As a firm which deals with contract formation and their enforceability, we receive a lot of queries from businesses either requesting a review of their terms and conditions or they approach us having encountered problems with the enforcement of their rights under the contracts. We have summarised a few points which should be considered by those individuals tasked with drafting/negotiating contracts on behalf of their company:
Whilst we generally recommend that parties choose the governing law which is most relevant to the subject matter of the contract, if a contract is formulated in the UAE but applies foreign law, the national courts will usually elect to apply the laws of the United Arab Emirates to the contract rather than the foreign law. Therefore, an important consideration is that businesses are clear as to whether they would prefer to choose litigation or arbitration, and whether abroad or in the UAE. If litigating abroad it is difficult to enforce a foreign judgment within the courts of the UAE, so foreign jurisdiction should be avoided. If litigation in the UAE is chosen then the jurisdiction should ideally be the same as the governing law applicable to the contract. E.g. a contract to be enforced in the Dubai courts should have the governing laws of the United Arab Emirates as applied in the Emirate of Dubai. The position in the Dubai International Financial Centre (“DIFC”) Courts is a little different as they will more readily apply the governing law specified in the contract. However, it should ideally be the laws of the DIFC, the laws of the United Arab Emirates as applied in the Emirate of Dubai or the laws of England & Wales. Within arbitration proceedings there will be some discretion of choice as to the law applicable to the contract subject to mandatory provision of local laws and public policy.
If the other party to the contract has assets located in the UAE only, the best forum for dispute resolution would be to proceed via the Dubai Courts, the DIFC Court of First Instance (where the claim is over AED 1,000,000) or the DIFC Courts’ Small Claims Tribunal (“SCT”) where the claim is not over AED 1,000,000. For SME’s especially, the SCT is an ideal choice of jurisdiction as hearings in the SCT take place without lawyers needing to be present, they are generally quicker (many cases settle even before the Tribunal stage) and further and it is easier to enforce a domestic judgment in the UAE than a foreign one. If a business has a contractual relationship with a company which has assets located outside of the UAE, or indeed across the world, then it would be better to opt for arbitration via the DIFC-LCIA Arbitration Centre or the Dubai International Arbitration Centre (“DIAC”). The DIFC-LCIA is essentially a joint venture between the DIFC and the London Court of International Arbitration (‘LCIA’). The LCIA Court plays a role in supervising certain aspects such as the appointment of the tribunal, challenges to arbitrators, and controlling costs. The LCIA Court also has the right to directly administer any arbitration if it deems it appropriate to do so. This gives the DIFC-LCIA a distinct advantage when it comes to considering the governing law within contracts. The DIFC-LCIA also benefits from the supervision and support of the DIFC Courts. The DIFC Courts supervise the DIFC-LCIA by offering interim precautionary measures, confirming the validity of arbitral awards and ordering their enforcement. Further to this, opting for the DIFC-LCIA means that international enforcement becomes substantially more straightforward. The UAE is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the “New York Convention”) which in essence means that an international award rendered in one signatory country can generally be enforced in another signatory country subject to compliance with the convention’s provisions. For the DIAC, Dubai courts provide similar supervision and support in the arbitration.
Contracts should clearly stipulate the position regarding the recovery of legal fees. The reason why this is important is because the DIAC rules make no reference to the recovery of legal expenses incurred by parties. Therefore in a contract with a jurisdiction of the DIAC, unless the parties clearly mention the recovery of legal fees, the arbitral tribunal would have no power to allow the recovery of fees under the DIAC rules. In litigation, the position is that Dubai Courts will only award nominal legal fees to the successful party (of around AED 1,000 – AED 2,000) at each stage of the litigation process. The DIFC Courts (except the SCT) will usually provide the successful party with an award for their reasonable legal costs, reasonably incurred (subject to some further provisions).
This article does not constitute legal advice and should not be relied upon as such. For specific advice, please contact firstname.lastname@example.org or email@example.com.
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