Foreign nationals can now own 100% of companies within the onshore jurisdiction of the UAE, which previously required 51% Emirati ownership to do business outside of UAE free zones. This remarkable development is expected to further enhance the UAE’s position as the Gulf’s premier business hub and a stronger magnet for foreign capital and investment. The move is expected to support the continued growth of the UAE as it becomes a more robust, vibrant and diverse economy and place to do business. On 23 November 2020, the President of the United Arab Emirates, His Highness Sheikh Khalifa bin Zayed Al Nahyan issued a decree amending the restrictions on foreign ownership within the Companies Law in the United Arab Emirates. The newly issued decree amended the pertinent provisions of the UAE Federal Law No. 2 of 2015 and supersedes the UAE Federal Law No. 19 of 2018 on Foreign Direct Investment (FDI Law). Notable key changes include: The annulment of the requirement for commercial companies to have a majority Emirati shareholder or agent. Allowing full foreign ownership of onshore companies in certain commercial activities in accordance with the policies set by the UAE Cabinet. Granting related local authorities (such as without limiting Ministry of Economy and Economic Department of each Emirate) powers to determine the required capitalization, shareholding percentages and approval for establishment of onshore companies in accordance with the policies set by the UAE Cabinet. Increasing shares of joint stock companies from 30% to 70% that can be sold via IPO. Enabling shareholders to sue the company in civil court over any failure of duty that results in damages. Electronic voting available for general assembly meeting. The UAE Cabinet is authorized by this decree to establish a committee to classify the commercial activities and the required measures and arrangements for businesses onshore that can be fully foreign owned. Al Suwaidi & Company’s Corporate & Commercial practice is continuing to monitor further legal developments. We shall advise our clients as and when further information and details are released regarding foreign ownership and foreign direct investment into the UAE. Should you have any questions about this, or any other related matter, please do not hesitate to contact Vida Grace at Vida@alsuwaidi.ae. Vida is an Associate in the Corporate & Commercial practice.Read more
Knowing and understanding the UAE Court system: a comparison of the legal civil procedures between the DIFC and Dubai Courts’ systems
Introduction Over the past 14 years, Dubai has embraced both civil and common law legal systems within its borders. In order to understand the concepts involved I have set out below the fundamentals of each system ending with a comparative look at the two systems as they are currently in use at this time. Dubai Courts The UAE is a Federated State consisting of seven Emirates being Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain. The UAE came into being as an independent Federated State on 2 December 1971 following Britain’s withdrawal from the Trucial States which had been set up as an informal British Protectorate between 1820 and 1892. Initially Ras Al Khaimah was not part of the UAE but joined as the seventh Emirate on 10 February 1972. Under the constitution of the UAE the emirates are entitled to have both local and federal Courts with the UAE Supreme Court being established in Abu Dhabi. However, it should be noted that the legal systems in the Emirates of Abu Dhabi, Dubai and Ras Al Khaimah (RAK) do not answer to the UAE Supreme Court as they maintain their own local judicial systems which are independent of the federal Court system. Accordingly, Abu Dhabi, Dubai and RAK have their own Courts of First Instance, Courts of Appeal and Courts of Cassation. There are however matters that can only be dealt with by the UAE Supreme Court and which the separate Court systems of Abu Dhabi, Dubai and RAK cannot consider. These are: disputes between member Emirates or between any one or more Emirate and the Federal Government; constitutionality of the federal laws and the constitutional legality of legislation enacted by local Emirates if they are challenged by the federal laws or the Constitution; examination of the constitutional legality of laws if such a request is referred by any state Court; constitutional interpretations if requested by a federal entity or any Emirate; interrogation of Ministers and senior federal officials on the basis of a request by the Federal Supreme Council; crimes directly affecting the interests of the federation; such as crimes relating to internal or external security, forgery of the official records or seals; conflict of jurisdiction between federal judicial authorities and the local judicial authorities; and conflict of jurisdiction between the judicial authority in one Emirate and the judicial authority in another Emirate and the classification of the principles relating to it in a federal law Dubai Court of First Instance The Court of First Instance is itself divided into Minor and Major Circuits where if the value of a claim is AED 10,000,000 or less it may be decided by a single judge in the Minor Circuit. Claims over AED 10,000,000 are decided by three judges in the Major Circuit although the Major Circuit may hear claim for less than AED 10,000,000 if the Court considers that they are complex. However, it should be noted that a minor circuit may be mandated by decision of the Minister of Justice or head of the local competent judicial authority to hear and dispose of cases […]Read more
Now that many construction and engineering contracts have recommenced after a period of shut down or slow down due to the issues surrounding Covid-19, many Contractors and Employers are having to assess and deal with the effects on their projects including whether extensions of time and damages should be awarded to the Contractor. In this article, I consider the issues that arise and the position of the parties under the FIDIC suite of contracts. Most FIDIC contracts in the UAE utilise the law of England & Wales or the Federal Laws of the UAE. Additionally, although FIDIC has published their 2017 updated form of contract most projects are currently using the previous versions originally published in 1999 or, in some cases, the earlier versions. In order to be relevant to most readers, I have concentrated on the terms of the 1999 suite of contracts. This being the case I should mention that the 2017 suite of contracts are not significantly different but rather have been re-written so as to provide greater certainty and clarity so that the Employer, Engineer and Contractor understand their respective roles and obligations to reduce the potential for disputes. The Dispute Resolutions Procedures have also been updated so as to provide a more flexible approach. ‘Force Majeure’ under the 1999 suite of contracts has been replaced by ‘Exceptional Events’ under the 2017 suite of contracts but the emphasis and direction of these clauses remain essentially the same. The changed wording is, in reality, an effort by FIDIC to avoid the pre-conceptions of Force Majeure in civil law countries and allow the parties to understand what FIDIC meant by the terminology used. Therefore, much of what is said in relation to the 1999 suite of contracts and Force Majeure is pertinent to the 2017 suite of contracts as well. Before looking at the contract itself it is perhaps worth noting that Force Majeure does not ordinarily result in a Contactor being awarded damages for delay. Under most contracts and legal systems Force Majeure is seen to be an event that prevents the works being carried out but the event is not one that is a fault of the Employer or the Contractor but rather an event which could not have been foreseen by either party and thus the financial effect should be neutral. In other words, neither party has accepted or indeed seen the risk of the Force Majeure event occurring as it was not within either party’s contemplation at the time that the contract was entered into. FIDIC expand this idea and set out definitions as to what their use of the term means. It is important to understand that any case law or interpretation based on civil law concepts that deal with Force Majeure may not be applicable when construing the FIDIC suite of contracts. Care should be taken when considering case law of civil law interpretations outside of the FIDIC contracts to ensure that the specific issues being considered to do indeed fall within the scope and wording of the FIDIC suite of contracts. FIDIC DEFINITION OF ‘FORCE MAJEURE’ Sub-Clause 19.1 (Definition of Force […]Read more
Measures taken to protect the Insurance sector in the UAE: Resolutions of the Insurance Authority further to the coronavirus pandemic
In the backdrop of a worldwide health crisis brought about by the novel coronavirus (COVID-19), the Insurance Authority in the UAE took a number of measures to limit the adverse implications of the virus on the insurance sector and to ensure continuation of insurance businesses across the UAE. On 8th March 2020, the Authority passed Circular No. (3) of 2020, which relates to precautionary measures and preventive procedures for the protection of public health and safety; its intent was to also curb the spread of the novel coronavirus (COVID-19): By virtue of this circular, the Insurance Authority requested insurance companies and professionals associated with the insurance sector, who are operating in the UAE, to take precautionary and preventive measures as necessary for the protection of public health at workplaces. This direction relates to the technical and operational level of businesses. The Circular further directed employees and clients to implement all preventive procedures issued by the competent authorities of the UAE, which included: quarantine for employees who have returned from overseas travel, in particular for those who were returning back to the UAE from the countries that were mostly affected by the virus, and further recommended opportunities to work from home for any employee manifesting symptoms similar to the symptoms of the Covid-19 virus. They also emphasized the necessity to follow all means of hygiene and the ongoing sterilization of all company facilities. On 30th March 2020, the Board of Directors of the Insurance Authority passed several resolutions, which provided: Resolution No. (13) of 2020, which amended several provisions of Resolution No. (9) of 2011 of the Board of Directors of the Insurance Authority and directed on the instructions for the licensing of health insurance claims of management companies and further updated the regulation of insurance businesses whereby, “Health Insurance & Claims companies shall provide the Authority with an annual report that contains details of all the business of the company during that year, and the closing financial statements of the financial year, duly audited, having enclosed therewith the report of the external auditor, within (4) months from the ending date of the financial year.” In addition, the Authority added a third clause to the said Article (13) requiring Health Insurance & Claims companies to provide the Authority with a quarterly report on the company’s business and the accounts related thereto. This was to be signed by the chairman of the board of directors, the general manager, or the executive director, within a duration not exceeding (45) days from the end of the quarterly period. 2. Resolution No. (14) of 2020, amended provisions of Resolution No. (15) of 2013 of the Board of Directors of the Insurance Authority. This concerned the system of insurance brokerage. Under Article 1, the Authority amended Article (13) of its said Resolution No. (15) of 2013, with the addition of a sixth clause which allowed for an insurance broker to submit an application to the Authority for the reduction of the amount of the letter of guarantee issued by a banks operating in the UAE by an amount of one (1) Million Dirhams from the amount […]Read more
In a historical development of India and UAE relationship, UAE Judgment will be recognized and enforceable in India based on reciprocity as per the Notification issued by Government of India on 17 January 2020 (“Notification”). On 17 January 2020, Government of India published in its official gazette Notification for recognition of the UAE as a ’Reciprocating Territory’ under The Code of Civil Procedure of 1908 of India (5 of 1908) (“Indian CPC”) relative to the enforcement of UAE judgments by Indian Courts. Thus, a judgment passed by a ‘Superior Court’ of UAE can be directly enforced in India by filing a certified and legalized copy of the final and conclusive judgment. BACKGROUND OF THE NOTIFICATION India and UAE had entered into an Agreement on 25 October 1999 on Juridical and Judicial Cooperation in Civil and Commercial Matters for the Service of Summons, Judicial Documents, Commissions, Execution of Judgments and Arbitral Awards (“Agreement’). The Agreement so far only applied to service of summons, judicial documents or processes, recording of evidence by means of Letters of Request and / or commissions and execution of decrees and arbitral awards. On 29 May 2000, the instrument of ratification of the Agreement was exchanged and published in the Indian Gazette on 16 December 2000. However, until publication of the Notification in official gazette on 17 January 2020, India had only given effect to service of summons and other process under Section 29 (c) of the CPC. On 17 January 2020, the Ministry of Law and Justice of the Government of India issued a notification stating that: “In exercise of the powers conferred by Explanation 1 to Section 44A of the Code of Civil Procedure Code of 1908 (5 of 1908), the Central Government hereby declares , United Arab Emirates to be a reciprocating territory for the purposes of the said section and the following Courts in United Arab Emirates shall be the superior Courts of that territory, namely:- Federal Courts: Federal Supreme Court Federal, First Instance and Appeals Courts in the Emirates of Abu Dhabi, Sharjah, Ajman, Umm Al Quwain and Fujairah. Local Courts: Abu Dhabi Judicial Department; Dubai Courts; Ras Al Khaimah Judicial Department; Courts of Abu Dhabi Global Markets; Courts of Dubai International Financial Centre”. RECIPROCITY The Notification of 17 January 2020 is based on reciprocity. The judgment issued by foreign courts has no admissibility and hold no evidentiary value in Indian Courts, unless they are declared to be ‘Reciprocating Territories’ under Section 44 of Indian CPC. Section 44A of Indian CPC summarises the principle of reciprocity, i.e. execution in India of foreign decree passed by a foreign country (reciprocating) and the manner in which it is to be done. The said provision provides: “44A. Execution of Decrees passed by Courts in reciprocating territory— (1) Where a certified copy of a decree of any of the superior Courts of any reciprocating territory has been filed in a District Court, the decree may be executed in India as if it has been passed by the District Court. (2) Together with the certified copy of the decree, a certificate from such superior court shall be […]Read more
Have you filed your Economic Substance Regulation notification? All Licensees in the UAE must “notify” by the 30th June deadline and certain businesses engaged in “relevant activities” must further report.
By Vida Grace and Suneer Kumar/members of the corporate and commercial practice group at Al Suwaidi & Company PURPOSE The purpose of the Regulations is to ensure that UAE entities that undertake certain activities are not used to artificially attract profits that are not commensurate with the economic activity undertaken in the UAE. The rules of Economic Substance Regulations are broadly similar to the regulations introduced by other countries with similar tax environment (i.e. no or only nominal tax), as they follow the guidance issued and the global standard developed by the European Union (EU) and OECD. REQUIREMENT FOR ECONOMIC SUBSTANCE TEST For each financial period in which a Licensee earns income from a Relevant Activity, it will need to meet an Economic Substance Test in relation to that activity. In addition to an annual notification requirement, Licensees that undertake and earn income from a Relevant Activity are also required to file an Economic Substance Return within 12 months from the end of the relevant financial period. The Economic Substance Test requires a Licensee to demonstrate the following tests: Direction and Management Test “Licensee is directed and managed in the UAE in relation to that Relevant Activity” (Article 6 (2) (b) of the Regulations) Core Income Generating Activities (CIGA) Test That the core income-generating activities of the Relevant Activity are being conducted in the UAE. Adequacy Test – the License has the following: Adequate employees – pertaining to a number of qualified full -time employees who are physically present in the UAE. If outsourced, then adequate level of expenditure on outsourcing to a third party. Employee can either be employed by the Licensee, third party, or via temporary contract. Adequate level of operating expenditure incurred by the Licensee in the UAE Adequate physical assets in the UAE FIRST REPORTABLE FINANCIAL YEAR The first assessable period for a UAE company with 1 January 2019 – 31 December 2019 financial year, would be 1 January 2019 – 31 December 2019. The first assessable period for a UAE company with 1 April 2019 – 31 March 2020 financial year, would be 1 April 2019 – 31 March 2020. There is no need to comply with the Regulations for the period 1 January 2019 – 31 March 2019. SCOPE OF THE REGULATIONS The scope of the Regulations requires that where the “Licensee earns income from a Relevant Activity, they must have Economic Substance in UAE and they need to satisfy Economic Substance Test, notify and report to relevant authority”. The provisions of this Resolution shall not apply to any commercial company which is the Government of the State, or the Government of any Emirate of the State, or any governmental authority or body of any of them has any direct or indirect ownership in its share capital. WHAT RELEVANT ACTIVITIES ARE CAUGHT BY THE LEGISLATION? Relevant Activity are the following: the below listing is not exhaustive and that the list “includes the activities listed but is not limited to them.” Article 5 of the Regulations further states that the below “are regarded to be the most important activities that a Licensee carrying out a Relevant Activity […]Read more
In the UAE, is the spread of the coronavirus considered as a force majeure in construction contracts?
The question which many in the construction industry are asking during this time, is whether the current pandemic can be deemed a force majeure event. If so, what impact does this have on construction contracts? Should parties be in agreement, is it acceptable for them to continue with an existing contract irrespective of the force majeure? It is worth mentioning that this article relates only to the effect of the pandemic on construction contracts, and in the UAE, such contracts are treated differently from others, whose interpretation may take direction from the judiciary. In construction contracts for example, the exemption of liability is considered valid, but considered invalid in transport contracts. WHAT IS FORCE MAJEURE? According to the law of the United Arab Emirates and its established jurisprudence, force majeure is the result of an unexpected public accident or exceptional circumstance, at the time of contracting and it is impossible to prevent its occurrence or stave off its results, therefore, the fulfilment of the obligation of the contract becomes difficult or impossible. Article 273 of the UAE Civil Transaction Code stipulates the following: “In contracts binding both parties, if force majeure supervenes, and which makes the performance of the contract impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled. In the case of partial impossibility, that part of the contract which is impossible shall be extinguished, and the same shall apply to temporary impossibility in continuing contracts, and in those two cases it shall be permissible for the obligor to cancel the contract provided that the obligee is so aware.) The provisions of the Egyptian Court of Cassation has established that to consider the “sudden accident” or “exceptional circumstances” as a force majeure, two conditions must apply: It cannot be expected, and It is impossible to prevent it. Should one of these two conditions not be met, the status of force majeure shall cease (Appeal No. 4932/Judicial 81 issued on December 22, 2018). CORONAVIRUS IMPACT ON CONSTRUCTION CONTRACTS: Construction contracts are regulated by Articles 872 to 896 of the UAE Civil Transactions Code which provides that in construction contracts, the obligations of each party and the conditions of termination or revocation must be specified terms in the contract. Therefore, in the matter of force majeure where contractual terms have not provided for force majeure, the determination and remedy shall be applied in accordance with the general rules stipulated in this Article 273 of the UAE Civil Transactions Code. Construction contracts, as with all types of contracts, impose rights and obligations on both parties. If any force majeure occurs that makes the fulfilling contractual obligations impossible, the obligation falls away, and the contract is revoked. In such instances, neither party can compel the other for compensation, because the reason of revoking the contract is not due to the default of any of the contracting parties, but rather a result of exceptional circumstances that could neither be anticipated nor prevented at the time of contracting. Notably, up to the point of the force majeure, the obligations that have been fulfilled, or what the contractor has done to date […]Read more
Business integrity in the time of pandemic: what can businesses in the UAE do to protect their people and business?
During these uniquely challenging times, businesses are poised to react to sudden changes in the market. As businesses navigate through new waters, it is best to seek guidance from the authorities and methodically deal with issues that arise. The Ministry of Human Resources & Emiratization (MOHRE) has issued Ministerial Resolution No. (279) of 2020 on Employment Stability in Private Sector during the Application of Precautionary Measures to Curb the Spread of Novel Coronavirus (the “Resolution 279”). Resolution 279 came into effect on 26 March 2020, its date of issuance, and shall remain effective during the period of application of precautionary measures to curb the spread of COVID-19. It seeks to promote employment stability and to protect the interests of both employers and non-national workers. Article 2 of the Resolution 279 provides that establishments affected by the precautionary measures and wishing to reorganize shall progressively proceed, in agreement with the non-national employees, as follows: Implement remote working system; Grant paid leave; Grant unpaid leave; Temporary salary deduction during the referenced period; Permanent salary deduction Questions about the progressive application of the above-listed actions have arisen. Being a recent issuance, interpretations may vary. However, the overarching requirement in the implementation of any of these actions is mutual agreement or consent. The first two actions on the list are not controversial. MOHRE Ministerial Resolution No. (281) of 2020 Regulating the Remote Work in Private Establishments during the Period of Application of Precautionary Measures to Curb the Spread of Novel Coronavirus with the annexed Temporary Guide has been issued on 29 March 2020. Article 76 of Federal Law No. (8) of 1980 or the UAE Labour Law already gives the right to employers to fix the date of annual leave. For the last three actions, businesses must be careful not to overstep the protected rights of employees by faithfully complying with requirements set by the authorities. It cannot be overemphasized that consent from employees must be given knowingly and voluntarily. For the temporary salary deduction, MOHRE has provided a template for a temporary supplement to the employment contract. Such a temporary supplement to an employment contract shall be effective for the agreed effectivity period or for as long as Resolution 279 is in effect, whichever is earlier. Also, employers must provide the employee with an executed copy of the temporary supplement and must provide a copy to MOHRE when requested. For permanent salary deduction, employment contract details may be amended with MOHRE’s approval. The procedures are in the process of being updated, but if the existing data modification service for employers will apply, the minimum condition requires that the establishment status is private, the establishment license is valid and updated, and the original e-signature card of an authorized partner/owner is available. The establishment number, number of work card, the details of change in salary, allowances, and conditions, employee’s valid passport and residence visa, photo of the employee, and copy of the old contract should also be kept on hand. We will be monitoring updates on the procedures. Article 3 of Resolution 279 recognizes surplus in non-national workers or redundancy brought about by the implementation […]Read more
Focus: Commercial Property: Does the current pandemic give rise to claims for the non-payment of commercial rent?
The impact of the Coronavirus has been felt across all sectors, and on a global scale. Life has been interrupted on a social and economic level. The virus’s reinfection rate has given cause to governments and world leaders to make fast decisions on how to deal with the pandemic to avoid further contamination and spread of the disease. This has had a knock-on and profound impact on commercial businesses that rely on consumer trade. The United Arab Emirates has taken extensive measures on both a sociological and economic level. Precautionary measures to protect society include the closing of all restaurants, coffee shops and outlets providing food and drink, as well as other shops and commercial centers. Such decisions may seem extreme, however, were necessary to protect the health and safety of residents. Naturally, by forcing businesses to cease trade, business owners may find themselves still liable for rent payments, but without the necessary revenue generated from commercial activity. The solution The solution lies in the provisions of articles contained in the Civil Transactions Law of the United Arab Emirates which confirms that the rental entitlement is linked to the payment of the benefit from the leased property. Whereas, Article 750 of the same law stipulates that “the rent shall be due upon the enjoyment of use being derived, or when it becomes capable of being derived”. Furthermore, Article 781 stipulates that “the complete loss of enjoyment of the leased property shall release the lessee from paying the rent as of the occurrence of such loss.” Additionally, Article 782 stipulates that “where the full enjoyment of the leased property is prevented due to an act of the competent authorities, without cause attributed to the lessee, the lease shall be rescinded, and the rent forfeited as of the date of such prevention”. Such articles furnish tenants with rights to revoke, reduce and even not pay rent, for the duration of which commercial activities have been prevented. Therefore, where authorities have issued a temporary suspension of commercial activities across the UAE, the role of the judiciary (in the event of disputes between the lessors and tenants), is to balance the revocation or reduction or non-payment of the rent during that temporary period. Whereof, the decisions issued are temporary in nature, we find that judges may more likely allow for tenants to pay a reduced rent or zero rent during the commercial suspension period. It is less likely they will allow the revocation of lease contracts in its entirety. In conclusion, in light of the impact the coronavirus is having across all businesses, we recommend that landlords/lessors take into consideration the exceptional circumstances businesses find themselves in, and refrain from making stringent rent demands. This will safeguard the lessee – lessor relationship and such good-will would not only avoid unnecessary conflict and potential losses but will contribute to generating stronger relationships between landlord and tenant with a long-term view. Should you have any inquiries related to force majeure or the impact of COVID19 on your commercial leases, please get in touch with Wael Deyab on +971 4321 1000 or by email at firstname.lastname@example.orgRead more
As the world deals with the outbreak of the novel coronavirus and its implications on the economy, there is increased attention from the business and legal community on the application of force majeure on a range of commercial contracts and obligations. While contracting parties may specify remedies and outcomes in the event of a force majeure, in the absence of any such provisions, the Article 273 of the United Arab Emirates Civil Code (Federal Law No. 5 of the Year 1985), shall be applied. In bilateral contracts, if a force majeure arises that makes the performance of the obligation impossible, the corresponding obligation shall be extinguished, and the contract ipso facto(is) rescinded If the impossibility is partial, the consideration for the impossible part shall be extinguished. This shall also apply to the provisional impossibility in continuous contracts. In both instances, the creditor may rescind the contract provided the debtor has knowledge thereof. Contracts of supply, between buyers and sellers or vendors and clients, are likely affected by the coronavirus, and contracting parties may be evaluating the potential applications of force majeure and its relief on their respective agreements. How is the occurrence of force majeure determined? The UAE courts will ultimately determine what constitutes force majeure, its impact on the ability of the contracting parties to perform their contractual obligations, and the determination of fair relief to any aggrieved parties. Therefore, parties in supply contracts must be able to establish how the coronavirus has rendered it impossible for them to either fulfil fully or partially their contractual obligations. Allowing any party to a contract to avoid liability shall be the sole discretion of the court as settled in a 2011 case at the Dubai Court of Cassation. What should I do if I cannot fulfil my obligation under the contract, or where I do not receive the expected goods or services due to the impact of coronavirus (such as borders closing, movement or travel restrictions or event cancellations)? The first step would be to review your existing contract and establish if there are any provisions for relief in the event of a force majeure. Should you find your contract is silent, the provisions of Article 273 of the UAE Civil Code may apply and the determination of the existence of force majeure, its impact on the parties and the corresponding relief shall be at the sole discretion of the courts. What remedies are available to me where I have paid for goods or services and due to force majeure, I do not receive my goods or services? In the absence of any contractual provisions, above Article 273 (1) and (2) will come into force and the parties will be restored to the position they were in before entering into the contract. In the event that this is not feasible (such as where part of the services or goods have been rendered), then the party which has suffered loss, as a result of being unable to unwind the contract, maybe awarded compensatory damages. Article 287 of the UAE Civil Code provides that if it is proven that a loss arose out […]Read more