YEMEN: An Introduction to General Business Law

Background

Yemen is situated in the southwest corner of the Arabian Peninsula. It is bordered by Saudi Arabia from the north and Oman from the east. It shares maritime borders with Eritrea, Djibouti and Somalia. Aden in the south dominates Bab Al-Mandab, an important strategic strait which joins the Arabian Sea, the Red Sea and the Gulf of Aden.

The Republic of Yemen was formed in May 1990 as a result of the unification of the Yemen Arab Republic in the north and the People’s Democratic Republic of Yemen in the south. Yemen is a republican state with a bicameral legislature system, which is composed of the Parliament and the Shura Council. The President is the head of state, and the Prime Minister is the head of government. It covers an area of about 537,000km with 2,000km of coastal line and a population of about 30 million.

Unfortunately, due to the ongoing war that erupted in 2015, Yemen’s governmental structure had been rifted into two separate authorities. On one hand, the northern state is ruled by the so-called Houthi rebels who are considered by the international community as the de facto rulers of the northern territory, whilst on the other hand the southern state is ruled by the internationally recognised and supported government which is regarded as the de jure ruler of Yemen. On an optimistic note, sporadic negotiations between the conflicted parties, supervised by the UN, are under process to reach a peace plan to hopefully end the ongoing conflict and restore economy growth.

Economy

Yemen's industrial sector is centred on crude oil production. In addition, agricultural commodities acquire a fair portion of Yemen’s economy, which include grains, vegetables, fruits, pulses, qat, coffee, cotton and dairy products.

However, due to the ongoing war, Yemen has sustained a continuous and steep deterioration in most of its economic spheres. This has resulted in labelling Yemen as one of the worst humanitarian man-made crises in the 21st century. Such economic collapse has adversely impacted all business fields and compelled most international companies and investors to flee the country. In addition, a significant number of local companies were forced to close down.

In terms of fiscal perspective, the official currency “Rial” has drastically devalued losing around 70% of its purchase power in the northern areas and around 140% in the south, compared to its value back in 2015. This sharp and continuous depreciation of the Rial has positioned the foreign currency, mainly the US dollar, to be the dominating and most relied upon currency for business and personal transactions. As a result of the aforementioned governmental split, the fiscal policy in Yemen is now run by two separate central banks, resulting in further deterioration of monetary issues.

The role of banks in fund remittance has been substantially hindered by a number of internationally imposed restrictions. These barriers compelled investors and businessmen to resort to money exchange bureaus for international fund transfers. Although such bureaus have significantly flourished and covered most of the gap, they do not provide the same quality and guarantees as banks did.

Legal System

A - Constitution

Yemen’s legal system is based on civil law, with a legal hierarchy that puts the constitution at the top of the legal pyramid. It should be noted that the said constitution has placed the Islamic principles and values as the primary source of legislation. In other words, any legislation, rule or agreement should not contradict Sharia principles. It is worth mentioning that a project for a national dialogue followed by a complete review of the current constitution commenced in 2013 but was interrupted by the 2015 war and was hence never completed. The project was funded by and under the auspices of the EU.

B - Statutes

All Yemeni legislations are promulgated by the Parliament, the majority of which date back to the 1990s. Compared to developed jurisdictions, most local laws are rather primitive and lack desirable clarity, detail and sophistication to keep up with recent legal developments. Such shortfalls result in their various contradicting interpretations (even by the courts).

In an attempt to overcome this, the firm constantly engages in the comprehensive and detailed drafting of contracts, ensuring the inclusion of all aspects that may be omitted by local laws. Obviously, the objective of such exercise is to limit or irradicate the need for future reliance and interpretation of such laws. Other tactics include the stipulation of foreign laws and arbitration (where applicable and under extremely capable professional advice).

It should be noted that since the 2015 war the legislative wheel has almost halted, creating further obstacles to legal development. It is noteworthy that, in the presence of two independent parliaments and governments in each of the northern and southern parts, any of the newly enacted ‘limited amendments’ are only enforceable in the part of the country in which it was ratified.

C - Supplementary Sources

In contrast to the common law system, a local court’s decisions do not set a precedence that other courts should abide by, but instead they are used as a source of legal interpretation that could be relied upon by advocates and judges. Legal jurists’ opinions and research are also considered as supplementary sources.

Courts and Arbitration

A - Courts

The litigation process comprises three tiers: First Instance, Appeal and the Supreme Court. In addition, courts are divided according to the nature of cases: Commercial, Civil, Criminal and Martial courts. Due to the lengthy procedures and bureaucratic nature of local courts and their bias in favour of local opponents, the firm strongly urges clients to settle their disputes amicably, through mediation or arbitration, where possible.

B - Arbitration Operating in this Jurisdiction

The firm regards arbitration, besides mediation and reconciliation, as the most effective mechanism for resolving disputes. In fact, most government-related contracts with foreign investors are governed by international arbitration. Although Yemen is not a signatory to the New York Convention, a number of foreign awards were voluntarily executed by Yemen under political and economic pressures. In general, awards rendered outside Yemen face serious enforcement obstacles in Yemen’s jurisdiction.

On a more positive note, Yemen is a signatory to the Riyadh Arab Convention of 1984 for the enforcement of judicial and arbitral awards issued by any contracting state. For this reason, the firm strongly encourages foreign clients to stipulate one of the contracting states as the seat of arbitration.