As a firm that regularly advises businesses on contract formation and enforceability, we receive many queries from companies seeking a review of their terms and conditions or facing difficulties enforcing their contractual rights.
When drafting or negotiating a commercial contract, there are several important issues that should be considered from the outset. Below, we outline some of the key points for individuals responsible for preparing or negotiating contracts on behalf of their businesses.
Governing law
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.
Choosing the Right Jurisdiction
The appropriate dispute resolution forum will depend largely on the location of the parties’ assets and the nature and value of the potential claim.
Where the other contracting party has assets located solely in the UAE, the Dubai Courts may be an appropriate forum. Depending on the circumstances and value of the claim, parties may also consider the DIFC Courts, including the DIFC Courts’ Small Claims Tribunal (“SCT”).
For SMEs in particular, the SCT can be an attractive option for eligible claims. Proceedings are generally designed to be quicker and more straightforward, and parties do not necessarily need to be represented by lawyers. Many disputes are also resolved before reaching a final hearing.
Where a contractual counterparty has assets outside the UAE or operates internationally, arbitration may provide greater flexibility, particularly where international enforcement could become necessary. The Dubai International Arbitration Centre (“DIAC”) is one of the key arbitration institutions available to businesses operating in the region.
The UAE is also a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the “New York Convention”. This can make the international recognition and enforcement of arbitral awards more straightforward, subject to the requirements and limitations of the Convention and the laws of the relevant jurisdiction.
Businesses should also remember that the most appropriate jurisdiction will depend on the specific circumstances of the contract, including the parties, assets, governing law, location of performance and potential enforcement requirements.
Legal Costs
Contracts should clearly address the position regarding the recovery of legal fees and other costs incurred when enforcing contractual rights.
This is particularly important where arbitration is selected. The applicable arbitration rules and the wording of the contract should be reviewed carefully to determine whether and to what extent legal costs may be recoverable.
In litigation before the Dubai Courts, the successful party will generally receive only nominal legal costs, rather than full reimbursement of the legal fees actually incurred. By contrast, the DIFC Courts, other than the SCT, will generally have greater scope to award the successful party its reasonable legal costs, subject to the applicable rules and circumstances of the case.
Including an appropriate costs provision in a contract can therefore help businesses understand their potential exposure before a dispute arises and may provide greater certainty when enforcing their rights.
Why Contract Drafting Matters
Choosing the governing law, jurisdiction and dispute resolution mechanism should not be treated as standard boilerplate when preparing a commercial contract. These provisions can have a significant impact on how easily a business can enforce its rights, the costs involved and the jurisdictions in which a judgment or arbitral award can ultimately be enforced.
A contract that appears straightforward at the drafting stage can create significant difficulties if these issues are not considered carefully before the agreement is signed.
If your business is entering into a new commercial agreement or you are concerned about the enforceability of an existing contract, obtaining legal advice at an early stage can help identify potential risks and ensure that the contractual terms properly protect your interests.
Need advice on your commercial contracts? Contact James Berry Law to discuss your contract drafting, review and enforcement requirements and receive advice tailored to your business and circumstances.
This article does not constitute legal advice and should not be relied upon as such. For specific advice relating to your circumstances, please contact us.
