Investing in any emerging economy carries with it a degree of risk, especially when considering how best to ensure that contracts are honoured and disputes resolved. The IFC/World Bank has ranked the UAE as 134th in the world in its “Doing Business” Index for 2012 for enforcing contracts, citing the slow process of enforcement (537 days on average, involving 49 procedural steps), the cost of pursuing a claim (approximately 26.2% of the claim's value), and the complexities of Arabic language civil code trials.
As with elsewhere in the World, the default mechanism for resolving disputes is the local Court. Local Court proceedings in the UAE are conducted in Arabic, and there are generally limitations upon the rights of audience before Arabic Courts. For example, only UAE nationals and a small number of senior Arab advocates with special licences can appear before the Courts. This means, therefore, that if a party wishes to be represented in Court, they must appoint a qualified local advocate to represent them.
The length of a case will depend on the complexity of the claim. However, litigants can usually expect their case to take between six and twelve months to reach first judgement stage. That timescale will increase substantially if the losing party chooses to appeal the judgment through the higher Courts. Furthermore, in complex technical disputes, the Court is likely to appoint a technical expert to consider certain issues and report back prior to judgement. This can also increase the length of time it takes to reach first judgment.
Once a final judgement has been issued by the Court, it may then be necessary for that judgement to be enforced against assets of the losing party. The enforcement process can also take considerable time, especially if the losing party opposes the process.
The DIFC Courts
Since inception, the Courts of the DIFC have presided over civil and commercial disputes involving entities registered, and disputes arising out of transactions carried out, in the DIFC. The DIFC Courts employ English common law principles, are administered by internationally recognised judges and proceedings are held in English. The Courts also recognise the ability of the parties to choose their own governing law, and permit the recovery of the winner's costs against the losing side.
Until recently, the jurisdiction of DIFC Courts was limited to disputes with a link to the DIFC. Since the end of 2011, the potential jurisdictional scope of the DIFC Courts has been extended, to allow parties with no connection to the DIFC to explicitly agree to submit to the jurisdiction, either before or after a dispute arises, if they wish to do so. In addition, recent case law from the DIFC appeals Court has clarified the position regarding foreign companies which operate in both the DIFC, and 'mainland' Dubai, stipulating that its jurisdiction can be invoked even if the dispute relates to a situation occurring outside of the DIFC.
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 DIFC Courts, and the internationally recognised practices and standards they adhere to, as the governing law and venue for resolving disputes.
Foreign investors generally prefer to have their disputes resolved through arbitration instead of the local Courts.
Arbitration is not new to the region having been a recognised concept in the Arab World since at least 1876 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 arbitration legislation in the UAE is contained within the Civil Procedure Law 1992. However, a draft Arbitration Law, which is broadly based on the Uncitral Model Law, was circulated on 16 February 2012. Continued efforts towards the enactment of this Federal piece of legislation are a positive indication of the UAE's recognition of the importance of a clear framework for alternative dispute resolution.
The UAE hosts three established arbitration centres; the Dubai International Arbitration Centre (DIAC), the Abu Dhabi Commercial Arbitration Centre and the DIFC Arbitration Centre (in conjunction with 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.
The UAE was a latecomer to the New York Convention as it did not sign up until November 2006, however, the very act of signature in itself assisted in increasing international confidence in the region's approach and attitude towards arbitration.
Alison Hubbard, Partner
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Björn Gehle, Partner
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