Out-Law Guide | 04 Dec 2012 | 11:43 am | 4 min. read
International businesses are attracted to the United Arab Emirates (UAE) and the business opportunities there but many are cautious about the unfamiliar legal system. A common concern is the availability of legal recourse in the event that a business relationship breaks down.
As investment in the UAE has grown it has developed its legal infrastructure to serve international and local businesses alike. Its attractiveness to foreign investors is likely to increase in the lead up to the World Expo, to be held in Dubai in 2020.
The UAE is made up of seven emirates, each of which is governed primarily by the UAE Federal Constitution. Some legislative powers have been devolved to the individual emirates by virtue of provisions in the Constitution.
The UAE has a civil law system and the primary sources of law are the statutory codes enacted by Supreme Council of the Federation. The statutory codes govern civil and commercial relationships across the UAE. Islamic Shari'ah law is used by local courts when matters are not specifically addressed in the codified law. This system is unfamiliar to international businesses, particularly those from common law backgrounds.
From the outset it is advisable for those undertaking UAE business investment to draft contracts in a way that enables them to take advantage of the numerous dispute resolution processes that are available.
Where contracts are concluded, executed or intended to be executed in the UAE the default mechanism for resolving disputes is the local courts. Local court proceedings in the UAE are conducted in Arabic with a requirement for all court documents to be translated into Arabic by a translator licensed by the Ministry of Justice.
Although in theory court proceedings are held in public, there is very rarely any oral argument. Instead, the judge reviews the merits of the case by reading the confidential pleadings and papers filed by the parties.
In certain cases requiring specific technical knowledge the court will appoint an expert to assist with the fact-finding process and the determination of the issues. Unlike in a common law system the parties generally have very little influence over the identity of the expert, although they can engage critically in respect of the expert's mandate and in certain circumstances they can challenge the expert's appointment.
There are some aspects of court proceedings which international businesses may not be used to.
The burden of proof is on the party advancing the argument and the decisions are generally made at the discretion of a judge, who is not bound by earlier decisions of the court, though he may be persuaded by them.
There is no concept of 'without prejudice' negotiations or correspondence. Settlement negotiations are usually not documented as any correspondence drafted for the purpose of reaching a settlement may be brought into court and relied upon.
Foreign investors have traditionally preferred to have their disputes resolved through arbitration rather than the local courts.
Arbitration is not new to the region having been a recognised concept in the Arab world since at least 1877 when the 'Medjella' was published by the Ottomans as the first attempt at codifying the Shari’ah law, which provided for disputes to be resolved by legally appointed arbitrators.
The UAE government has been working towards a new arbitration law for a number of years but it is yet to be enacted. For the time being, arbitrations continue to be governed by the Civil Procedure Code.
There are three established arbitration centres within the UAE: the Dubai International Arbitration Centre (DIAC), the Abu Dhabi Commercial Arbitration Centre and the DIFC-LCIA Arbitration Centre, which is run by the Dubai International Financial Centre (DIFC) and the London Court of International Arbitration (LCIA).
The UAE has signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, which means that awards issued elsewhere in the world should be relatively straightforward to enforce in the UAE. It also means awards issued in the UAE are enforceable in any other convention country.
In 2004 the UAE government, in a move to encourage further investment to the region, permitted each of the seven emirates to set up an international financial centre within its territory. Although many emirates have taken advantage of this opportunity, it is generally acknowledged that the current market leader in this field is Dubai with the development of the DIFC.
The DIFC represents a significant development for international litigation in the region, as the DIFC's legal and regulatory system has proved to be attractive and accessible to both international and local business. The DIFC has invested heavily to install both a modern DIFC court and, in association with LCIA, its own arbitration rules. The DIFC is often referred to as being an 'offshore' centre, despite being located in downtown Dubai.
The Dispute Resolution Authority (DRA) was created in 2014 and has overall responsibility for the DIFC courts, an arbitration institute and other tribunals or ancillary bodies that may be required to perform the functions of the DRA. The creation of the DRA takes the DIFC a significant step towards offering a serious alternative to the traditional arbitration hubs of London, Paris and Singapore.
In a case between Banyan Tree Corporate and the Meydan Group in 2013 the DIFC Court confirmed that it had jurisdiction to enforce an arbitration award made by Dubai's DIAC even though the parties and the dispute have no connection with the DIFC and the award had not yet been ratified by the Dubai courts.
The primary attractions of the DIFC courts to international businesses are that they employ common law principles, are administered by internationally recognised judges and that the proceedings are held in English.
The procedure of the DIFC courts is more familiar to UK clients as it is based on the English civil procedure rules. International clients are also attracted by the courts' promotion of cost effective settlement processes to assist dispute resolution.
This represents a significant improvement in the legal infrastructure available to foreign companies, potentially providing a greater degree of clarity and certainty to business and commercial transactions. Companies can now select DIFC law and the DIFC courts, and the internationally recognised practices and standards they adhere to, as the governing law and venue for resolving disputes wherever they are located.