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UNITED ARAB EMIRATES: An Introduction to Dispute Resolution: Domestic

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The legislation underpinning domestic dispute resolution in the UAE underwent significant amendments during 2020. In line with the UAE’s continuous efforts to remain a global hub for international companies, global trends and developments have undoubtedly had an impact on the aforementioned amendments to legislation and the way disputes are presided over. While the effects of the COVID-19 pandemic are yet to be seen in their entirety, the caseload for domestic dispute resolution shows no signs of abating.

The level of activity, trends and developments in the UAE

Despite the COVID-19 pandemic, the UAE issued over 40,000 new trade licences during 2020, a 4% increase on the number of trade licences issued in 2019. This illustrates the resilience and robustness of the UAE market.

Litigation and arbitration have witnessed a considerable increase in caseload, particularly as international companies are electing UAE arbitration centres (e.g. the DIAC, ADCCAC and DIFC-LCIA) to govern their disputes, as opposed to international arbitration centres. This increase is mainly due to parties failing to adhere to their contractual obligations in light of COVID-19.

Current economic conditions affecting clients or the legal profession 

It is noteworthy that many businesses have sought reprieve from their contractual obligations towards employees as companies are forced to restructure and employees’ contracts are altered or terminated.

The construction industry plays a pivotal role in the UAE’s economic expansion; however this sector has not been spared the effects of COVID-19. Disputes revolving around issues of force majeure and back-to-back clauses in construction contracts are now frequently referred to litigation and arbitration in the UAE. While the construction sector largely escaped lockdown restrictions, projects did significantly slow down due to procurement issues (with materials being locked-down) and restrictions on the number of people permitted on the project.

Despite the large number of disputes filed in 2020, thousands of companies have faced liquidity issues and therefore claimants have struggled to finance their claims. With parties being unable to pay independent experts, claims consultants, court charges and lawyers’ fees, we are still waiting to see the knock-on effects of COVID-19 on many companies, and more broadly, the economy.

New legislation that will have an effect on clients

Due to the exceptional global circumstances, the UAE underwent a significant legal transformation in 2020. Federal legislation was amended in various ways, such as:

• The DIFC Court established the Court of Space and swore in four new judges in early 2021, including the first female Emirati judge to be appointed in the DIFC Court of First Instance.

• In January 2021, the DIFC-LCIA rules were amended to introduce several important changes to the 2016 rules, covering issues such as electronic communication, electronically signed awards, expedited proceedings, tribunal secretaries, provisions for virtual hearings, and the tribunal’s powers.

• The corporate regime received a significant and unprecedented presidential decree, Federal Decree-Law No. 26 of 2020, on 23 November 2020, that has come into force as of 2 January 2021, introducing wide-ranging amendments to the articles of Federal Law No 2/2015 on commercial companies; a total of 51 amendments and the addition of three new articles. These amendments are consistent with the UAE’s drive to anchor its progressive principles of tolerance and acceptance.

• The UAE cabinet approved the issuance of Federal Law No 18/1993 promulgating the UAE Commercial Code. While only expected to come into force in 2022, this includes amendments such as defining circumstances pertaining to whether a bounced cheque will be considered a criminal offence and aims to avoid prosecution. Reforms to laws include those governing expatriates’ wills and inheritance, marriage and divorce, harassment and assault crimes, indecency, suicide and alcohol consumption.

• As of 1 October 2020, all entities to whom DIFC Law No. 5/2020 on data protection applied had to ensure that they were compliant with the changes introduced therein. The data protection law applies to “the processing of personal data by a controller or processor incorporated in the DIFC, regardless of whether the processing takes place in the DIFC or not.”

• Cabinet Decision No 58/2020 on the regulation of procedures relating to real beneficiaries was published on 27 August 2020, introducing international standards of transparency in respect of ultimate beneficial ownership of companies in the UAE. As a result, most companies in the UAE will now need to maintain a register of their Real Beneficial Owner(s).

• The Interim Register Law was also amended in 2020. The amendment requires a developer to notify the Dubai Land Department (the DLD) of the sub-developer’s breach and the DLD shall then determine the percentage of completion of the project. The legislation came into force on 31 December 2020 and has the potential to result in hundreds (if not thousands) of commercial parties involved in major real estate projects in Dubai having to apply to the DLD for an official document.

Potential difficulties faced by clients and how these can be overcome

A common hurdle is that of jurisdiction. The UAE federal law applies to all seven emirates forming the UAE. Each emirate may also enact their own laws, and in the event of any conflict of law the federal law has supremacy. UAE onshore courts are founded on civil law and all disputes heard by UAE onshore courts are in Arabic. UAE court judges are permitted to use their discretion when rendering judgments as case law is persuasive, and not binding.

Many emirates have also developed economic free zones (such as the DIFC, DMCC and Ajman Free Zone), which follow their own specific legislation. Both the DIFC and ADGM have also established their own independent court system, based on English common law.

Depending on where a company is established, the applicable onshore court or free zone court will have jurisdiction to hear a dispute, unless the contracting parties expressly opt for arbitration. The Joint Judicial Committee (the JJC) was established to deal with conflicts of jurisdiction between the Dubai Courts and the DIFC Courts, and to determine the enforceability of conflicting judgments rendered by onshore Dubai Courts and the DIFC Courts which involve the same parties and the same subject of dispute. However, when a matter is before the JJC, the parties are to some extent in a jurisdictional purgatory, not knowing which forum the case is to be ultimately litigated in.

Given the practical impossibility of having in-person hearings during the COVID-19 pandemic, virtual hearings are now the new norm in onshore and DIFC litigation, as well as in arbitration.

Another potential difficulty is that onshore UAE court procedure differs vastly from what many international clients are familiar with. The proceedings are in Arabic, and therefore any document submitted to the court must be translated into Arabic by a certified translator. A judge hears the case purely on the papers before him – there is no concept of oral witness testimony or a jury trial in the UAE. Various legal concepts are not recognised in the UAE, including legal privilege and promissory estoppel.

Forum selection can also be a potential hurdle, most notably in relation to court charges and administration costs. In DIFC court litigation and arbitration, legal fees can be added to the judgment. However, in UAE onshore courts, only court charges and expert fees are recoverable. Similarly, it is important to note that strict contingency fee arrangements are not permitted in the UAE.