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TRANSCRIPT
Q4 - 7 - December - 2016
CASES & DEALS
INTERNATIONAL HIGHLIGHTS
LOCAL LAW UPDATES
QUESTION & ANSWER
Arbitration in the UAE
Latest Amendments to the Kuwait
Labor Law for the Private Sector of
2016
Foreign Direct Investment Law
Be the Owner of your Company
THE KUWAITI MARKET - A NEW ERA
ContentLocal Articles 1
Local Law Updates 5
The Kuwaiti Market a New Era 8
International Hghtlights 12
Question & Answer 18
Cases & Deals 19
Happy reading.Nourhan El AssarMarketing Manager
Overview
Welcome to the seventh edition of Al Markaz Law Firm’s Newsletter
Keeping up with international business developments, this issue presents some of the contemporary legal and business that are taking place locally and globally. The International Highlights section continues to keep our readers abreast with happenings in the international markets. Given that the UAE is frequently used as the location or “seat” for arbitration for parties conducting business both in the UAE itself and in the wider Gulf region, in this issue’s international highlights, we discuss arbitration, a popular method for dispute resolution for parties involved in complex projects and high value commercial transactions. In addition, again focusing on the UAE in this issue, we share with you the Federal Supreme Court’s decision with regards to physical suppliers of bunkers that have no right to recourse against Owners/Charterers.
With a special focus on the Kuwaiti market, Al Markaz Law �rm’s team discuss the changes shaping the beginning of this new era with a series of topics that will be covered through two newsletter issues. . The team also highlights a number of major business points in terms of doing business in Kuwait, like the legal implications of the relationship between an employee and a foreign entity (their employer), for the local sponsor. Finally, in this issue we share some recent legal updates and shed light on the latest amendments to the Kuwait Labor Law for the Private Sector of 2016 and the Electronic Media Law.
Local Articles
MOHAMMAD ATTAAssociate
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In light of the importance of the business relationships that exist between international foreign companies and local companies in Kuwait, and in particular consideration of the need to define the applicable legal framework that governs these relationship within the area of logistics, this article explains the main differences that any company, while practicing business in Kuwait, needs to know in order to avoid an overlap between a sponsorship relationship and an employment relationship.
A Sponsorship Relationship As per the legislations currently in force, local companies may, for the benefit of the foreign companies (employer), bring foreign workers into the country by facilitating their entrance as well as their representation before the governmental authorities, in accordance with the contractual requirements of the foreign companies under which they are bound but without being financially obliged towards any of them. Furthermore, local companies may not supervise or direct these workers, who are originally under employments contracts with the respective foreign company, and their relationship is regulated by the applicable laws.
Foreign companies have agreed with local companies that while they operate in the Kuwaiti territory, they shall receive logistical support from the local companies to be extended to these workers and staff who are in effect employed by the foreign companies. The Employment relationshipIf a dispute between an employee working for the foreign company over the implementation or the execution of the terms and conditions of the employment contract signed between the respective employee and the foreign company, the local company in question will not bear any financial obligations arising from the implementation of the Kuwaiti Labor Law given the fact that there is not a work relationship in the first place, and because the workers are directly subject to the contractual relationship with their respective foreign employer which is responsible for paying their wages and salaries. Hence, the lawsuit filed by any of the employees of a foreign company against local company will be legally invalid under the jurisprudence of Kuwaiti law.
The legal implications of the relationship between an employee
and a foreign entity (their employer), for the local sponsor
Khalil Abdel HamidSenior Associate
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Local Articles
In light of the latest growth and increased popularity over Islamic financing instruments, this article addresses the “tawarruq” currently being used in Kuwait by many individuals, institutions and companies.
“Tawarruq” is, in general terms, a financing instrument that governs a business relationship where the client’s (be it an individual, an institution or a company) sole interest in the transaction is the generation of funds, while the financier strives to gain a set profit, great or small, in exchange for his financing services. In consequence the financier deposits the finance in the client’s account.
As a way of guarantee over the agreed amount owed by the client to the financer, the client signs several forms of security agreements, in addition to signing promissory notes for the total amount of the debt plus profits, and providing joint personal and in-kind collaterals. Such collaterals may be on the form of a mortgage over part of the client’s assets, including shares or real estate properties.
The law interferes and enforces its authority
over Tawarruq agreements in the event of a dispute between the financier and the client over aspects such as the default in payment by the client in accordance with the payment schedule or the payment mechanism agreed upon by the parties, or any other instances that are deemed a breach of contractual obligations. In such case, the client challenges the validity of the tawarruq agreement based on the fact that there has not been any actual purchase or sale of goods or commodities by the financier on behalf of the client, or on the fact that the commodities were not identified or named or described in the Tawarruq agreement, or that the profit specified in the Tawarruq agreement is higher than the maximum legally enforceable (i.e. 7% of the value of the debt) etc. In such case, when a dispute takes place in practice, the estimated timeframe for a final sentence to be rendered by the competent court is approximately one to five years.
The ruling of the Court of Cassation, being at the pinnacle the litigation hierarchy, is considered final and definite on legal matters. Hence, its ruling has mandated that the financier shall have the right to recourse on the client based on the following two points:
The latest news on Tawarruq Agreements as per Kuwaiti Law
FirstlyThe promissory note that the client signed at the execution of the Tawarruq agreement with the financier in exchange for obtaining the finance, which included, according to the promissory note, the principal amount of the debt plus the profits, which is called ‘disbursable commitment’; and
Secondlythe value of the amount of the claim given in the Tawarruq agreement, containing the principal amount of the debt plus profits, also known as ‘original commitment.’
The ruling of the Court of Cassation provides as follows:
“The establishment of a commercial document as payment instrument of a previously made commitment shall result in the establishing of a
new commitment which is the ‘disbursable commitment’ besides the ‘usual commitment’”.
(Judgment no. 660/1997 Commercial – Court hearing dated 9.11.1998)
The Tawarruq transaction itself is considered legally sound as long as it is construed according to the applicable laws. The contracting parties are considered bound to the terms and conditions of the contract that they both signed; coincidentally neither party may revoke or amend its provisions independently from the other party except
Trade Law, the laws governing the monetary policies, the laws of the Central Bank of Kuwait and the banking profession, all of which contain provisions that are, in fact, in conflict with the nature of Islamic financing companies. (Judgment no. 396/403/2012 – Court Hearing on 3/1/2013)
To sum up, it may be concluded that the judiciary system rests on the understanding that Tawarruq agreements executed by shariah-compliant companies, would be deemed valid, effective, enforceable, binding to the parties in its conditions, provided that they meet the requirements to this effect. They are consensual contracts once the parties agree to their terms and conditions included therein, and the Tawarruq agreement does not require a particular form for it to be rendered as legal; the agreement is deemed valid upon agreeing on the sale, the subject matter of the sale and the price, and when the sale transaction is considered to have been effected, provided that the subject of the sale is not in violation of the law, the public order or the proprieties.
within the limits defined by the agreement, or in a manner that is appropriate in consideration of the good faith and honorable dealing between the parties, as has been stated within Articles 196 and 197 of the Civil Code.
Further, if the Tawarruq agreement cannot be held invalid on the basis that it fulfills all requirements then it shall be treated as valid and effective and shall be binding on all parties, and may not be refuted in terms of the value of the debt arising from this contract, as long as its payment could not be validated.
Moreover, the purchase contract may not be nullified on the basis that the subject matter of the sale transaction had not been identified. A sale agreement requires the consent of both parties and in order to be considered binding, it does not have to take a certain format so long as the sale had been agreed to, as well as the subject matter of the sale, and the price involved. Hence the sale transaction is considered effective, provided that the subject matter of the sale does not violate the law, the public order or proprieties. (Judgment no. 120/2001 Civil – Court hearing dated 8/4/2004)
However the contract may be nullified in the event where the plaintiff proves that the purpose of the debt is illegal or that its original cause no longer stands. The burden of proof falls on the plaintiff given that Article 177 of the Civil Code states that
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In light of the latest growth and increased popularity over Islamic financing instruments, this article addresses the “tawarruq” currently being used in Kuwait by many individuals, institutions and companies.
“Tawarruq” is, in general terms, a financing instrument that governs a business relationship where the client’s (be it an individual, an institution or a company) sole interest in the transaction is the generation of funds, while the financier strives to gain a set profit, great or small, in exchange for his financing services. In consequence the financier deposits the finance in the client’s account.
As a way of guarantee over the agreed amount owed by the client to the financer, the client signs several forms of security agreements, in addition to signing promissory notes for the total amount of the debt plus profits, and providing joint personal and in-kind collaterals. Such collaterals may be on the form of a mortgage over part of the client’s assets, including shares or real estate properties.
The law interferes and enforces its authority
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Local Articles
FirstlyThe promissory note that the client signed at the execution of the Tawarruq agreement with the financier in exchange for obtaining the finance, which included, according to the promissory note, the principal amount of the debt plus the profits, which is called ‘disbursable commitment’; and
Secondlythe value of the amount of the claim given in the Tawarruq agreement, containing the principal amount of the debt plus profits, also known as ‘original commitment.’
The ruling of the Court of Cassation provides as follows:
“The establishment of a commercial document as payment instrument of a previously made commitment shall result in the establishing of a
new commitment which is the ‘disbursable commitment’ besides the ‘usual commitment’”.
(Judgment no. 660/1997 Commercial – Court hearing dated 9.11.1998)
The Tawarruq transaction itself is considered legally sound as long as it is construed according to the applicable laws. The contracting parties are considered bound to the terms and conditions of the contract that they both signed; coincidentally neither party may revoke or amend its provisions independently from the other party except
Trade Law, the laws governing the monetary policies, the laws of the Central Bank of Kuwait and the banking profession, all of which contain provisions that are, in fact, in conflict with the nature of Islamic financing companies. (Judgment no. 396/403/2012 – Court Hearing on 3/1/2013)
To sum up, it may be concluded that the judiciary system rests on the understanding that Tawarruq agreements executed by shariah-compliant companies, would be deemed valid, effective, enforceable, binding to the parties in its conditions, provided that they meet the requirements to this effect. They are consensual contracts once the parties agree to their terms and conditions included therein, and the Tawarruq agreement does not require a particular form for it to be rendered as legal; the agreement is deemed valid upon agreeing on the sale, the subject matter of the sale and the price, and when the sale transaction is considered to have been effected, provided that the subject of the sale is not in violation of the law, the public order or the proprieties.
within the limits defined by the agreement, or in a manner that is appropriate in consideration of the good faith and honorable dealing between the parties, as has been stated within Articles 196 and 197 of the Civil Code.
Further, if the Tawarruq agreement cannot be held invalid on the basis that it fulfills all requirements then it shall be treated as valid and effective and shall be binding on all parties, and may not be refuted in terms of the value of the debt arising from this contract, as long as its payment could not be validated.
Moreover, the purchase contract may not be nullified on the basis that the subject matter of the sale transaction had not been identified. A sale agreement requires the consent of both parties and in order to be considered binding, it does not have to take a certain format so long as the sale had been agreed to, as well as the subject matter of the sale, and the price involved. Hence the sale transaction is considered effective, provided that the subject matter of the sale does not violate the law, the public order or proprieties. (Judgment no. 120/2001 Civil – Court hearing dated 8/4/2004)
However the contract may be nullified in the event where the plaintiff proves that the purpose of the debt is illegal or that its original cause no longer stands. The burden of proof falls on the plaintiff given that Article 177 of the Civil Code states that
In light of the latest growth and increased popularity over Islamic financing instruments, this article addresses the “tawarruq” currently being used in Kuwait by many individuals, institutions and companies.
“Tawarruq” is, in general terms, a financing instrument that governs a business relationship where the client’s (be it an individual, an institution or a company) sole interest in the transaction is the generation of funds, while the financier strives to gain a set profit, great or small, in exchange for his financing services. In consequence the financier deposits the finance in the client’s account.
As a way of guarantee over the agreed amount owed by the client to the financer, the client signs several forms of security agreements, in addition to signing promissory notes for the total amount of the debt plus profits, and providing joint personal and in-kind collaterals. Such collaterals may be on the form of a mortgage over part of the client’s assets, including shares or real estate properties.
The law interferes and enforces its authority
FirstlyThe promissory note that the client signed at the execution of the Tawarruq agreement with the financier in exchange for obtaining the finance, which included, according to the promissory note, the principal amount of the debt plus the profits, which is called ‘disbursable commitment’; and
Secondlythe value of the amount of the claim given in the Tawarruq agreement, containing the principal amount of the debt plus profits, also known as ‘original commitment.’
The ruling of the Court of Cassation provides as follows:
“The establishment of a commercial document as payment instrument of a previously made commitment shall result in the establishing of a
new commitment which is the ‘disbursable commitment’ besides the ‘usual commitment’”.
(Judgment no. 660/1997 Commercial – Court hearing dated 9.11.1998)
The Tawarruq transaction itself is considered legally sound as long as it is construed according to the applicable laws. The contracting parties are considered bound to the terms and conditions of the contract that they both signed; coincidentally neither party may revoke or amend its provisions independently from the other party except
“every agreement, where its purpose is not expressed within the contract, will be under-stood to have a lawful purpose unless proven otherwise”.
Further, there is no ground to claim for misrepresentation because the foundation of the agreement is based on the facts that have taken place i.e. the parties agreed on the financing in exchange for the agreed profit between the parties, irrespective of the amount of this profit.
Further, there is no room to say that the basis for the Tawrruq Agreement, being the financing agreement, contains compound interest (usury or ribaa) considering that the articles of association of the financing companies do not allow it to extend usurious services, whether in the form of interests or in any other form. In addition, their business is subject to the legislative oversight of its own advisory legislative body.
Therefore, with respect to Islamic institution’s businesses, they do not comply with the same regulatory authorities stipulated in other laws such as the Commercial Companies Law, the
Trade Law, the laws governing the monetary policies, the laws of the Central Bank of Kuwait and the banking profession, all of which contain provisions that are, in fact, in conflict with the nature of Islamic financing companies. (Judgment no. 396/403/2012 – Court Hearing on 3/1/2013)
To sum up, it may be concluded that the judiciary system rests on the understanding that Tawarruq agreements executed by shariah-compliant companies, would be deemed valid, effective, enforceable, binding to the parties in its conditions, provided that they meet the requirements to this effect. They are consensual contracts once the parties agree to their terms and conditions included therein, and the Tawarruq agreement does not require a particular form for it to be rendered as legal; the agreement is deemed valid upon agreeing on the sale, the subject matter of the sale and the price, and when the sale transaction is considered to have been effected, provided that the subject of the sale is not in violation of the law, the public order or the proprieties.
within the limits defined by the agreement, or in a manner that is appropriate in consideration of the good faith and honorable dealing between the parties, as has been stated within Articles 196 and 197 of the Civil Code.
Further, if the Tawarruq agreement cannot be held invalid on the basis that it fulfills all requirements then it shall be treated as valid and effective and shall be binding on all parties, and may not be refuted in terms of the value of the debt arising from this contract, as long as its payment could not be validated.
Moreover, the purchase contract may not be nullified on the basis that the subject matter of the sale transaction had not been identified. A sale agreement requires the consent of both parties and in order to be considered binding, it does not have to take a certain format so long as the sale had been agreed to, as well as the subject matter of the sale, and the price involved. Hence the sale transaction is considered effective, provided that the subject matter of the sale does not violate the law, the public order or proprieties. (Judgment no. 120/2001 Civil – Court hearing dated 8/4/2004)
However the contract may be nullified in the event where the plaintiff proves that the purpose of the debt is illegal or that its original cause no longer stands. The burden of proof falls on the plaintiff given that Article 177 of the Civil Code states that
Local Articles
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Bishr AlBoukaiSenior Associate
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Local Law Updates
On 25th July 2016, the executive bylaw of the Law No. 8 of 2016 relating to Electronic Media Law (“Electronic Media Law”) was published in the Official Gazette. The Electronic Media Law has 27 articles aimed at promulgating web-based activities and services.
Electronic Media The Electronic Media Law defines ‘electronic media’ as the activities that entail publishing or broadcasting materials or services of an electronic nature, that are produced, developed, published, broadcasted, communicated or accessible via the internet or any other electronic medium.
Thus, any website, link or application that has a web address and domain launched, hosted or accessible via the Internet or any other electronic medium shall be subject to the Electronic Media Law. Conversely, private and non-professional domains, websites, media or email accounts would not be subject to the Electronic Media Law.
License Parties subject to the Electronic Media Law are required to obtain a license from the Ministry of Information. Furthermore, active websites are
judicial bodies, the Electronic Media Law requires the proprietor of the electronic media activity to appoint a natural person (the “Manager”) to act as the manager of the website or the electronic media activity. However, the Law has prohibited any Manager from managing more than one website or electronic medium.
Penalties In the event of breach to the Electronic Media Law, or failure to obtain an electronic media license, shall be subject to fine ranging from KWD 500 to KWD 5000, and the court may at its discretion block the website entirely.
Criminal Complaint and Compensation Claim The Electronic Media Law creates an instrument of control to secure third party rights where, in the event of any breach, the concerned party is entitled to file a criminal complaint within three months from the date on which the breach took place.
As for a compensation claim, the concerned party is entitled to file a compensation claim against the Manager within a period of one year time limit from the dates on which either the breach took place, or the lapse of the
criminal complaint, or the date when a final decision in the criminal complaint is rendered.
In conclusion, while the Electronic Media Law imposes a number of legal restrictions for the users of websites or other web-based activities, including appointment of a Manager for the website of the electronic media activity, it is very difficult however to determine the geographic jurisdiction of this Law, especially for the universal websites such as eBay.com, etc. Furthermore, the question is also whether commercial companies operating in the State of Kuwait are required to issue a bank guarantee, including companies that are using their website for marketing purposes but not as a point of sale such as Talabat.com.
required to comply with the law within one year from the introduction of the executive bylaw of the Electronic Media Law. However public authorities, State departments, public cooperation and unions are only required to notify the Ministry of Information of their request to obtain an electronic media license, in order for the MOI to issue them their respective licenses.
Bank Guarantee To ensure the adequate protection for the users of the web-based activities, the Electronic Medial Law now imposes on any applicant to issue a bank guarantee of KD 500 (Five Hundred Kuwaiti Dinars) within sixty days from the date from the date of the Ministry of Information’s approval of their license application. However, the Electronic Media Law alternatively entitles the applicant to submit an unconditioned letter of credit for the benefit of the Ministry of Information. The Ministry of Information is accordingly entitled to deduct penalties or compensation from the bank guarantee or the letter of credit.
Liable manager With regards to determining the party that is responsible for the content of the web-based activity (website or electronic media activity or medium) before the administrative and
Electronic Media Law
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judicial bodies, the Electronic Media Law requires the proprietor of the electronic media activity to appoint a natural person (the “Manager”) to act as the manager of the website or the electronic media activity. However, the Law has prohibited any Manager from managing more than one website or electronic medium.
Penalties In the event of breach to the Electronic Media Law, or failure to obtain an electronic media license, shall be subject to fine ranging from KWD 500 to KWD 5000, and the court may at its discretion block the website entirely.
Criminal Complaint and Compensation Claim The Electronic Media Law creates an instrument of control to secure third party rights where, in the event of any breach, the concerned party is entitled to file a criminal complaint within three months from the date on which the breach took place.
As for a compensation claim, the concerned party is entitled to file a compensation claim against the Manager within a period of one year time limit from the dates on which either the breach took place, or the lapse of the
criminal complaint, or the date when a final decision in the criminal complaint is rendered.
In conclusion, while the Electronic Media Law imposes a number of legal restrictions for the users of websites or other web-based activities, including appointment of a Manager for the website of the electronic media activity, it is very difficult however to determine the geographic jurisdiction of this Law, especially for the universal websites such as eBay.com, etc. Furthermore, the question is also whether commercial companies operating in the State of Kuwait are required to issue a bank guarantee, including companies that are using their website for marketing purposes but not as a point of sale such as Talabat.com.
Local Law Updates
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Local Law Updates
Mohammed RamadanSenior Associate
•Every employer who employs at least five workers shall be required to deposit their wages in a local bank;
•The amendments have given the Public Authority for Manpower (MAP) the authority to request copies of the remittances that are sent to the respective financial institution; the amendments have imposed a penalty on violators for a maximum of three years of imprisonment or the payment of a fine of not less than KWD2,000 and limited at KWD10,000 per worker;
•The amendments impose the same penalty as mentioned above to all employers who accept to have an employee work somewhere else other than his own original employment, without prejudice to the right of the administrative entity to expatriate the worker in violation;
•With the purpose of ensuring that the law is fully implemented and executed, it has been stipulated that anyone who obstructs an employee designated by the ministry from fulfilling his duties, in compliance to this law, will be liable to pay a fine of a minimum of KWD500 up to KWD1,000
•The amendments to the law have imposed a penalty on anyone who violates any suspension or closure order issued by the Authority, without correcting or remedying exiting violations that have been notified by the competent inspector. The said penalty may be imprisonment for a term of a minimum of one month up to six months or the payment of a fine set between KWD500 and KWD1,000; and
•The amendments have also stated that in the event where the Court finds that the employer has abstained from paying the amounts due to the worker, a sentence in favor of the worker will be issued, granting him a compensation of 1% of the labor entitlement’s value of each month of delayed payment to be disbursed as of the date of application for compensation. Within the Explanatory Memorandum of the Amendments it is explained that the former applicable penalties have been proven insufficient as a counter-measure to the violations of employers, which led to the review and amendment of the Law in order to guarantee the necessary general protection while regulating the labor market within the private sector in the country.
Latest Amendments to the Kuwait Labor Law for the Private Sector of 2016Anyone who fails to pay the workers their due wages and salaries shall be imprisoned for a period of 3 years and pay a KD 10, 000 in fines.
The amendments to the Kuwait Labor Law on the Private Sector of 2016 have recently been published in the Official Gazette on 17/07/2016. The key innovations set by this law to the existing legislation are as follows:
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THE KUWAITI MARKET:A NEW ERA
Abdel Hameed GalalAssociate
The Kuwaiti Market - The Beginning of a New Era
The Kuwaiti Market - a New Era
Over the last 3 years, the Government of the State of Kuwait has taken sequential steps in order to develop the legal environment for the foreign investors to do their business in the State of Kuwait smoothly and without any obstacles.
The developments include the introduction of new laws that are directly applicable to businessmen and investors who are seeking to start (or already have started) their business in the Kuwaiti Market. These developments allow for the commencement of all kinds of business, and possibly the increase in profitability in comparison with the previous practice.
In response to these developments, as well as the multiple inquiries we’ve received from local and international clients, as a reputable law firm in the State of Kuwait, our Corporate Advisory team at Al Markaz would like to present this highlight on the major changes which have taken place in the legal framework of Kuwait from a commercial and
business perspectives in our coming issues of this quarterly newsletter. These series of articles portray the shift in the Kuwaiti market from a challenging market (particularly to foreign investments) to a financial hub aiming to attract new investors and operators, and also benefit existing market players.
Introduction
Foreign Direct Investment Law Be the Owner of your Company
According to the Commercial and Company Laws in Kuwait, any foreign investor seeking to establish their business in the Kuwaiti Market could either establish a company with a limited ownership of a mere 49% of the company’s shareholding (whereby the remaining 51% must be owned by a Kuwaiti partner) or alternatively operate under an agency scheme through a Kuwaiti agent, in accordance with the Commercial Agency Law. Establishing a representative office to study the market or opening a branch of a foreign company was not previously permitted.
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The Kuwaiti Market - a New Era
As a result of these restrictions, foreign entities were unable to expand their business in the Kuwaiti market due to limited options to establish their business in terms of corporate structures and accessing the Kuwaiti market, and limited control over and management of the Kuwaiti company as major decisions would require the consent of the local partner who had higher control over the business.
In 2013, the Kuwaiti government decided to begin a new era and enacted the Foreign Direct Investment Law (“FDI Law”) and its executive regulations which allowed foreign investors 100% ownership of a Kuwaiti FDI company, and to manage it completely without needing a Kuwaiti partner. The Law opens a new channel for foreign investors to own and control the company to pursue a great number of business activities inside the Kuwaiti market, with the exception of certain activities.
The Law also permits to have a branch of the foreign company or a representative office to study the market prior to establishing the company and operating in Kuwait.
The introduction and implementation of the FDI Law has encouraged the following companies to start their business in the Kuwaiti Market since the Law enacted in 2013:
1- IBM KUWAIT 100 % 2- HUAWEI TECHNOLOGIES KUWAIT 100 %3- GE TECHNOLOGIES CENTER KUWAIT 97%4- NTG CLARITY NETWORKS INC 100 %5- MALKA COMMUNCATIONS GROUP 60 %6- TSK ELECTRONICA Y ELCTRICIDAD S.A. 100%7- SINGULF GLOBAL PTE. LTD – Representative office8- BERKELEY RESEARCH GROUP – 99%
The following series of articles on FDI Laws in our upcoming newsletters will include a discussion on the timeframe of obtaining an FDI license, the required capital for permitted activities, as well as the restricted activities for companies to pursue under FDI Law.
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INTERNATIONALHIGHLIGHTS
International Highlights
Arbitration continues to be a popular method for dispute resolution for parties involved in complex projects and high value commercial transactions. The UAE is frequently used as the location or “seat” for arbitration for parties conducting business both in the UAE itself and in the wider Gulf region. However, despite its increasing popularity, there remain uncertainties over procedural issues and the enforcement of awards which can be a trap for the unwary. We take a look in this article at some of the common issues which have arisen recently and how parties can best avoid them.
Arbitration Law in the UAELike Kuwait, the UAE still does not have a stand-alone arbitration law based upon the UNCITRAL Model Law, although a draft has been around for many years. The current law relating to arbitration is to be found within the Civil Procedure Code (Federal Law No. (11) of 1992)(the ”CPC”).
However, for arbitrations seated within the Dubai International Financial Centre (“DIFC”), the governing law is the DIFC Arbitration Law (No 1 of 2008) which is based upon the UNCITRAL Model Law. In addition, the Abu
Dhabi Global Market (“ADGM”), Abu Dhabi’s new financial free zone, has also recently issued the ADGM Arbitration Regulations 2015, again based upon the UNCITRAL Model Law. We will look at these two “offshore” locations separately below.
Procedure and Enforcement of Domestic Awards
Before a successful party can enforce a domestic award against a debtor’s assets in the UAE, the award must be ratified by a local UAE court. It is at this stage that losing parties often challenge awards relying on what might seem like spurious procedural issues not previously raised in the arbitration proceedings. Unfortunately, the UAE courts continue to be prepared to hear such questionable arguments and they have been known to annul awards for minor technicalities. Parties must therefore pay particular attention to the procedure in any arbitration to reduce this risk. Some of the common issues are considered below:
Authority to ArbitrateThe individual who signs a contract containing an arbitration agreement on behalf of a company must have the specific authority to do so. For a public joint stock company (PJSC),
Arbitration in the UAE
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Charles LilleyPartner Senior Associate
Anna Gee
International Highlights
the new UAE Commercial Companies Law (Federal Law No 2 of 2015) confirms that the company’s articles of association must specifically authorise directors to agree to arbitration. If there is no such authority, the company must pass a special resolution to grant the authority. For a limited liability company (LLC), the general manager will usually have the necessary authority.
Companies entering into contracts with arbitration clauses with a seat in the UAE should therefore check that the individual signing has the specific authority to enter into arbitration agreements. It would also be sensible to check that the signatory for the other party also has the necessary authority.
Ability to Arbitrate: Public PolicyIn the UAE, all real estate dispositions must now be registered and a failure to do so may void the disposition. There have been several cases which have considered whether this obligation to register may affect the arbitrability of real estate disputes.
In 2012, the Dubai Court of Cassation annulled three DIAC (Dubai International Arbitration Centre) awards on the grounds of public policy. It held that the registration of contracts for the sale of off-plan property was a matter of public policy as it the related to the “rules of private ownership and the circulation of wealth” (Article 3 of the UAE Civil Code (Federal Law No 5 of 1985)). There was therefore concern amongst the real estate community that any real estate dispute would therefore also be held to be non-arbitrable.
Thankfully, since then, recent cases have narrowed the definition of which real estate disputes may not be arbitrated. If disputes involve a breach of contract and a claim for money owed arising from such breach, then such disputes are eligible for arbitration as
they are outside the remit of Article 3 of the Civil Code.
Validity of the Arbitration AgreementArticle 203 of the CPC requires arbitration agreements to be recorded in writing. Despite there being no additional requirement in the CPC for such an agreement to be signed, a Dubai Court of Cassation case held that the validity of the agreement was only established by the parties’ signatures; initialling the documents did not suffice. A further case also held that an arbitration agreement incorporated into a signed contract by way of standard terms and conditions was also not binding as it was not physically signed by the parties.
Parties should therefore ensure that all pages of contracts are physically signed including documents included by reference such as general or standard terms.
Signing of the Arbitration Award bythe ArbitratorsArticle 212(4) of the CPC states that domestic arbitration awards must be “issued” in the UAE. No further guidance was given as to what “issued” meant but the courts have indicated that to be “issued” within the UAE means that it must be signed by all of the arbitrators when they are physically present in the UAE.
We would therefore advise that evidence of the arbitrators’ location when signing is obtained in order to reduce the risk of a challenge on this basis.
Further, challenges have also been made to awards which are not signed on each page by each arbitrator. Therefore, again, we would advise that this precaution is taken despite the burden on the arbitrators.
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International Highlights
Arbitration and the DIFCMany of the difficulties which arise when arbitrating in mainland Dubai or Abu Dhabi can be avoided by choosing the DIFC as the seat for the arbitration. As set out above, the DIFC has a separate arbitration law based upon the UNCITRAL Model Law and which reflects modern arbitration practice and procedure.
The DIFC-LCIA Arbitration Centre (DIFC-LCIA) has recently been relaunched with updated rules and a new Director and Registrar. It also benefits from an international and independent board of trustees, all of whom are well known in international arbitration.
The DIFC Courts are also arbitration friendly and very forward thinking. Recently, the Courts have confirmed that they may be used as a “conduit” jurisdiction for the enforcement of foreign awards against assets in mainland Dubai. An award creditor may issue enforcement proceedings in the DIFC Courts, even when the award debtor has no geographical nexus with the DIFC. The advantage of taking this route is that enforcement applications can be made ex parte and the uncertainties (as discussed above), delays and costs of enforcement in the local courts can be avoided. The award can then benefit from the “mutual recognition” regime between the DIFC and Dubai Courts.
Arbitration and the ADGMAs mentioned above, the ADGM is Abu Dhabi’s new “offshore” free zone with a separate civil and commercial legal regime. Only established in 2013, the ADGM is still in its infancy and has a long way to go to catch up with the DIFC.However, preparatory moves are being made to set up the ADGM as a favoured seat for arbitrations.
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International Highlights
Last year saw the enactment of the ADGM Arbitration Regulations which, like the DIFC, reflect modern arbitration practice.
No arbitration centre has been created yet nor is there a “mutual recognition” regime with the local Abu Dhabi courts, but these will no doubt follow, setting up the ADGM as a true competitor to the DIFC for hosting regional arbitrations.
ConclusionsAlthough there remain difficulties in arbitrating in mainland Dubai and Abu Dhabi, with some caution, the risks can be minimised. Alternatively, parties may consider choosing the DIFC or, in the future, the ADGM, as the appropriate seat to benefit from the more modern arbitration laws in these “offshore” free zones.
Berwin Leighton Paisner (BLP) has extensive experience of handling disputes in the UAE. We can help parties navigate the arbitration maze both by advising as to appropriate dispute resolution clauses and the signature of arbitration agreements, and by handling UAE arbitrations and enforcements to ensure all procedural hurdles are overcome and the risks minimised.
About BLP
Berwin Leighton Paisner is an international law firm with over 850 fee earners, including more than 200 partners. Active in nine major sectors and across a range of industries, we have an established global footprint and last year we worked or had clients in 130 countries worldwide.
The Middle East is of strategic importance to BLP. Our offices in Abu Dhabi and Dubai are focused on the built environment, offering a
Local Articles
fully integrated service for real estate investors, banks, construction companies, financial institutions, developers and other participants throughout the MENA region.
We have market-leading experts on the ground in several areas such as corporate/commercial engineering, procurement and construction, regulatory, dispute resolution and arbitration.
Our disputes specialists in Abu Dhabi and Dubai are experts in handling arbitrations under a variety of institutional rules, including DIAC, DIFC-LCIA, ICC and ADCCAC.
Through their respective global reach, Al Markaz and BLP team up on cross-border disputes and transactions to support their clients’ international strategies.
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Rania TadrosManaging Partner
Mohamed El HawawyPartner
The OW saga - UAE Federal Supreme Court decides that physical
suppliers of bunkers have no right to recourse against
Owners/Charterers
In the first decision on the issue from the most senior court in the country, the UAE Federal Supreme Court has decided that physical suppliers of bunkers have no right of recourse against Owners/Charterers where there is a contractual sale and purchase chain. The Supreme Court has concluded that there are two separate contracts. One contract between Owners/Charterers and the OW entity pursuant to which the Owners/Charterers must make payment and a separate contract between OW and the physical supplier pursuant to which OW must make payment. Where there is such a chain, the Owners/Charterers had no liability to make payment to the physical suppliers directly.
The Supreme Court held that the delivery of the bunkers by the physical supplier to the Vessel did not create any obligations between the physical supplier and the Owners/Charterers; whilst it was recognised
that the physical supplier delivered the bunkers to the Vessel, it was held that they did so to the order of OW.
The ramifications of this Judgment are far reaching for bunker suppliers in the UAE. This judgment is certainly good news for Ship Owners who have found themselves exposed to double or even triple payment following the collapse of OW . If the Judgment is followed, Ship Owners will have good defence to claims in the UAE from physical suppliers where there is a contractual sale and purchase chain.
As most readers will appreciate the UAE legal system is a civil law system and accordingly whilst the Judgment of the UAE Federal Supreme Court is of persuasive value it is not binding.
Ince & Co partners Rania Tadros and Mohamed El Hawawy acted for the successful Owners in this matter.
International Highlights
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QUESTION&ANSWER
Qestion & Answer
What is the required action in the event that the tenant refuses to receive the
landlord’s notice of their wish not to renew the lease contract?
In such case, the landlord may: 1. Send the notice to the tenant that states their intention of not renewing the lease agreement by e-mail or fax; 2. Preferably send an official notice to the tenant that states their intention of not renewing the agreement in order to avoid arguments put forward by the tenant of them not receiving the fax or the e-mail.
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In the event that the landlord and the tenant wish to enter into a termination
agreement (“Taqayol”) to terminate the contractual relationship between them
(voluntary termination), what is the last day for the Tenant to pay the rent for the
leased property ?
The last day for the Tenant to pay the rent of the leased property and any related fees for services performed by the landlord, is the last day on which the tenant hands over the leased property back to the landlord.
In case there are any financial obligations owed by the tenant under the lease agreement after the handover date, it is recommended that a termination agreement (“Taqayol”) is executed between the landlord and the tenant, whereby all of the tenant’s financial obligations under the lease agreement should be detailed.
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Could a Foreign Principal have more than one Kuwaiti agent or distributor inside
the State of Kuwait ?
As per the new Agency Law no. 13 of 2016 in order to break the monopoly inside the Kuwaiti market , and re-affirm the principles stated in the law of commerce, the said new law confirms that a Foreign Principal may have more than one Kuwaiti agent or distributor inside the State of Kuwait.
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Qestion & Answer
To what extent is the company liable for the salaries and benefits of the
employees under their respective employment agreements, from the point
that the employees’ enter the State of Kuwait and until the said employees
obtain their residency and civil IDs?
Initially, it is important to note that the relationship between the company and their employees is an employment relationship governed by an employment agreement, whereby the employee is recruited to work for the company under a specific employment contract with a determined salary, allowances, etc. The employment agreement might include the actual date on which the Employee commences work with the company.
Article No. (10) of the Employment in the Private Sector Law provides that it is not permissible for the employer to recruit any employees from outside the Kuwait or recruit any employee from within the country, and then fail to provide them with employment at their respective entity or subsequently be found not to have an actual need for them.
Therefore the company is advised to assign the employee his work notwithstanding any requirements or procedures set by the concerned official authorities, or other arrangements with other recruitment companies.The employee shall be entitled to his salary from the date of his/her entry into the State of Kuwait in the event that he /she proves that the company’s intention was not to provide them with the agreed upon work.
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What is the penalty imposed by Competition Protection Law on the agreements,
contracts or practices or resolutions deemed in breach of free competition?
Without prejudice to any stricter penalty stipulated by any other law, the fine imposed under Competition Law for action, agreement or resolution resulting in the breach of free competition shall not exceed the greater of either KWD100,000 or the value of the illegal gains achieved. The court may also require the confiscation of the goods in question.
Repeated actions are punishable by doubling the fine, and in this case the confiscation of the goods will be mandatory. Furthermore, the company, institution or individual’s activity may be suspended for a period of three years.
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CASES & DEALS
Nazih HameedSenior Associate
Mohammed RamadanSenior Associate
Abdel Hameed GalalAssociate
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Cases & Deals
Al Markaz assisted an International Oil & Gas company in implementing its international employment policies for Kuwaiti and foreigners employees for the company’s branch in the Kuwait, in compliance with Kuwaiti laws and regulations.This entailed providing the company with a clear and complete analysis regarding the difference in implementing the Private Sector Employment Law (Law no. 6 of 2010) and Oil & Gas Sector Employment Law (Law no. 28 of 1969), and assisting the company with the implementation of its pension scheme for both Kuwaiti and foreigners employees in compliance with the Kuwaiti laws.
Secondly, our team legally assisted the client in administrating the company’s rights by avoiding double payment of End of Service Indemnity by reviewing and redrafting the company’s policy & employee handbook, as well as drafting employment agreements to be executed between the company (local branch) and all employees (Kuwaiti and foreigners)
Finally, at the implementation stage, our team advised and acted on behalf of the company with regards to the submission of the company policy and employee handbook to the Ministry of Labor and Social Affairs for their approval, as required by law.
This case was handled by Nazih Hameed -Senior Associate
Mohammed Ramadan - Senior Associate
Abdel Hameed Galal - Associate
DEALS
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Cases & Deals
Al Markaz’s advice was sought by a major multinational technology enterprise on matters of
Kuwaiti employment law in their tender process in the United States. This entailed examining
the applicability of the company’s employment plans, compensation package and working
hours in light of Kuwaiti law, and advising the client in a manner that best suits the nature of
the scope of work to be implemented. Our team draws on years of experience in advising
employers about contingent and non-contingent issues surrounding employment. We
understand the need to ensure that workplace policies are robust and effective, in order to
ensure best practice and fair-workplace standards.
This case was handled by Ayman Nada and Nadyn Saleh
This case was handled by Qutyaba Al Saeed –Head of Litigation Department
Khalil Abdel Hameed – Senior Associate
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Our litigation team has recently acted in a case deemed the first of its kind in the State of
Kuwait, where a Capital Markets Authority employee has brought action against the CMA
itself. Our team succeeded in obtaining a final judgment for the favor of the employee in his
case against the Capital Markets Authority, whereby the verdict obliges the Authority to re-eval-
uate its report about the efficiency of the employee which had been issued with the objective
of depriving him of his promotion. The invalidity of the report was argued by the admitted
evidences introduced by our litigation team which led to this distinct verdict in favor of the
employee.
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Khalil Abdel Hameed Senior Associate
Ayman NadaVice-Managing Partner,
Partner and Head of Corporate Advisory
Nadyn SalehSenior Associate CASES
Qutyaba Al Saeed Head of Litigation Department
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Our Team
Bakker AleneziPartner - Litigation
Fawwaz Al-SaeedManaging [email protected]
Ayman NadaVice-Managing Partner,
Partner and Head of Corporate Advisory
Qutayba Al SaeedHead of Litigation
Nazih HameedSenior Associate
Ahmed Al SherifSenior Associate
Mohammed RamadanSenior Associate
Faisal Saleh Al Saeed Attorney
Mamdouh SalehSenior Associate
Ismail MegallySenior Associate
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Our Team
Khalil Abdel HameedSenior Associate
Abdel Hameed GalalAssociate
Muaz Al YahiaAttorney
Hassan SalmanSenior Associate
Celeste AltamirandaAssociate
Bishr AlboukaiSenior Associate
Saleh Al Zafiri Attorney
Nikky O SamuelAssociate
Hassan ElSayedSenior Associate
Ahmed El SalakawyAssociate
Mohammed Ezz El-DinSenior Associate
Nadyn SalehSenior Associate
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Our Team
Mohamed EmaraAssociate
Thamer Mishal Al SaeedAttorney
Sultan Al KhannahAttorney
Abdel Rahman Kareem Associate
Mohammed Atta AbdullateefAssociate
Ahmed FaragAssociate
Mohammed Abdelhameed AlSharqawy
Hessa Al FuraihAssociate
