist in the first place to be dissolved because the articles of association are null. Then the court ruled to liquidate the company.

The controversy raised by the application of article 16(3) of Commercial Companies Code

In respect to the request of the foreign partner to refund his contributions, the court ruled that articles of association are considered a time-contract (continuous) and that in such contracts the effects of nullity apply to the future and have no retroactive effect, and the court relied also on article 16(3) of the Commercial Companies Code to state that liquidation of the company and distribution of its assets should be made in accordance with the annulled articles of association.

In this respect, the court’s finding that the nullified articles of association should govern the liquidation of the company appears to be in line with the wording of article 16(3) which was inserted in the new Commercial Companies Code issued in 2015.

Article 18 of the old Commercial Companies Code No. 8/1984 provided for nullity if the articles of association deprived one of the partners of dividends or exempted the partner from bearing loss, but it did not stipulate what happens in case of nullity as article 16(3) of the new law did. Under the old Commercial Companies Code, the courts had the discretion to resolve this matter and they did usually deduce the real relationship between the partners from the different evidence laid before them. For example, if a foreign investor could prove that he paid all the capital, made all the investments in the company and that the local partner was paid an annual fee without any financial contribution; the court would usually allocate the entire assets during liquidation to the foreign investor.

Having said that, owing to the insertion of the new paragraph (3) of article 16, its application may become controversial in cases where the articles of association are fictitious i.e where the local partner is a sponsor and not a real partner. If the court were to apply the nullified articles of association, it would have to allocate 51% of the assets of the liquidated company to the local partner although this does not reflect the actual relationship and may result in a disastrous outcome for the foreign investor.

Conclusion

The above judgment is not yet final but if it is upheld by higher courts it should lead foreign investors to pay more attention and consider seriously inserting more protections to mitigate risks in the articles of association itself, rather than just relying on the bilateral agreements and the ancillary arrangements

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Dubai Court of Appeal Sets Aside a Limitation of Liability Clause for Not Being Conspicuous Enough

Wed, 09 May 2018 08:08:00 GMT

09 May 2018
By Samer Abou Said , Counsel, The Firm

Introduction
It has always been debatable whether limitation of liability clauses are enforceable in the UAE. This debate has arisen due to Article 390 of the UAE Civil Transactions Code, which is generally applicable to transactions, whether civil or commercial, regardless of their nature unless specific provisions apply otherwise. Article 390 provides that:

“(1) The contracting parties may fix the amount of compensation in advance by making a provision therefor in the contract or in a subsequent agreement, subject to the provisions of the law.
(2) The judge may in all cases, upon the application of either of the parties, vary such agreement so as to make the compensation equal to the loss, and any agreement to the contrary shall be void.”

It is understood that this article grants the judge a discretionary power to determine the compensation for breach of contract to which a party is entitled, irrespective of the presence of an agreement between the parties, such as a delay damages clause or liquidated damages clause or any other named clause with similar effect. It follows that if actual damages are greater or less than the capped liability, the judge may increase or decrease the amount of compensation, as applicable.

The benefit of having a liquidated damages clause may be questionable if the judge can vary it. In this respect, the added value of inserting such a clause is that it would be considered a presumption by the judge that the compensation amount agreed in the clause is equivalent to actual damages and would serve as guidance – the party claiming the damages would not have to quantify the damages; rather, it would only have to establish the breach of contract and the presence of the clause. Consequently the defendant, who would try to set the clause aside, carries the onus of proving that the fixed amount does not match actual damages.

Conditions for the Validity of Exemption or Limitation of Liability Clauses
Notwithstanding Article 390 mentioned above, with few exceptions, UAE law does not provide specific requirements for the validity of exemption and limitation of liability clauses (in contrast to laws in other jurisdictions, such as the Unfair Contract Terms Act 1977 in the UK). However, UAE law does provide for certain circumstances in which exemption or limitation of liability clauses are enforceable. By way of 2 example, UAE law allows such clauses in insurance and carriage contracts, subject to certain requirements.

Limitation of Liability in Carriage Contracts
Limitation of liability in carriage contracts is regulated under the UAE Commercial Transactions Code (“Commercial Code”). The provisions of the Commercial Code take precedence over the application of Article 390 mentioned above. The Commercial Code allows unequivocally for limitation of liability clauses in carriage contracts, under Articles 310 and 311. Those two articles provide for several conditions for the limitation of liability clauses to be valid and enforceable as follows:

o The agreed compensation must not be “fictitious” and remain subject to court determination if there is a conflict between the parties.
o Damages must be real and established. If the sender cannot establish that it incurred damages, it shall not be allowed to rely solely on the agreed compensation clause.
o The judge might choose to reduce the compensation for damages if the value is less than that agreed between the parties; however, he cannot increase it unless there has been gross negligence or fraud.
o The limitation of liability clause should be in writing, clear and conspicuous.

Court of Appeal Sets Aside Limitation of Liability Clause for not Being Conspicuous
In a recent case before the Dubai Court of First Instance (“CFI”), 1410/2016 Commercial Single Judge, a carrier lost a shipment that contained the original copy of a client cheque that the client had handed over to a bank for collection. On its reverse side, the waybill contained a clause limiting the carrier’s liability to the sender to USD 25 per shipment unless the content was previously declared, in which case it would be subject to additional costs.
In rejecting the carrier’s claim that its liability was limited to USD 25, the CFI ruled that the limitation of liability clause was invalid since it was “written in English, in letters that can hardly be seen by the eye and in an inconspicuous way”, in contravention of Article 311 of the Commercial Code, and ordered the carrier to pay the full value of the lost cheque to the client.

This judgment was confirmed by the Court of Appeal in its hearing on 18 April 2017. The Judgment was not appealed to the court of cassation because the value of the claim does not exceed AED 200,000.
Exemption Clauses in Insurance Contracts
Article 1028 of the UAE Civil Code stipulates the conditions for the validity of exemption clauses in insurance contracts. Amongst other requirements, a clause should be conspicuous if it relates to any circumstance leading to the avoidance of the contract or the lapse of the right of the insured.

By way of example, the Dubai Court of Cassation, in case No. 242/2011 Commercial, dismissed a case filed by an insured to claim insurance coverage due to losses arising due to theft of a mobile crane because the insured failed to notify the insurer within 14 days of the incident leading to the loss. In upholding the validity of the clause, the court reasoned that the clause was conspicuous enough and meant to protect the right of the insurer to sue the person responsible for the incident. The court considered that notifying the police alone is not enough and cannot replace the notification of the insurer.

Conclusion
The above demonstrates that avoidance of risk through limitation of liability clauses can be achieved subject to compliance with the provisions of the law as interpreted by the UAE courts. Carriers and the insured should review their contracts accordingly and establish procedures to prevent being caught unprepared.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Fraud and Breach of Trust Offenses in the UAE

Wed, 09 May 2018 08:04:00 GMT

09 May 2018

By Imad Kassir , Managing Partner & Samer Abou Said , Counsel, The Firm

Introduction:
Fraud and breach of trust, in this article, refer to the offenses of fraud, embezzlement of immoveable property as defined in articles 399 and 404 of the UAE Federal Law No. 8 for year 1980 with its amendments (“Penal Code”). Third parties may be joint-venture partners, suppliers, vendors, sub-contractors and agents.

The UK’s Financial Conduct Authority (FCA) estimates that such offenses cost the world economy more than $2 trillion a year. Hence the focus on curbing it has increased world-wide. The UAE, being the regional financial and commercial hub, has also upgraded its laws dealing with white collar crimes in particular tightening inter-alia the provisions applicable to money laundring and bribery in the public and private sectors.

Nevertheless, in the UAE where expatriates constitute more than 80 % of the work force, perpetrators from the expatriates’ community who commit a financial crime usually consider retiring back on hefty proceeds in the safe haven of their original home countries in particular where extradition to the UAE is complicated and involve considerable legal fees.

Our experience with corporate fraud and embezzlement (hereinafter “CFE”) keeps the procurement, marketing and sales departments of companies as the highest in terms of occurrences of such crimes. A probable cause for the vulnerability of these departments is their decentralized organization and daily exposure and dealing with third parties, be it suppliers, vendors, agents or clients…etc.

Modus Operandi
CFE usually involves a corporate employee carrying out certain actions to siphon illegal proceeds for the employee’s own benefit and interest. Due to the increasing robustness of compliance and internal auditing in corporations, CFE is much harder to be committed internally i.e solely by employees of the victim company.

Owing to this fact, the involvement of external parties has become more common for perpetrators to escape the internal auditing and compliance measures of their companies. External parties may not necessarily share the same compliance and ethics culture as those of the victim companies, or they may not know the bad intentions of the employee.

For example, a sales representative may commit bridge invoicing by selling products of the company to a purchaser other than the one whose name appears on the invoice handed over to the victim company. The real purchaser buys the products, does not request an invoice, and he does not know of the intentions of the perpetrator. The victim company will discover the crime after unpaid invoices accumulate. By that time, the perpetrator may have committed several bridge invoicing actions and left the company.

Fraud and embezzlement: what are the differences?
The terms fraud and embezzlement are used many times confused and used interchangeably. While, the two terms imply a certain dishonesty in depriving someone of his property, however they differ in the eyes of the law as we note below.

Article 399 of the Penal Code provides that fraud occurs if a person
“ seizes, for him/herself or another, a movable property, or obtains a document or signature thereon, cancellation or destruction thereof or amendments thereto by fraudulent means, or by assuming a false name or capacity, where such an act deceives the victim and leads to hand over the property.”

Article 404 of the Penal Code classifies embezzlement under the category of breach of trust crimes. A breach of trust occurs if a person
“ embezzles, uses or dissipates money, documents or any other movable property with the intention of causing harm to its rights owners when such money or property has been handed over to that person by way of deposit, rent, pledge, loan for use or agency.
In application of this provision, the partner in a joint property, the unauthorized agent actions regarding the principal’s property, and whoever receives anything to use in a certain manner for the benefit of its owner or for the benefit of another, shall be considered as an agent”

Fraud and embezzlement are similar in that they both require the perpetrator to have the intention and full knowledge to commit the offense (or the ‘ mens rea ’), and they imply dishonesty on the part of the perpetrator.

The main difference is that fraud requires that the perpetrator to acquire the property using fraudulent means, while in embezzlement the property should have been already in the possession of the perpetrator and was handed over to him legally through one of the legal instruments mentioned above ( deposit, rent, pledge, loan for use or agency) .

We provide a simple example to illustrate the difference: a financial director who orders a trasnfer of funds to her account to possess it commits embezzlement becasue she is an employee/agent of the company and is already in control of the funds. On the other hand, a perpetrator creates a fake company and poses as a supplier to the victim company, and is awarded a contract. The perpetrator/supplier receives advance payment from the victim company and disappears. The crime of the fake supplier is fraud because he had no possession or control of the property he takes away from the company. However, if that supplier was a real one who has previous dealing with the victim company, and the supplier walked away with the company`s funds, the crime would be embezzelment.

Establishing the elements of fraud needs more effort on the part of the victim who needs to show that fraudulent methods were used to deprive her/him of the property. And here lies the difficulty. The mindset of a fraudster is already aware that she/he is doing something illegal from the start of the act itself, and thus the fraudster is cautious about not leaving any evidence or trace of the wrongdoing.

The victim of embezzlement is supposed to prove that a contract (verbal/written) exists, the money was in the possession of the embezzler and is gone, and that it is the intention of the embezzler to cause damage (for example if an employee loses money in his position inadvertently there would be no criminal intention). The intention to commit the crime in the mindset of the embezzler usually takes place after the money enters into the latter’s possession. Therefore, the evidence of the existence of the contract and that the embezzler was in possession of the property which is gone is not usually difficult.

Furthermore, UAE courts have consistently pronounced that fraud offenses should contain the element of fraudulent maneuvers through the employment of material actions and external aspects that would deceive a person of an average level of intelligence. It follows that mere lies and misrepresentations committed by the fraudster do not constitute fraudulent maneuvers unless accompanied by certain material actions and external aspects. In other words, there should be a certain level of sophistication in carrying out the offense.

Examples of UAE courts view of fraudulent maneuvers

By way of example, it was found that a person who knowingly handed over a cheque without sufficient funds to buy a car from the victim had not committed a fraud offense because lies and misrepresentations are not sufficient enough to constitute an offense [1] . It appears that although the element of dishonesty might have been present in the instant case, the court saw that it was not sophisticated enough to constitute fraudulent maneuvers, in particular in the absence of any material actions or external aspects. The seller of the car had not acted with prudence by accepting a post-dated cheque and handing over the car before cashing the cheque.

In a separate case, the court found that a person who alleged owning an off-plan building registered with the land department and had presented drawings, blue prints and payment receipts for that alleged building that appeared genuine had committed fraudulent maneuvers that constitute the crime of fraud [2] . The court referred in particular to the defendant’s presenting of drawings and other documents as being external actions.

In another case, the court observed that a person who had seized a certain amount of money received from a company to invest it in a hotel had committed fraud because the perpetrator provided the victim with his company’s commercial license and made the company sign an investment agreement with his agent [3] . In the words of the court, the lies of the defendant were accompanied by material actions such as the handing over of a commercial license and involvement of a third party (the agent of the perpetrator) in signing an investment agreement.

In a case where a defendant was charged of fraud for defrauding a person in his nineties by exploiting his weak mental abilities and coaxing him to sign documents (some of which were before the notary public) that transferred the ownership of some of his assets (estimated to be hundreds of millions of dirhams), the court vindicated the defendant and reversed a conviction judgment from the court of appeal. The court found that mere representations and lies do not suffice to constitute fraud because it was not accompanied by external maneuvers or external actions that persuade the victim of its validity [4] .

UAE courts view of embezzlement
Our review of a sample of a handful cases of embezzlement before UAE courts show that 75% of them involve defendants who committed embezzlement against their own employer / company. These statistics are not surprising because employees enjoy the trust of their companies and are usually in possession of the properties they embezzle. This clearly demonstrates that embezzlement poses a higher risk to corporates than fraud does.

UAE courts have consistently stated that one of the essential elements for the offense is for the property to have been handed over by one of the so-termed “trust contracts” referred to in article 403: deposit, rent, pledge, loan for use or agency .

The most common form of corporate embezzlement highlighted above is usually done by employees of the company. The UAE courts have found that employment is a form of agency and hence it falls under the ambit of the contracts mentioned in article 403.

In this respect, the court found that a partner in a company who receives money from another partner to buy medical equipment but has not used that money as intended for has committed embezzlement because he received the money as an agent and hence an agency contract tied the defendant and the victim [5] . The court added that there is no requirement for a contractual relationship to exist, but a legal basis would suffice. It follows that any act between two parties which suggests that one of them entrusted the other to do something would be enough to establish an agency relationship, and it is not necessary to have such relationship set out in writing in a document signed by both parties.

In another case, the court dismissed the defendant’s argument that the money received from the victim was by way of a loan and hence not through one of the trust contracts. The court pronounced that it has the power to classify the relationship based on the facts at hand and not merely the terms and words of the underlying documents, and found that the victim`s handing over of an amount of money to the defendant to pay for rent of certain real estate units in London was an agency contract and not a loan as the defendant had contended [6] .

An off-plan developer who had received reservation payments from an investor and had not deposited the monies in a trust account as required in law no 8/2007 for Real Estate Trust Accounts had committed embezzlement [7] . In this case, although the defendant had seized the money given to buy an off-plan unit, which is similar to the case above [8] , the offense is embezzlement and not fraud because in the case above the off-plan unit did not exist, while it had existed in this case.

Route to successful handling of fraud and embezzlement cases
Whether you are an in-house counsel, finance director or owner of a business, there are certain matters that need to be considered to ensure the desired outcomes: punishing the culprit, recovering your funds, or asserting an institutional policy, etc.

Collecting evidence : the victim company should be keen not to alert the suspect upon discovery of suspicious behavior which may lead to the loss of evidence and weaken the case. However, in certain cases, prompt action may be required to cut losses and avoid further damage regardless of its impact on collection of evidence.
Fate of employment relationship with the suspect/employee: the employer would have to consider what is the best action to take regarding the suspect: Should the suspect be suspended, terminated immediately or put on garden leave? It is noteworthy that UAE Labor Law provides that an employee can be terminated immediately if finally convicted of an honesty crime. Therefore, the employer has to consider the risk of unfair dismissal compensation on the one hand and the length of a trial on the other hand. Perhaps a settlement may be the most efficient route under certain circumstances and would help to recover monies.

Instructing an external lawyer: It is crucial that the external lawyer who might handle the case before the courts be brought on board as early as possible to assist in collecting evidence and to draw up the strategy regarding the next steps which may include preparing an internal investigation report and/or commissioning an external expert under the guidance of the counsel to prepare such report prior to filing a criminal complaint. It is noteworthy that UAE authorities do require on most occasions a sworn expert report that determines the financial aspects of the crime and the value of the funds lost. Furthermore, the swift action by the external lawyer would be of utmost importance to prevent the culprit from escaping the country through application for a travel ban.

Hiring a financial auditor or expert: sophisticated financial crimes do usually require special financial expertise to collect and gather the evidence. This should be done at an early stage, ideally following the instruction of an external lawyer. The choice of the financial auditor can be made in consultation with the external lawyer who will be more comfortable working with a familiar expert from previous cases.

Recovering funds : There exists a misunderstanding that filing the criminal case is the only procedure required to recover the funds. Well…not very true! The main objective of the criminal case is to punish the culprit; however, the criminal court is not the competent court to determine the value of the funds illicitly taken by the culprit or to order the latter to refund it. The victim should file a separate civil case to order the culprit to pay back the funds. In this case, the victim would rely on the conviction of the culprit by the criminal court to assert its rights to recover the funds. Without a conviction from the court, the victim may not be able to prove fraud or embezzlement since it is the criminal court which should establish the offense.

Conclusion
Experience shows that once a fraud crime has been committed and has gone unpunished, it is likely another one will hit soon. It is important to have internal protocol and guidelines that reduce the risk of such crimes. Appointing an external lawyer experienced in criminal matters at an early stage plays a crucial role in punishing such crimes and increasing the chances of recovery.

[1] Ruling of Dubai Court of Cassation in petition no 61/2011 Criminal 03 July 2011. [2] Ruling of Dubai Court of Cassation in petition no 689/2012 Criminal 25 February 2013. [3] Ruling of Dubai Court of Cassation in petition no 474/2010 Criminal 11 October 201. [4] Ruling of Abu Dhabi Court of Cassation in petition no 80/84/90/2014 Criminal 31 March 2014. [5] Ruling of Dubai Court of Cassation in Petition no 134/2017 Criminal 06 March 2017. [6] Ruling of Dubai Court of Cassation in Petition no 575/2013 Criminal 18 November 2013. [7] Ruling of Dubai Court of Cassation in Petition no 761/2012 Criminal 29 April 2013 [8] See fn (3).

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Important VAT Update for Construction Industry in the United Arab Emirates

Wed, 04 Apr 2018 19:32:00 GMT

The UAE Federal Tax Authority (“FTA”) issued a Real Estate Guidance document (VAT GRE1) that addressed many aspects of the real estate industry practices including construction services.

The purpose of the VAT GRE1 is to explain how the FTA will apply VAT on certain matters where the VAT legislation may have not been clear. In this respect, three important matters were explained by the FTA.

Progress Payment Certificate (PPC) :

PPCs are usually certificates issued by the engineer which determines the amounts due to the contractor for the works completed for a certain period of time during the life time of the project. The contractor would usually submit claim to the engineer specifying the value of the work completed, purchased materials and the ratio of the retention the contractor is entitled to. The engineer would review the claim and issue the certificate either approving the claim of the contractor totally or partially or denying it altogether. The issuance of the PPC triggers the obligation for the employer/client to make the payment within a certain period.

In accordance with the VAT GRE1, the issuance or certification of progress payment certificates within the construction project will not trigger the date of supply for VAT purposes.

This comes as a desired update for the contractors who were concerned that VAT will become due upon issuance of PPC, in particular if the client contests the same or does not make the payment on time.

Retention:

“ It is often the case where large construction projects are concerned that a retention clause will be included within the contract. A retention clause allows the customer to hold back a proportion of the contract price once the work has been completed, pending confirmation that the supplier has done the work properly and has rectified any immediate faults that might be found.

Often the retention amount is not payable by the customer until an agreed period of time has passed, and in some cases where the customer is not satisfied with the quality of the work, the retention payment will be retained by the customer .”

The date of supply rule applicable in general to any contract that includes periodical payments such as construction contracts is Article 26 of VAT Law No. 8/2017. Article 26 provides that date of supply shall be the earliest of:

·         The date of issuance of any tax invoice;

·         The date payment is due as shown on the tax invoice;

·         The date of receipt of payment.

Naturally, the above rules would have been applicable to Retention withheld pursuant a construction contract; however, the VAT GRE1 carved out the retention from the remit of Article 26 and stated that the normal rule of date of supply will be applicable i.e pertinent provisions of Article 25 of VAT Law No. 8/2017 which determine the date of the supply as the earlier date of:

·          The time the retention payment has been made;

·          The work has been signed off as complete; or

·          The tax invoice has been issued.

Furthermore, the VAT GRE1 stated that “ where the construction services are not considered to be contractually complete, VAT is only due to the extent of any payments received or invoices issued during delivery of the services. The VAT applicable on the retention payment would not be due to be accounted for by the supplier until the time the retention payment is received by the supplier, or an invoice in respect of the retention payment is issued, whichever is earlier .”

That said, if a retention is due at the end of the defects liability period that comes 12 months after substantial completion and the client does not release the retention to the contractor, the date of supply shall not be triggered, and the contractor shall not be liable to pay VAT.

Retention payment for services completed before 01 January 2018

Where retention payment is to be made after 01 January 2018 but the services were completed before 01 January 2018, the payment of the retention will be outside the scope of VAT. Since retentions are usually held for 12 months or more, retention of many of the projects completed before 01 January 2018 are due to be paid in 2018 or 2019.

Conclusion Thus the VAT GRE1 comes as a relief to the construction industry in general and to the contractors and sub-contractors in particular. It will add more certainty to the balance sheets and cashflows of the businesses and remove the risk associated with paying VAT before the contractors have received the payment.

The UAE Federal Tax Authority (“FTA”) issued a Real Estate Guidance document (VAT GRE1) that addressed many aspects of the real estate industry practices including construction services.

The purpose of the VAT GRE1 is to explain how the FTA will apply VAT on certain matters where the VAT legislation may have not been clear. In this respect, three important matters were explained by the FTA.

Progress Payment Certificate (PPC) :

PPCs are usually certificates issued by the engineer which determines the amounts due to the contractor for the works completed for a certain period of time during the life time of the project. The contractor would usually submit claim to the engineer specifying the value of the work completed, purchased materials and the ratio of the retention the contractor is entitled to. The engineer would review the claim and issue the certificate either approving the claim of the contractor totally or partially or denying it altogether. The issuance of the PPC triggers the obligation for the employer/client to make the payment within a certain period.

In accordance with the VAT GRE1, the issuance or certification of progress payment certificates within the construction project will not trigger the date of supply for VAT purposes.

This comes as a desired update for the contractors who were concerned that VAT will become due upon issuance of PPC, in particular if the client contests the same or does not make the payment on time.

Retention:

“ It is often the case where large construction projects are concerned that a retention clause will be included within the contract. A retention clause allows the customer to hold back a proportion of the contract price once the work has been completed, pending confirmation that the supplier has done the work properly and has rectified any immediate faults that might be found.

Often the retention amount is not payable by the customer until an agreed period of time has passed, and in some cases where the customer is not satisfied with the quality of the work, the retention payment will be retained by the customer .”

The date of supply rule applicable in general to any contract that includes periodical payments such as construction contracts is Article 26 of VAT Law No. 8/2017. Article 26 provides that date of supply shall be the earliest of:

· The date of issuance of any tax invoice;

· The date payment is due as shown on the tax invoice;

· The date of receipt of payment.

Naturally, the above rules would have been applicable to Retention withheld pursuant a construction contract; however, the VAT GRE1 carved out the retention from the remit of Article 26 and stated that the normal rule of date of supply will be applicable i.e pertinent provisions of Article 25 of VAT Law No. 8/2017 which determine the date of the supply as the earlier date of:

· The time the retention payment has been made;

· The work has been signed off as complete; or

· The tax invoice has been issued.

Furthermore, the VAT GRE1 stated that “ where the construction services are not considered to be contractually complete, VAT is only due to the extent of any payments received or invoices issued during delivery of the services. The VAT applicable on the retention payment would not be due to be accounted for by the supplier until the time the retention payment is received by the supplier, or an invoice in respect of the retention payment is issued, whichever is earlier .”

That said, if a retention is due at the end of the defects liability period that comes 12 months after substantial completion and the client does not release the retention to the contractor, the date of supply shall not be triggered, and the contractor shall not be liable to pay VAT.

Retention payment for services completed before 01 January 2018

Where retention payment is to be made after 01 January 2018 but the services were completed before 01 January 2018, the payment of the retention will be outside the scope of VAT. Since retentions are usually held for 12 months or more, retention of many of the projects completed before 01 January 2018 are due to be paid in 2018 or 2019.

Conclusion Thus the VAT GRE1 comes as a relief to the construction industry in general and to the contractors and sub-contractors in particular. It will add more certainty to the balance sheets and cashflows of the businesses and remove the risk associated with paying VAT before the contractors have received the payment.

“Contents of this article are for general informational purposes only. It is not intended as professional counsel and should not be used as such.”

Protect Your Right to Claim VAT on Contracts Signed before End of Year 2017

Wed, 13 Dec 2017 14:25:00 GMT

The UAE have announced that the value added tax will become effective on 01 January 2018 starting from 0700 hours (“Effective Date”).

Many clients have signed contracts prior to the Effective Date of the VAT that did not provide for a clause that deals with the VAT. So, the question arises, do we lose the right to claim VAT and hence incur a loss of 5% on the revenue which could be much higher in terms of profit?

Not so fast…The UAE Cabinet Decision no. (52) Of 2017 on the Executive Regulations of the Federal Decree-Law no (8) of 2017 on VAT stipulates that you can claim VAT in contracts signed prior to the Effective Date but the supply under the contract is wholly or partly made after the effective date if two conditions are available:

Where the recipient of goods or services (“Recipient”) is a Registrant.

Where the Recipient has the right to recover Input VAT incurred on the supply either in full or in part.

However, to avail yourself of this benefit, you should, before the Effective Date, request from the Recipient to confirm the following:

Whether the Recipient is or expects to be a Registrant at the time the Decree-Law comes into effect.

The extent to which the Recipient expects to be able to recover Tax incurred on the supply.

So, what are you still waiting for…run and send the notice.

The UAE have announced that the value added tax will become effective on 01 January 2018 starting from 0700 hours (“Effective Date”).

Many clients have signed contracts prior to the Effective Date of the VAT that did not provide for a clause that deals with the VAT. So, the question arises, do we lose the right to claim VAT and hence incur a loss of 5% on the revenue which could be much higher in terms of profit?

Not so fast…The UAE Cabinet Decision no. (52) Of 2017 on the Executive Regulations of the Federal Decree-Law no (8) of 2017 on VAT stipulates that you can claim VAT in contracts signed prior to the Effective Date but the supply under the contract is wholly or partly made after the effective date if two conditions are available:

However, to avail yourself of this benefit, you should, before the Effective Date, request from the Recipient to confirm the following:

So, what are you still waiting for…run and send the notice.