April 2012 | Issue 248
LAW UPDATE LATEST LEGAL NEWS AND DEVELOPMENTS BY AL TAMIMI & COMPANY
Bankruptcy cases under existing UAE law
Open source software - Sharia Law and Legal perspective of What are the risks? its application to converting a conventional International Arbitration business into an Islamic one Regional Footprint
Al Tamimi & Company Offices
Iraq
Jordan Kuwait 6 Qatar 9 UAE Kingdom of Saudi Arabia
DUBAI - DIFC BAGHDAD, IRAQ AMMAN, JORDAN 6th floor, Building 4 East Al Harthiya PO Box 18055 Dubai International Financial Centre PO Box No: 10014, Code 12921 Amman, Jordan Sheikh Zayed Road Baghdad, Iraq Zip 11195 PO Box 9275, Dubai, UAE T: +962 6 577 7415 T: +962 6 577 7415 T: +971 4 3641 641 F: +962 6 577 7425 F: +962 6 577 7425 F: +971 4 3641 777 [email protected] [email protected] [email protected]
DUBAI WORLD TRADE CENTRE SHARJAH RIYADH, KSA 9th floor, Sheikh Zayed Road Al Reem Plaza 2nd floor, Sky Tower, PO Box: 9275 3rd floor, Suite 306, (South Tower S.2.A). Dubai, UAE Khaled Lagoon King Fahad Rd. T: +971 4 331 7161 PO Box 5099, Al Olaia Area F: +971 4 331 3089 Sharjah, UAE PO Box 300400 [email protected] T: +971 6 572 7255 Riyadh, KSA F: +971 6 572 7258 T: +966 1 4169 666 [email protected] F: +966 1 4169 555 DUBAI INTERNET CITY [email protected] Building No.5, G 08 PO Box: 500188 Dubai, UAE DOHA, QATAR KUWAIT CITY, KUWAIT * T: +971 4 391 2444 Adv. Mohammed Al Marri in association Khaled Ben Al Waleed Street, F: +971 4 391 6864 with Al Tamimi & Company Sharq, [email protected] Al Jazeera Tower, 7th floor Al Dhow Tower, PO Box 23443 16th Floor, Doha, Qatar PO Box 29927, Safat 13160 ABU DHABI T: +9744572777 Kuwait City, Kuwait Al Sila Tower, 26th Floor F: +974 436 0921 T: +965 2 246 2253 Sowwah Square, Sowwah Island [email protected] F: +965 2 246 2258 PO Box 44046, AD, UAE [email protected] T: +971 2 813 0444 F: +971 2 813 0445 * Al Tamimi & Company International Ltd. provides services in Kuwait through a joint venture with Yaqoub Al [email protected] Munayae. Yaqoub Al Munayae is a registered and licensed lawyer under the laws and regulations of Kuwait.
The contents of Law Update are not intended to be a substitute for specific legal advice on individual matters. Reproduction of part, or all of the content in any form, is prohibited other than for individual use only and may not be recopied and shared with a third party. The permission to recopy by an individual does not allow for incorporation of material in part or in whole in any work or publication, whether in hard copy, electronic or any other form, unless specific mention is made to the source, “Law Update published by Al Tamimi & Company”, and written permission is granted from the firm. For more information, please contact us. Contents
In Focus 4 Legislation & Policy
Dispute Resolution Court of cassation Judgment - The importance of valid 6 legal service
The Court’s approach in bankruptcy cases under existing 9 UAE law
Arbitration 16 Sharia Law and its application to International Arbitration
Litigation 20 Termination of Unlimited Employment Contract: The Myth and the Truth Technology, Media & Telecommunications 22 Open Source Software – What are the risks? Intellectual Property 26 Qatar passes a new law for IP border measures
27 News and events
Banking & Finance Legal perspective of converting a conventional business into 30 an Islamic one
Asset Finance in the UAE 33 Financing Structures and Creation of Security
Jordan: The draft of the Reorganisation, Bankruptcy and Liquidation Law for 36 the year 2012 (the “Draft Law”)
Corporate Commercial 38 The Kuwait Capital Markets Authority (CMA) amendments
Insurance 40 Iraq: Insurance Regulation Law No. 10 of 2005
Diversification of activities of Insurance Companies and its 41 reconciliation with Article 25 of Federal Law No. 6 of 2007
42 Legislative Update OUR NEW WEBSITE Following our successful rebrand in 2011, we are pleased to present to you our new website. For more information on the services we offer, our expertise and our team of internationally qualified lawyers please visit: www.tamimi.com
2 Law Update IN THIS ISSUE
Welcome to the April edition of Law Update.
This month we present to you our Legislation and Policy team based in our Abu Dhabi office and led by former Syrian High Court Judge, Mr Mohammed Ak Bik. Mr Ak Bik has been with Al Tamimi & Company for over 15 years and has worked very closely with our founder and senior partner, Essam Al Tamimi, in developing the firm. You can read about the services offered by Mr Ak Bik and his team on page 5.
This month we also highlight an interesting judgment by the UAE Courts regarding their approach to bankruptcy under existing law. In the wake of the global financial Editor: crisis with renegotiation of borrowings sought by some state owned companies, the Angela Maglieri UAE’s bankruptcy laws were put under the spotlight and have become a growing hot topic. Read more about this on page 9. Graphic Design: Waad Barghouthi Similarly, Jordan is also in the process of reviewing its Bankruptcy and Liquidation Law and in this edition our team in Jordan provide you with their views on the draft law – this is highlighted on page 36. For further information on Law Update please As arbitration becomes a more popular form of dispute resolution for clients in the region, we present to you the views of Senior Partner Essam Al Tamimi on Shari’a contact: Law and its application to international arbitration - which he also shared at the annual [email protected] Clayton Utz International Arbitration lecture in Australia. The article can be read on page 16.
On the subject of Shari’a Law, this month we provide you our legal perspective of converting a conventional business into an Islamic one. Whilst there are many facets that are similar, there are some key differences that need to be noted. If you have any questions about this after reading the article on page 30, please feel free to contact me personally.
As always, if you have any comments or feedback on the information presented, please do get in touch. We remain committed to bringing you the latest legal developments through Law Update so your feedback is very much valued.
Husam Hourani Managing Partner
Law Update 3 Legislation & Policy
MOHAMMED AK BIK HASSAN EL TAHIR Partner Legislation & Drafting Head of Legislation & Drafting [email protected] [email protected]
KEY CONTACTS
4 Law Update In Focus
LEGISLATION & POLICY
In recent years, Al Tamimi & Company has contributed to many government and private projects involving the drafting of a significant number of laws and subsidiary legislations. In 2010 Al Tamimi and Company recognized the growing importance of this specialist area of expertise and established a separate Legislation and Policy department.
The Legislation & Policy team at Al Tamimi assists local and federal government bodies as well as private local, regional and international entities in drafting legislation and policy including laws, regulations, by laws, resolutions and policies. Our services offering includes compliance with UAE Constitution and Federal Law, drafting new legislation, amending existing legislation and providing legal advice on the application of applicable laws and regulations in UAE as well as GCC countries.
The department is staffed by both Arabic and English speaking lawyers, who are highly experienced in the requirements of the public sector including the need to produce clear and concise legislation and to understand how it must integrate and fit into the existing Constitutional and legislative framework.
Being a local law firm, with a long history of working in the Middle East, our team has the expertise to advise on local legislation and policy issues. Combined with a team of lawyers with international experience we have the ability to bring wide ranging experience to issues being addressed by the legislation being drafted.
We are regularly consulted by Federal and local Government bodies in respect to the drafting of new laws or subsidiary legislation. Our legislation drafting expertise includes:
• Gap analysis to determine what is missing or could be important in the existing legislation;
• Performing benchmarking exercises to see what is done in other countries;
• Determining UAE or other countries relevant international obligations that should be considered;
• Drafting new main laws and subsidiary legislation;
• Organizing workshops to explain the draft of the legislation to our clients, its subsidiaries and shareholders;
The team is led by Mohammed AK Bik. Mr. AK Bik was formerly a high court judge in Syria however has resided here in the UAE for over 20 years. He is the acting President of the Abu Dhabi Federal Court of Appeal. During his tenure as a judge and subsequently with Al Tamimi and Company, he has prepared many federal and local laws for a number of Ministries and Government entities. He leads a highly trained team with extensive experience in legislative drafting.
Law Update 5 Dispute Resolution
Each month Law Update highlights recent significant judgments issued from the local courts in our Law Update Judgments feature. Al Tamimi & Company’s lawyers translate, simplify and comment on these judgments providing our Law Update readers with an overview Law Update which they should find useful and insightful in terms of understanding Judgment the workings and developments of the local courts. If you have any queries relating to the Law Update Judgments please contact [email protected]
COURT OF CASSATION JUDGMENT THE IMPORTANCE OF VALID LEGAL AHMED ALLOUZ RAMI ABDELLATIF Partner Litigation Litigation [email protected] SERVICE [email protected]
INTRODUCTION have various companies which they summary is set out below: independently own and run. As a result Focus is often placed on the subject of their various relationships, the parties • Claimant filed a claim Defendant matter of a case and its claim and entered into a final account agreement as without his knowledge using an grounds without giving consideration to representatives and directors of specific incorrect residential address; certain procedural details such as the companies whereby one of Defendant’s service of process which, ultimately, companies agreed to pay the sum of AED • Following inquiries as to the serves the foundation of the case and 30,000,000 to Claimant and Defendant Defendant’s address it emerged that its launching point. It is therefore always agreed to personally pay those sums, if he was out of the country at the time important to observe those procedures and only if he resigned his position as so the court decided to serve him as even a minor procedural error could director of the company required to make notice by publication (in an official destroy a case and ruin any progress payment under the agreement newspaper); made. The case in question illustrates the importance of legal process. Upon flying into the UAE, Defendant • The Claimant filed documents in was suddenly arrested pursuant to a court indicating that the Defendant FACTS OF THE CASE final court decision issued against him. had resigned from his position as It subsequently transpired that Claimant director of the company thereby The Claimant and Defendant were had sued the Defendant in his personal becoming personally liable to pay the partners in several companies and capacity for AED 18,000,000.A case amounts under the agreement;
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• The Dubai Court of First Instance be performed on the person of the application and interpretation of the law issued its ruling, holding the judgment debtor; or and flawed reasoning, focusing on two Defendant liable to pay said sum on procedural aspects: the strength of the documents filed by • At his place of work, either upon him the Claimant personally, or upon the person who The Court of First Instance erred in appears to be in charge of the place disregarding the plea that service of notice • The Claimant served the Defendant or an employee of the establishment; of the ruling had not been completed notice of the ruling by publication or correctly and relying simply on an based on an earlier service by attempt to serve notice at the residence publication and because of the fact • By publication, in a widely circulated of Defendant when there was no attempt that he was out of the country; UAE daily newspaper in Arabic and to serve him at his place of work despite another newspaper published in a work address having been established • Appeals to the Courts of Appeal and English, if necessary, after taking from the documents on file. Cassation became time barred after all the above steps and failing to the lapse of 30 days from the date of serve the judgment debtor in person service or at his domicile or place of work, as detailed above, and no spouse, Despite the fact he was time barred, the relative, or in-law of the judgment Defendant appealed the ruling arguing debtor living with him at his domicile that the service of notice of the ruling and no employee at his place of work and the writ of execution upon Defendant accepting service, once the court has Article 152 and service of the statement of claim was verified that the person to be notified invalid as well as an irregularity in the has no known domicile or place of ruling itself, having been issued on the work of the Civil basis of a material misrepresentation on the part of Claimant. In light of the steps taken to serve notice of Procedure the ruling, it was argued that the steps had The Defendant argued before the Appeal not been completed correctly because court that the Civil Procedure Law sets out Defendant was served notice of the ruling Law states a specific procedure for service of notice by publication after no residential address of rulings and statements of claim. This could be found and inquiries revealed that step-by-step procedure is to be followed he was out of the country. Pursuant to the that “Notice of strictly in order to ensure the service is Law, an attempt should have been made to considered valid. perform service at his residential address or, failing that, his place of work. It was rulings shall be Article 152 of the Civil Procedure Law further argued that the extract from the states that “Unless otherwise provided by Naturalization & Residency Department law, the time limit for challenging rulings which the Claimant produced as evidence served upon starts to run the day after the ruling was of the Defendant’s departure from the made or from the date on which notice of UAE contained particulars concerning the person of the ruling was served upon the judgment the Defendant as well as the name of his debtor if the judgment debtor failed to sponsor and his place of work. The extract attend any of the hearings that were also indicated that his residence visa was the judgment scheduled in the proceedings and did not still in effect. Therefore, in accordance file a defense memorandum.” Paragraph with the Law, an attempt should have three of Article 152 states with regard to been made to perform service at his place debtor or at the method of service of notice of rulings of work that: “Notice of rulings shall be served upon the person of the judgment debtor or The Court of Appeal said that the appeal his domicile or at his domicile or place of work.” was time barred and dismissed it in form. In its reasoning, the Court of First Instance place or work” Paragraph Three clearly and explicitly opined that service had been properly sets out the procedure to be followed performed by inquiring of the Defendant’s when serving notice of rulings. A ruling address in the UAE and failing to find one. would need to be served either: The Court confirmed that there was no point in conducting further inquiries given • Upon the person of the judgment the statement from the Naturalization & There was no correlation between debtor; or Residency Department that the Defendant serving the Defendant with the ruling by was out of the country and any attempt to publication and the fact of his presence • At the domicile of the judgment serve him in person would be futile. out of the country at the time. There is no debtor, either upon him personally requirement under the Civil Procedure or upon any spouse, relative, or in- The Defendant appealed to the Court Law that service always be performed law living with him if service cannot of Cassation on the basis of error in the
Law Update 7 JudgmentDispute Resolution
upon the person of the judgment debtor. rationale. Other substantive pleas raised so as not to deprive the party Service of notice of a ruling is valid if before the Court of Appeal include forgery invoking irregularity in service of made upon a spouse or relative or relative of the documents which were submitted the statement of claim from the two by marriage living there and if he does not and ruling against a party having no stages of judicial process which is a find the person required to be served at capacity. principal tenet of the judicial system his place of work he must deliver the copy that cannot be violated by the court. at that place to a person declaring that he The Court of Appeal ultimately declared is concerned in the management of that the Court of First Instance ruling null • In light of the above principles place or that he is an employee therein. and void due to an irregularity in service and their application to the matter The purpose of service would be realised of the statement of claim and ordered in dispute, the Court of Appeal in such case even if the judgment debtor is that Claimant bear the fees, costs, and concluded that there was an invalid out of the country. The documents confirm advocate’s fees service of the statement of claim for that the Defendant has a valid residence the following reasons: visa and frequently travels to the UAE. The Court of Appeal on remand from the Therefore he has a work domicile in the Court of Cassation accepted the appeal • It is clear that the process server UAE. in form and declared that the time limit for attended Defendant’s premises at the appeal had not expired. address indicated in the statement Thus, from a legal standpoint, an of claim but found no one there. attempt should have been made to serve Requirements for Valid Service Hence, service was not performed at Defendant with notice of the ruling at his Proceeding to the merits, the Court of Defendant’s domicile. place of work before resorting to service Appeal took up the plea with regard to by publication which should be used in invalid service of the statement of claim • Upon inquiring about the Defendant’s exceptional circumstances after carrying and set out a number of legal principles address, the Investigation out proper inquiries and first attempting which could be summarized under the Department reverted with an address service in the manner prescribed by law. following points: comprising a telephone number and post office box number, advising The Court of Cassation found in the • Through the Court of Cassation’s that Defendant was employed by a Defendant’s favour by accepting the consistent rulings, it is settled that company in the Emirate of Dubai and plea in question and confirming that service of a statement of claim or that no attempt had been made to there was in fact no correlation between court ruling by publication in the serve him with the statement of claim serving Defendant with the ruling by press should be made in exceptional at that address; publication and the fact he was out of the circumstances meant to address country at the time. Further, the Court of specific circumstances where any • A letter was then sent to the Cassation stated that the extract from the attempt to serve a party in person Naturalisation & Residency Naturalization & Residency Department or at his original or elected domicile Department which replied that contained particulars concerning or place of work would be futile. The Defendant had a complete work Defendant as well as the name of his party requesting service may opt for address but was out of the country. sponsor and his place of work. The extract this alternative only after exhausting A manuscript note was made on the also indicated that his residence visa all means necessary to locate his reply to the effect that Defendant’s was still valid, which means that he had opponent’s domicile or place of residence visa was valid. Defendant not left the UAE permanently. Therefore, work in order to serve him with the was not served at said address pursuant to the law, an attempt should statement of claim or ruling. have been made to perform service at Therefore, Defendant’s service by his place of work. The Court of Cassation • It is established that no litigation shall publication without having exhausted the held that all notification procedures that arise between parties if an invalid other means for service mentioned above had been previously taken for serving the service of the statement of claim has was void particularly given the fact that his judgment on the Defendant was null and been served upon the defendant who address according to the above inquiries is void. Therefore, the appeal period was has failed to attend court in person or different from his address in the statement still open. The Court of Cassation revoked by proxy of claim and he has a valid residence the appealed judgment and referred visa. It follows that Defendant’s plea the case back to the Court of Appeal for • Failure to effect proper service by alleging invalid service of the statement consideration of the merits. the time of issue of the first instance of claim is well founded in the law and ruling precludes litigation of the worthy of acceptance. Consequently, the The Defendant maintained his argument claim without any subsequent step appeal court cancelled/voided the first before the Court of Appeal that service in the proceedings being capable of instance court’s judgment and considered of the statement of claim was invalid rectifying the situation the judgments as well as all execution and that service of notice in proceedings procedures are null and void. was marred by the same procedural and • Hence, when invalid service of the legal deficiencies as service of notice of statement of claim is in evidence the ruling. Since the Court of Cassation before the Court of Appeal, the categorically held that service of notice court would simply declare the first of the ruling was invalid, so too is service instance ruling as invalid without of notice in proceedings under the same proceeding to adjudicate the merits
Law Update 8 8 Law Update Dispute ResolutionJudgment
Law Update Judgment
THE COURT’S APPROACH IN BANKRUPTCY
CASES UNDER HUSSAIN EISA SHIRI SUZANNE ABDALLAH Partner Litigation Head of Litigation [email protected] EXISTING UAE LAW [email protected]
INTRODUCTION bankruptcy law – the tendency has been promoting growth in the UAE’s economy to circumvent the bankruptcy law and as it will allow for businesses facing The UAE’s bankruptcy laws were put proceed straight to liquidation. financial hardship to develop frameworks in the spotlight after Dubai’s largest for restructuring which allow them to state-owned firms sought to renegotiate Lawyers and businesses have long been repay their debt without decreasing their borrowings in the wake of the global calling for changes to the bankruptcy rules productivity. financial crisis. to mitigate financial problems and attract foreign investment. This article seeks to give a brief overview In on-shore Dubai, the rules and of the current law dealing with bankruptcy procedures governing bankruptcy A draft bankruptcy law designed to in the UAE and the salient provisions of are currently set out in Book 5 of the support companies in financial difficulties the new draft law which is expected to be Commercial Transaction Law, Federal is currently being reviewed before it issued this year. This article also analyses Law no. 18 of 1993 (“The Law”). The reaches the final stage of enactment.. This a relevant judgment. Law covers the rules and procedures in legislation will overhaul how the law deals relation to the bankruptcy of individuals with businesses and individuals with debt as well as commercial entities. However, burdens they cannot pay. It is expected THE CURRENT LEGISLATION the current bankruptcy legislation has that the new legislation will map out a REGULATING BANKRUPTCY not been frequently tested in the Courts. process for the restructuring of debt owed Further, a trend has emerged in that the to creditors. The new and less traditional As stated above, the current rules and Courts have been reluctant to apply the features incorporated in this law will aid in procedures governing bankruptcy are
LawLaw Update Update 9 9 JudgmentDispute Resolution Dispute Resolution
set out in Book 5 of the Commercial he is not able to pay his debts; however, trader to stop payment of his debts (art Transaction Law (“The Law”). this is not compulsory for the trader 655 (1)); however, if the Court failed to unless 30 days lapse from the date specify such date, in this case the date The Law lacks any definition with respect when he ceased payment of his debts. of issuance of the judgment should be to the term bankruptcy; rather, it merely Importantly, in these circumstances it considered as an approximate date for highlights the circumstances in which becomes obligatory for him to apply for a the trader to stop the payment of his debt the trader will be considered bankrupt. declaration of bankruptcy; failing which he (Article 660 (1)). It should also be noted According to Article 4 of the law a trader will be considered as committing an act of that Article 659 empowers the public is an individual or company carrying out bankruptcy by default. This is a criminal prosecution, debtor, the creditor (s), commercial activities. offence under the UAE Penal Code, Law the trustee and interested third party to No.3 of 1987. Article 649 also sets out the amend the temporary date; However, by petitioning the Court to procedure to be followed by a trader when bankrupt a debtor, a creditor avails himself applying for such declaration for being - displaying the judgment on the notice of a set of proceedings and procedures unable to pay his debts and the supportive board at the Court for a period of 30 that may secure his debt. The creditor documents that should be presented days, on the day following its issue. The may also benefit from any scheme of accordingly. judgment shall be sent to each Court settlement with the debtor which will having jurisdiction over the debtor’s place enable him to recover at least some of Article 650 of the Law gives the creditor of business or branch or agency or office what he is owed. (s) (whether for a civil or commercial debt) of the debtor, in order to be displayed on or the trader the opportunity to apply for the notice board at such Court for a period Importantly, according to Article 645 such declaration on condition that: of thirty days (art 660 (2)); of the Law a trader is not regarded as bankrupt unless he is declared bankrupt - they submit the evidence that satisfy the - once the bankruptcy judgment is issued, by the competent civil Court. According Court that debtor has ceased paying his the Court shall order the closure of all to Article 653, the competent Court is commercial debts as they fall due; the trader’s places of business and shall considered to be the Court where the appoint a trustee; trader’s commercial office is located, - they satisfy the Court that the debtor however, if there is more than one office has no residence in the UAE, he has - publishing the judgment in a local then it shall be for the Court where the closed his place of business and started newspaper by the trustee (art 661); principal office of the trader is located. If the procedure for winding up, or that he the trader stops his commercial activity the has absconded, whereas for the debt According to Article 662 of the Law any competent Court shall be considered to not yet due, or he is carrying acts that interested third party may file an objection be in the country of residence and in case adversely affect its creditor (s). In this against the judgment before the Court he has no residence in the country the case the creditor(s) will have to prove that has issued it within ten days from the competent Court shall be the jurisdiction that the debtor ceased payment of a due date of the publication of the judgment in in which he has stopped paying his debts. commercial debt. the newspapers. If the Court reject’s the opposition, the Court decision shall be Article 645 of the Law stipulates that: After the bankruptcy application has appealable to the Court of Appeal. been submitted to the Court, according to - Any trader who is not able to pay his Article 652 of the Law the Court must take Articles 668-681 of the Law deals with commercial debts on the due dates by all the necessary measures and steps to the person (the trustee) who administers reason of his financial instability, may be preserve, protect the debtor’s assets and the bankruptcy as well as their powers declared bankrupt; manage them. and liabilities. Such persons should have good standing and reputation and should - Any trader who uses illegal means for After satisfying all the necessary not be one of the bankrupt’s creditors or paying his debts shall be regarded as procedures and resolving all disputes a spouse or a close relative to the fourth unable to pay those debts; and applications concerning the case, the degree, or an ex-partner, accountant, Court will then issue a judgment declaring agent or employee of the bankrupt). - A trader shall be declared bankrupt only the debtor bankrupt. after adjudication by the competent Court. Moreover, Articles 682-724 of the Law After the Court delivers its judgment deal with the effect of bankruptcy on: Articles 647, 649 and 650 of the law declaring bankruptcy, there are certain specify the persons and government procedures that must be followed - The debtor (Articles 682-702); entities entitled to apply for a declaration subsequent to that judgment, such as: of bankruptcy. These include the trader, - On ordinary creditors (703-710) On the trader’s creditor(s) and the Court on - sending a copy of the judgment creditors who have debts secured by its own initiative. The public prosecution to the public prosecutor, the Ministry moveable/immovable properties (711- may also make a request for a declaration of Economy & Commerce, the trustee/ 720) and of bankruptcy. receiver, the Central Bank and the competent commercial registrar (Article - On legal claims (721-724). Article 649 of the Law grants the trader 655 (2)); the opportunity to apply to the competent - the Court in its ruling usually In this section the legislator establishes a Court for a declaration of bankruptcy if specifies an approximate date for the rule that individual proceedings shall be
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suspended in the case of ordinary creditors Composition Scheme or the Judicial the new draft law shall not govern or creditors holding liens, including Composition can affect either the: Government authorities and Entities individual enforcement proceedings incorporated and licensed to operate in against the property of the bankrupt or - debtor (such as avoidance of the a financial free zone such as the DIFC. their completion if they were commenced threat of bankruptcy proceedings; the It will, however, apply to any company before the declaration of bankruptcy, with maintenance of full power, control and incorporated pursuant to the Commercial certain exceptions – where proceedings authority to manage his own business; Companies Law as well as an individual have been permitted by the judge such as and the payment of his debts according to (any natural or juridical person practicing in the case of a sale of property on a fixed a deferred payment schedule); or any activity for profit purposes). date. Pursuant to the principle enshrined under this Section, payment due dates - creditors (the terms of a Composition New streamlined rescue procedures for are deemed to be cancelled upon the shall be binding on all ordinary traders and entities carrying on business declaration of bankruptcy. “unsecured” creditors for all debts for profit comprising a ‘financial re- accruing before the Judicial Composition organisation’ procedure and a ‘protective Furthermore, Part 5 of this section sets or Composition Scheme, irrespective of composition’ procedure feature in the out provisions dealing with contracts that whether or not they have participated or draft law. the bankrupt entered/concluded prior to voted for the adoption of the Composition. being declared bankrupt; and reconciles However, the Composition shall not apply The draft law incorporates provisions for a the interests of creditors and the Bankrupt to secured creditors or for ordinary debts streamlined bankruptcy process for ‘small’ on the one hand and the other parties accruing after the Composition application bankruptcies; and specific provisions in to the contracts on the other hand by is submitted to the Court.) relation to non-trading individuals where providing that a bankruptcy order does not the bankruptcy regime is extended to normally lead to the termination of binding According to the provision of the Law a include a rescue procedure. Furthermore, contracts unless it is based on personal Composition shall be terminated once the the concept of set-offs in bankruptcy considerations. The other party to the debtor has honored all of his obligations. matters was simplified in the draft law. contract reserves the right to terminate it if The Composition shall also terminate if the trustee in the bankruptcy proceedings an application is made and accepted for Further, the draft law empowers the fails to perform the contract or continues its nullification. The Composition may be UAE Council of Ministers to set up with its performance and any action taken annulled for any fraud undertaken by the a Commission; charged with the by the trustee, in respect of the contract, debtor (such as concealment of property administration of financial re-organisation is subject to the judge’s approval. A or falsification of debts or accounts). The procedures and the preparation of an contracting party always has the right Composition may also be repudiated by approved list of bankruptcy experts. to participate in the bankruptcy as an any creditor if the debtor fails to honor The UAE Council will also maintain ordinary creditor to recover for termination his obligations under the Composition. two registers, the first one for ineligible/ while retaining the lien prescribed by law. The effect on the debtor of honoring the incompetent persons that has been conditions of the Composition is to allow formerly judged as incompetent and the Administration of bankruptcy cases (such him to resume all his rights and duties second for Court judgments and orders as administration of assets, realization of as a normal trader whereas the effect imposing any limits on bankrupts whether debts and closure of bankruptcy for lack of any nullification or repudiation of the permanent or temporal. of funds) is dealt with in articles 736-760 Composition restored the parties to their of the Law. original positions before the presentation The provisions of the procedures of of the Composition. The debtor then faces financial reregulation incorporated in the However, one of the most important the threat of bankruptcy and its severe draft law aim to facilitate a consensual elements of bankruptcy proceedings consequences. agreement signed outside the Court is the composition or settlement between the debtor and his creditors with arrangements made between the debtor THE DRAFT BANKRUPTCY LAW the help of an assistant assigned by the and his creditors. The importance of committee for this purpose. such arrangements is that it may allow The general aim of the new draft law is a debtor to avoid the consequence of to create a more modern, debtor-friendly Finally, the new draft law sets out an adjudication of his bankruptcy. A bankruptcy regime, with particular provisions related to preventative composition scheme is a preventive emphasis on the rescue of a debtor’s composition procedures, bankruptcy measure which will avoid the debtor existing business or the restructuring of procedures and preferential treatment of facing bankruptcy proceedings and is a debtor’s liabilities where the debtor gets creditors. usually arranged by the debtor before any into financial difficulties, rather than the adjudicating proceedings (“Composition existing formal bankruptcy procedures. Scheme”). There is also another scheme Some of the bankruptcy procedures of composition in which the debtor can described herein draws heavily on participate, which is a simple adjudication existing French bankruptcy laws. composition or settlement that is conducted after adjudicating proceedings The provisions of the new draft law apply (“Judicial Composition”). more widely than the current rules and procedures governing bankruptcy in Book However, such composition whether 5 of Federal Law No. 18 of 1993. However,
Law Update 11 JudgmentDispute Resolution
A CASE STUDY the Defendant bankrupt were met. In accordance with Article 61 of the HOW THE PROVISIONS IN THE Evidence Law, the Public Prosecution was CURRENT LAW HAVE BEEN notified of the case in order to provide an INTERPRETED BY THE DUBAI opinion. The Public Prosecution advised COURTS. the Court to appoint an accountant expert in the case in order to:
THE FACTS - investigate the financial status of the Defendant; The Court A commercial action (the “Commercial determined that it Action”) was filed on 11 April 2006 before - to reveal whether it ceased payment of Dubai Court of First Instance by a local its debts, and if so the reason behind this; is an established company (“the Claimant”) against another local company (“the Defendant”). The - to reveal whether the Defendant was still principle that Claimant requested the Court to: carrying out commercial activities; and to declare the - Declare the Defendant bankrupt and to - to assess its current financial status bankruptcy of a confirm the date of 13.5.2004 as the date and its financial status for the fiscal year the Defendant ceased payments; trader the latter ending in 31.12.2005. should have - to seal the Defendant’s premises; THE COURT OF FIRST INSTANCE stopped making - to appoint a receiver/trustee to oversee the bankruptcy proceedings; In light of the Public Prosecution’s advice, payments as the Court of First Instance issued its scheduled. The - to take appropriate measures to preliminary judgment on 30 January 2007 safeguard and manage Defendant’s and decided to appoint an accounting expert report assets and to collect the fees, costs and expert to investigate the financial status advocate’s fees out of the proceeds from of the Defendant and to address the clearly established the realisation of assets; and finally question of whether the Defendant that the Defendant had ceased payment of its debts. The - Render its judgment with immediate expert was also to look at the cause of did not cease enforcement without the requirement of a the ceased payments and to assess its bond. current financial status and during the payment of its due fiscal year ending in 31 December 2005 debts, meaning that The Claimant submitted that it owed the and to ascertain whether the Defendant Defendant an amount of AED 1,179,654 was still carrying out its commercial the most important (“the Claimed amount”) in addition to activities. any interest accruing from 16 April 2005 condition to declare pursuant to the final decision rendered The Court appointed expert submitted his earlier in the Commercial Action that bore report and concluded that: the Defendant an executory stamp since 2004 (“the First bankrupt was not Court Action”). - The Defendant Company was not carrying on business because its trade . met The Claimant further submitted that license had not been renewed since 14 the Defendant was a trading company May 2004. The expert also found that a which had failed to pay the amount of the closure report for the Company was made judgment despite having being ordered to on 06 November 2006 which confirmed make such payment on 27 April 2004 by that the company had remained closed virtue of the First Court Action. However, for several months; the Defendant was not in a position to pay as he was going through financial - The Defendant had no outstanding distress. In addition, there were severe amounts due except for one payment credit issues that put other creditor’s owing to one company located in the claims at risk because of the various Emirates of Ajman. However, there were Court claims and attachments brought claims pending in Court and Defendant against the Defendant by the Claimant had not ceased to pay its debts as some and other creditors. were paid in Court while others were released or waived; In light of these facts the Claimant contended that the conditions to declare
12 Law Update Dispute ResolutionJudgment
- The current financial status of the Defendant clearly indicated that it had stopped carrying out commercial activity since 12 August 2006;
- That although the Company Director was incarcerated, he had been acquitted and no penalty was imposed; and
- That the Company has ceased business operations and has not had an active premises since 06 November 2006.
The Court of First Instance interpreted the facts of the case in light of Article 645 of the Commercial Transactions Law. The Court decided that the company had been shut down, had not been carrying out any business transactions for a few years, had no premises since 6 November 2006. It also found that the Defendant had not renewed its commercial license since 14 May 2004. Although its director and partner were still in jail the Court found that the Defendant had not ceased payment of its due debt as some were paid in Court while others were released or waived. It was also found that the last commercial transaction in cash took place on the 12 September 2006.
The Court determined that it is an established principle that to declare the bankruptcy of a trader the latter should have stopped making payments as scheduled. The expert report clearly established that the Defendant did not cease payment of its due debts, meaning that the most important condition to declare the Defendant bankrupt was not met. Accordingly the Claimant’s action was found to be devoid of any legal basis and was dismissed. The Court of First Instance directed the Claimant to pay the costs and AED 500 in advocate’s fees.
Consequently, the Claimant appealed the judgment to the Court of Appeal on 05.12.07.
THE COURT OF APPEAL
In its explanatory appeal memorandum the Claimant argued that the Court of First Instance erred in its decision. The basis for the Claimant’s appeal was that:
- The lower Court incorrectly applied the law;
- The lower Court ignored the documented facts, and failed to articulate its reasoning
Law Update 13 Dispute Resolution
adequately by dismissing the case that such point is an essential condition despite the conditions for declaring the that should be satisfied in order to declare Respondent bankrupt being met; the bankruptcy of any debtor.
- The expert’s report, read with the Furthermore, the Court decided that in Claimant’s evidence, was conclusive order to declare the trader bankrupt it is evidence that the Defendant was in not required that the trader should cease fact in default of its debts due to severe payment of several commercial due debts; financial distress which was undermines it is sufficient to declare the bankruptcy of its credit rating. The Claimant argued a trader if he ceased payment of only one The Court that this placed the rights of its creditors commercial due debt. enounced that (which included the Claimant) at risk. The Claimant made specific reference to the Moreover, the Court of Cassation decided it was a settled Defendant having failed to pay the debts that the appealed judgment had lacked it owed to the Claimant, which currently reasoning as it failed to reply to an principle that the stood at over AED 1.2 million. essential defence raised by the Claimant non- payment of who provided evidence in support of it. On 10 February 2008 the Court of Appeal According to the Court of Cassation such the debtor of his dismissed the appeal and upheld the defence would be summarized as follows: Court of First Instance’s decision. The commercial due Court of Appeal relied upon the expert - The Defendant remains, without debts without report and the Court of First Instance’s justification, in default of payment of its interpretation of Article 645 of the commercial debt of AED 921,797 plus any valid reason Commercial Transactions Law. Again, interest pursuant to the First Court Action the Claimant was directed to pay legal rendered against it earlier; is a presumption fees and AED 1,000 in advocate’s fees. that can be used Subsequently, the Claimant filed an - a) The Defendant is in financial distress appeal before the Court of Cassation. in view of the various attachments granted against him by a summary judge over its assets and THE COURT OF CASSATION from various criminal cases brought but that it did against its Director for issuing cheques not equate to The Court of Cassation interpreted without funds and; b) from the fact that Articles 645 (1), 647 (1), 650 (1), 801 and its premises remained closed in addition an irrevocable 802 (1) of the Commercial Transactions to c) the fact that the Defendant refrained Law to mean that the creditor of an LLC from resuming any commercial activities. conclusion that company enjoys the right to request the the debtor had Court to declare the concerned LLC The Court of Cassation held that the bankrupt in cases were the LLC has Court of First Instance had overlooked permanently ceased paying its commercial due debt these facts, which the Court of Cassation as a result of financial distress and severe determined led to a finding that the stopped/ credit issues. Defendant Company had ceased its refrained from payments and put the Claimant’s claims The Court enounced that it was a settled at risk. payment of principle that the non- payment of the debtor of his commercial due debts The Court of Cassation rejected the his debt(s) without any valid reason is a presumption lower’s Court decision that concluded that because several that can be used against him but that it did the existence of its director in jail would not equate to an irrevocable conclusion prevent the Defendant from running the explanatory that the debtor had permanently stopped/ business. refrained from payment of his debt(s) situations could because several explanatory situations In light of this the Court of Cassation be applicable could be applicable: overturned the lower’s Court decision and decided to refer the case back to the - An excusable reason/un-expectable Court of Appeal for a new decision under situation that forced him to stop payment a different panel of judges. This time, the despite his ability to continue payment of Defendant was directed to pay the costs his debt; or and AED 1,000 in advocate’s fees.
- The debt amount is contested. The Court of Appeal (referral Court/ The Court decided that the fact that the remand) debtor ceased payment is a legal point for adjudication by Court of Cassation, and The Court of Appeal decided to reopen
14 Law Update Dispute ResolutionJudgment
the proceedings for further submissions expert concluded his report by stating Court of Appeal further decided to seal and to question the Court appointed that “the Defendant had not been carrying the Defendant’s premises located in expert on his report. out any business transactions in the past Dubai and to appoint a bankruptcy judge year ending in 31 December 2005 but had and a receiver to oversee the bankruptcy At a subsequent hearing the Court some commercial transaction in the year proceedings including the taking of appointed expert attended and answered 2006”. appropriate measures to safeguard the Court’s questioning as follows: and manage the Defendant’s assets In light of this report the Claimant’s in accordance with the law. The Court - the Defendant is going through a difficult lawyer filed with the Court a docket list directed that the receiver’s fees be paid financial situation; comprising an original certificate “to out of the proceeds from the realization of whom it may concern” from the Dubai assets. - its license had expired on the date Courts concerning an Execution Action indicated in the report; for Dubai Rents filed by the landlord against Respondent whereby its assets - the Defendant is not carrying out any were sold through the Court. business commercial transaction; In response, the Defendant’s lawyer - The Defendant did not cease payment filed a memorandum commenting on the (is not in default) as it had made payments expert report and requested the Court to for some of its debt obligations; return the case back to the same expert and instructing him to meet with the The expert confirmed at the hearing that Defendant’s Director in jail to determine the Defendant had difficulties in paying its liabilities to third parties. the balance of the remaining accrued debts and had sought an extension of In support of his commentary memo time to file an additional report based on the Defendant’s lawyer filed a docket the Court’s enquiries. comprising:-
The expert submitted his additional report - Waivers on the part of Complainants where he concluded that the Defendant in criminal cases in favor of Defendant’s had already settled some of the Court Director. claims in connection with 53 criminal complaints but that it had failed to settle - Particulars of a case attesting acquittal the remaining claims. Furthermore, the of the Defendant’s Director in many cases. expert concluded that the Defendant had failed to pay the amount to the Claimant The Court of Appeal then decided to as determined by the First Court Action. reopen the proceedings for further The expert concluded that the reason the submissions and in order to request Defendant had ceased making payment the Public Prosecution to advise on the was because of its weak administrative subject matter of the case. capacity. This was further linked in the expert’s view to the expiry of the trade The Public Prosecution advised that the license and the closure of the Defendant’s appeal be accepted in form and on the premises. Furthermore, the expert added merits. The Public Prosecution also in his report that the Defendant lacked advised that the contested decision sufficient revenues to meet its contingent be cancelled and that the Defendant liabilities i.e. Court claims, or to meet be declared bankrupt and the legal periodical and administrative liabilities procedures to be initiated accordingly. and general expenses. In view of the above facts, expert reports Most importantly, the expert concluded and the involvement of the Public that the Defendant was not considered Prosecution the Appeal Court decided creditworthy in the market and that its that the Defendant should be declared current financial status clearly reflected the bankrupt despite the fact its Director had existence of claims against it in court. The settled some of its debts and the fact that Defendant was also subject to bounced certain complainants waived their claims. cheque claims as well as attachments over its assets which had been attached In light of the above, the Court of Appeal and sold in favor of the landlord on 06 overturned the appealed judgment November 2006. The expert also found and declared the Defendant bankrupt that that the company had no vehicles and fixed the date of 14 May 2004 as registered in its name or any funds in its the approximate date whereupon the Dubai Islamic Bank account. Finally, the Defendant had ceased payments. The
Law Update 15 Arbitration
Sharia Law and its application to ESSAM AL TAMIMI Senior Partner International Arbitration [email protected]
The topic of Sharia Law is a complex centuries (Gregorian calendar) and they The fourth group of activities consists one. It is a subject that has been debated tried to develop Islamic jurisprudence to of those that are strictly forbidden. They over the past 1,600 years and one that deal with contemporary problems and are not something you are obliged to to this day evokes many emotions and issues, including arbitration. do, nor are they recommended, nor is opinions. It is a subject that many take the religion silent on them – they are very personally as it is linked to their The Islamic life (as derived from the Quran, specifically forbidden. Again this is, in my religion, and consequently is perceived as Sunnah and the respective jurisprudence) opinion, an issue of extreme importance quite controversial. So just how relevant is can be generally divided into four groups to the legal thought process where we Islamic Law to the practice of lawyers in of human activities. The first group are always recognise that if something is not general commercial law and in arbitration called farīḍah, which is something that forbidden or something is not legislated in particular? This article aims to shed one has a duty or is obliged to do as part by law then it is permitted. This is why it some light on this area. of the religion e.g. fasting for the month of is significant that killing and stealing are Ramadan. specifically prohibited. FIRST WE WILL COVER SOME BASIC PRINCIPLES. The second group are not obligatory Moving on from these activities, we look activities, however it is highly to another four fundamental elements of The Islamic Law of Sharia, actually recommended that you do them, e.g. Islam (that pertain to the human activities everything in Islam, derives from the sponsoring an orphan. mentioned earlier in this article). They are Quran (the holy book) and subsequently the first things we are taught in Islam and the Sunnah, which is basically the Prophet The third group of activities consist of help us to understand why the Islamic Muhammad’s (peace be upon him) faith, those on which the religion remains religion regulates commercial activities his teachings and the way he practiced silent. This is extremely important for and why a religion such as Islam gets it. The Quran and the practices of the the discussion in this article. One of the extended to be discussed in arbitration Prophet together constitute the Islamic fundamental tenets of Islam is that if and other commercial activities. faith, Islamic Law, Islamic beliefs and things have not been decided upon then basically what Muslims need to follow. they are permitted. There are many areas The Islamic religion can essentially be in Islam upon which the religion does not divided into four main categories. The first There are four main schools of Islamic decide or is silent, things which do not is beliefs - the concepts that we believe in, legal thought: the Maliki, Hanafi, Shafi’i fall into the category of activities you are in our heart and in our mind. They are kept and Hanbali. These four schools try to obliged to do, or are recommended to do. private to us, such as religious practices, derive an analysis from the Quran and Consequently, in the life of a Muslim, be whether it’s praying or fasting. The from the Sunnah to draw a conclusion, it commercial life, private life or religion, second is behaviour, the third is discipline through jurisprudence, on a lifestyle and there are issues which arise that religion and finally transactions. issues that were not actually present at the does not decide upon and are therefore time but need to be resolved. Many caliphs up to the individual to practice as they will. The categories are intertwined i.e. the lived during the twelfth and thirteenth Islamic religion does not just consist of
16 Law Update Arbitration
beliefs – the beliefs are translated into Following this you research relevant All four schools are agreed that arbitration practices and the practices also have a jurisprudence in relation to the four is basically welcomed in Islam and that it certain behaviour and discipline attached. schools previously mentioned. If none of is applicable to Muslims. There are also a the schools prohibit or try to put a limitation number of cases in Arab history and the Finally ‘transactions’ refers to how on the transaction then that transaction is Muslim way of life where arbitration was one transacts and deals. There are permitted. used. specific provisions in the Quran, and the Sunnah that tell you how you should act However, there is one thing that needs For example, there was a dispute between in commercial transactions, including to be addressed here for the sake of this various tribes which was settled through provisions regarding how carefully you discussion. A lot of the jurisprudence arbitration, with the Prophet as the have to weigh items before you sell them. have left things undiscussed when it arbitrator. The tribes were trying to move It gets into the specific heart of trading comes to arbitration. This is because the the black stone of the Ka’aba and he had and doing business and regulates the jurists lived in the thirteen hundreds and to arbitrate how they should carry it and transaction not only to your beliefs and arbitration was not developed in the same who should have the honour of placing it. your prayer but also to the conduct of fashion and to the same level that it is There were a number of disputes settled business. today. I think Islamic society is no different through arbitration during the Prophet’s to any other society – arbitration was not life and during the time of the various With respect to all of the aforementioned developed in many countries, especially caliphates. And all the jurisprudence – in sayings and beliefs, Islamic beliefs are not to the level that we recognise it today, particular the four schools we usually rely probably no different than any other therefore their comments and the topic of on– are agreed that arbitration is something religion. It all basically advocates being arbitration discussed only address simple that is welcome, recommended and honest, charitable, treating others well elements, which I have shared with you encouraged. There are certain disputes and being equitable to others. The here, they do not delve into the topic to that must be referred to arbitration, such important thing for our discussion here is discuss arbitration in the way we all know as family disputes. Before a husband that the Islamic religion gets involved in and are familiar with in contemporary and wife can get divorced for example, the transactional side of life and does not society. there must be an arbitration before they confine itself to mosques, the house and actually go to court. There are again many to the praying carpet. It extends to tell us This raises the questions - when does examples of this throughout history. how we should behave when trading, how Islamic law apply to arbitration? Where we should pay, what is legal and what is does Islamic law feature in arbitration? However, what is not discussed at length illegal. Today, you will find that Islamic law only by the schools are the issues that we face applies in an arbitration if the parties (and today with contemporary arbitration, and At this stage, the basic principle which I this does happen sometimes) specifically the issues that they have discussed but want to reach and then move on from is agree a contract which specifically says, not yet settled. The jurisprudence has this - if it is not expressly prohibited by for example “I’m going to sell you this grain, not determined these issues to a final the Quran, then it is usually permitted. and you’re going to buy this grain from conclusion: The Quran is a book that we believe me, and we’ll have an arbitration clause was brought to the Prophet Muhammad to say I’m only selling you this grain based (peace be upon him) by Jibrīl and which on an Islamic principle and when we go to the Prophet then transmitted to the arbitration the Islamic principles of Sharia Muslims and which we believe is the need to apply”. Another example is where direct word of God. To this end, if you are one might say “I want my transaction with a legal practitioner and you do not find you to be decided through arbitration by in the wording of the Quran a specific reference to Australian law, provided prohibition or a specific clause to limit at all times that the arbitrator will take you from doing something, or annul a notice and follow the guidelines of the particular transaction or to try to avoid Islamic principles of Sharia”. These, in my particular practices, then the simple opinion, are two very different examples conclusion that you can draw is that, “It and will have very different implications. is OK, as the Quran does not specifically prohibit so it should be acceptable”. In all the Islamic jurisprudence, and in the Quran and Sunnah, it is clear that from Subsequently, the next step is to find out day one Islam recognised arbitration. whether the Sunnah (the practice and Even before he became a prophet, sayings of the Prophet which constitutes Prophet Muhammed (peace be upon him) in itself another level of ruling) prohibits it. acted as an arbitrator in disputes. The If it is not stated there then the assumption word arbitration and the act of arbitrating is that it is acceptable, the practice and the between people to settle disputes are transaction are then approved, deemed mentioned in the Quran and Sunnah. valid or can be executed.
Law Update 17 Arbitration
• Can a female become an arbitrator trouble for the tribunal, but given that religions and different nationalities. or is this prohibited? some jurisprudence in Sharia talks about There is an example of an arbitration the arbitrators being an agent for the party with a Jewish tribe whereby they had to • How should an arbitrator practice? which appointed him, we can understand arbitrate on the settlement of things in the As an independent adjudicator, or where his behaviour stemmed from. Arabian Peninsula and the arbitration was as counsel or witness for the party conducted and settled. Therefore pure who has nominated him? There is another issue that arises from Islamic Law was not the only law applied the jurisprudence. Some of the legal to an arbitration in an Islamic country. • Can a non-Muslim become an schools hold that once you appoint an arbitrator in a Muslim dispute or a arbitrator, and if the process does not As regards evidence, the law of evidence dispute between Muslims? suit you, you can terminate the arbitrator used in Islam was not a law that was and appoint another. This highlights the limited to particular references and • Can you have witnesses in the fact that arbitration in Islam at that time guidelines that only came from the room whilst another witness is was quite different from what we would Sunnah and Quran. The arbitrator had the giving evidence? recognise today (and this is the case for full freedom to apply the law of evidence arbitration in any place in the world at and to investigate the facts and to call on • Can a woman give evidence by that time). Arbitration in Islam back then witnesses. This is evidence to show that herself or must she be supported was a mixture between a mediation, people who raise the red flag saying, “no by another person’s evidence? conciliation, and arbitration. That is why you cannot follow a law of evidence” or the jurisprudence talks about the arbitrator “you have to stick to the law of evidence”, • Should you have witnesses swear being an agent for a party, that the party are wrong and that the law of evidence is an oath? can terminate him and why it talks about not a matter of public order. This has been the issues with females. confirmed recently by many courts in the The schools have talked about and Middle East. The rules of evidence are discussed only a few things amongst something for the parties to agree on and themselves in different texts. I think that you can vary the law of evidence and have is one of the reasons why there is some your own evidence decided in the way confusion on these matters. They have and manner in which you want because it basically said arbitrators should have the is not a matter of public order. same qualification as a judge; if he does Arbitration in Islam not have the same qualification as a judge SO WHAT ROLE DOES SHARIA LAW then he cannot be an arbitrator. Based back then was a PLAY TODAY? on this, some drew the conclusion that a female cannot be an arbitrator because mixture between People today do not always recognise there were no female judges at the time that Islamic law supports arbitration and of the Prophet (although Caliph Umar, the that you’ll find support for arbitration third Caliph in Islam after the Prophet, a mediation, in all Middle Eastern countries. This is actually appointed a female judge). Today, significant given the fact that there are if you look across the various Muslim conciliation, and approximately 26 countries that have countries, there is a female judge in every Islam as their official religion and about Muslim country with which I am familiar arbitration. 1.6 billion Muslims around the world. except Saudi Arabia. There are about 72 female judges in Iraq itself and there are You will find that Sharia law is not a 10 female judges in the UAE. Given that law that you can find neatly codified in there is no specific prohibition against a textbook so that a provision can be This is very important and should be a female judge and that most Muslim pinpointed to a judge in a courtroom so remembered by those who stand up in countries now have female judges, the that you can say, “I want you to apply this certain parts of the Islamic world today position that a woman cannot sit as an Sharia law to me because of this”. This is and say, “no you cannot apply foreign arbitrator because there were no female not an acceptable practice in any of the law to my case because it is non- judges at the time of the Prophet seems countries that I’m familiar with, with the Islamic”. Even in arbitration in the Islamic particularly weak. exception perhaps of Saudi Arabia. Most world back then, arbitrators, mediators certainly, in many of the Gulf countries or conciliators, however you want to Other issues have been discussed and and Middle Eastern countries (including reference them, did not only apply the there is some talk in the jurisprudence Lebanon, Egypt, Tunisia, Morocco, Iraq, Islamic principles of Sharia to the case on whether an arbitrator is an agent for Kuwait, United Arab Emirates and Qatar), but they also applied common sense and the party who has appointed him. I have you cannot simply refer to the Quran or equitable law. They did not determine the been on a tribunal where one of the other the Sunnah and say “I want you to apply dispute with Sharia law alone. The reason arbitrators, who was from an Arab country, this principle”. These countries, according is because on occasion the arbitration tried to act as an agent for the party that to their constitution, apply a modern was between people who had different had appointed him. This caused a lot of codified law.
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So the reference to the judges in court have become academic. The law of the In conclusion, Islamic Sharia principles, is to the law of the country that has been land today determines these issues. which are the Islamic law, address enacted in whatever process for which Some of the national law is sourced from arbitration and support arbitration and the constitution provides. However, the original Islamic principles of Sharia the arbitration of disputes can be found some of the principles in the codified and so these principles have become throughout the history of Islam. Not all law are derived from Sharia and Sharia embodied in the law of the country. This issues surrounding the conduct of the principles. The constitution of most Arab means that if you file an application arbitral process were determined at the countries states that when you legislate in before the courts or arbitral Tribunal in a time, however in contemporary legislation that country you must endeavour to derive contemporary Islamic state, in modern all of these issues have been determined, your legislation from Sharia. Therefore Arabia, the arguments based on some either by finding some sources in old you’ll find that the law in modern Islamic jurisprudence that existed in the thirteen Islamic history (in my example whereby countries is codified law, with many hundreds will be irrelevant unless you a female judge had been appointed in familiar provisions, but with some can direct the judge to a particular article a previous era), or, as any society does changes to reflect the inclusion of Sharia within the national law. in modern life, they have adopted a new principles. legal principle in arbitration which did not What is happening, I see it in some of exist before. THE QUESTION THEN ARISES – DOES the cases on which I sit, is individuals THE LAW IN AN ISLAMIC COUNTRY trying to taint an arbitration with different For example, I don’t think the religious EVER DEVIATE FROM THE SHARIA? arguments because of a particular benefit schools have ever discussed the YES, THERE IS. they hope to get out of the argument, or arbitration clause as being independent because they think the complication they from the contract. This issue was never We don’t talk about it but there is. If you hope to raise will make the arbitration debated in Islam, I actually don’t think it look at interest for example, interest is more complex or delayed, or will confuse has been debated in the last 30 years of prohibited in Islam. However, in almost the arbitrator or the process. contemporary life and therefore the UAE every single Arab country there is a clause legislature and other Islamic countries’ in the commercial code that says interest There are however two instances where legislatures have adopted the principles is allowed and interest has been awarded I think Sharia will become relevant to into their modern law so as to make it the in commercial transactions. There are any process of arbitration. The first is law of the country. Should the arbitrator judgments from Abu Dhabi’s Court of the example I gave earlier on, when the go back to applying the old jurisprudence Cassation where the law that provides for parties specifically say to the arbitrator or look for something in the Sunnah or interest has been challenged on the basis “no, we want to adhere not only to the law Quran? The answer is no. Arbitrators that it is not constitutional and the court of a specific country but also to Islamic and judges are confined to applying refutes it, refusing to apply Sharia as dry behaviour, so when you’re deciding the current law and they should limit Sharia, on the basis that as a judge one is on my case I want you to watch out for themselves to applying the law – which confined to applying the law and therefore Islamic behaviour”. So you specify the may be the same as an Islamic principle interest can be awarded. Islamic Sharia as one of the equitable derived from Sharia. laws that the arbitrator has to look at, So you find in all Arab countries, more which is not unusual. In such a case it Source: Adapted from the ‘Islamic specifically all Islamic countries, that may be that when the arbitrator comes influences on international arbitration’ although Sharia finds its way into the law, to consider interest, he cannot award it, lecture hosted by the Clayton UTZ the judge and arbitrators are applying because interest under Islam is usury and Sydney University, Sydney Australia, codified law, including issues to which you cannot award interest for the usury Nov 2011 some people object, which in my opinion purposes which are prohibited in Islam. is historical. I’m sure it exists in all Arab countries. For example, if one looks at The second instance where I believe the law of Egypt or the law of Jordan, Islamic Sharia may feature is this - in you’ll find that under the law of arbitration any country which has its own culture, arbitrators will be appointed without history, background, there is something reference to religion or gender. It is a called public order or public policy. I dead issue, already determined and today think that part of Islamic countries’ public there are no more instances of somebody order could be some Islamic principles. standing up and disputing whether a Matters of public order are recognised female arbitrator can be appointed or under the New York Convention and not. Is this in accordance with Sharia? – recognised under arbitration laws as one of course! There is no prohibition in the of the reasons to refuse enforcement of jurisprudence, except that the arbitrator an arbitration award. That is when some should have the qualification of judge (we Islamic principles may find their way in, already know Umar appointed a female as part of the public order of the country judge). Any arguments pertaining to when it comes time for enforcement. whether or not a female can be appointed Litigation
TERMINATION OF UNLIMITED EMPLOYMENT AYEN BIAR Litigation CONTRACT: [email protected] THE MYTH AND THE TRUTH
The employment relationship between ending the employment relationship. It would, therefore, be correct to say employers and employees in the UAE is that the Employment Law has set clear governed by the provisions of Law No. The general rule under the Employment provisions for the termination of the limited 8 for the year 1981, otherwise known as Law is that any employment contract contract by which the employer is bound. the Employment Law. This relationship is may be terminated by both parties usually regulated by way of a contract of provided that the employee accepts such However, confusion always arises when it employment that sets out the rights and termination in writing. comes to the termination of an unlimited obligations of each party in light of the contract - especially amongst employers. provisions of the Employment Law. Other than in the event of mutual There are numerous employment termination, the limited employment myths often relied upon either to the The Employment Law provides two types contract, according to the provisions of disadvantage of the employer or the of contracts - the limited contract that is the Employment Law, may be terminated employee. One of these myths is that an set for a specific period (which should by the employer only upon its expiry. employer is free to terminate an unlimited not exceed four years) and the unlimited Early termination of the limited contract employment contract, after giving the contract or an open ended contract is allowed only and exclusively at the prescribed notice, without any reason (always not less than one year). Although occurrence of any of the situations whatsoever. This myth actually stems the two contracts are different in their specified in article 120 of the Employment from the wrong interpretation of Article duration; however as a general rule each Law. If the contract is terminated by the 117 of the Employment Law. Article 117 employment contract must be in writing, employer for reasons other than those set which reads as follows: specifying the date of its commencement, by the Employment Law, the employer will the remuneration and the nature and be said to have terminated the employee “1- Both the Employer and the Employee place of work. arbitrarily and will be liable to pay the may terminate a Contract of Employment employee compensation equivalent to of unlimited period for a valid reason at Even though both types of contracts have either three months’ salary or the residual any time following its conclusion by giving similar features, they differ when it comes period of the contract, whichever is the other party notice in less than 30 days to the requirements of terminating or shorter. before the termination.
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2- In case of Employee working on a daily The legislator was mindful of the fact is when the employees’ performance basis the period of notice shall be as that businesses differ in both their nature is linked to the achievement of certain follows: and their requirements and that listing financial or performance targets as set by what are considered to be ‘work related the employer whereby failure to achieve a) one week if the Employee has been reasons’ may not be exhaustive in the such targets may allow the employer to employed for more than six months but long run due to the changing nature of terminate the employment contract. less than one year; businesses and their requirements. For this reason, a ministerial order was issued Failure by the employee to meet such b) two weeks, if the Employee has been to provide employers with guidelines of requirements may lead to the termination employed for not less than one year; what are considered to be work related of their employment. Likewise, failure contraventions and how to deal with them to follow steps for recording employee’s c) one month if the Employee has been i.e. Ministerial Order no. 28/1 of the Year contraventions and action taken employed for not less than five years.” 1981 regarding Model Disciplinary Code may render the employer liable for (“Disciplinary Code”). compensation for unfair termination. A careful reading of the Article above will reveal that an employer’s right to The Disciplinary Code deals mainly with It follows that for the employer to be liable terminate an unlimited contract is not free contraventions committed by employees for unfair termination of its employee; but rather conditional on the existence of during working hours and disciplinary the termination of the employment a “valid reason” for such termination. This penalties that employers may impose contract should be attributed for reason requirement has been stressed in section upon their employees. The disciplinary that are either non work related or for 3 of Article 113 that the unlimited contract penalties vary depending on the frequency failure from the employer’s part to follow may be terminated mutually by either and/or severity of the contravention and in the requirements for terminating the party only: “if the provisions of the law some instances may lead to termination. relationship, such as giving warnings, regarding the period of notice and valid The schedule attached to the Disciplinary salary deduction, sending notice and so grounds for termination are observed”. Code gives general guidelines to forth. employers on the kind of penalties that The inquiry will then be on what is they may impose on employees and Reliance on these guidelines and considered to be a valid reason for more importantly, the steps that may be statement of a valid reason for termination terminating an unlimited contract, what is taken by employers in recording such does not automatically absolve or relieve the criteria for specifying or determining contraventions and actions taken. employers from liability or inquiry into the such valid reason and who has the validity of the cause of termination. The authority to determine whether a reason The Disciplinary Code is not exhaustive statement of a valid reason for termination for termination is valid or not? but rather indicative of what are considered only shifts the burden of proof from the to be work related contraventions. Article employer to the employee in a way that We have already established that a (1) of the Disciplinary Code provides will make it the latter’s duty to prove that contract of employment (whether limited that: “Employers shall be guided by the the termination was not justified and is not or unlimited) may be terminated by attached model disciplinary code in work related. employers with immediate effect for preparing regulations that shall be applied reasons provided in article 120 of the to the workers working in the employer’s Furthermore, courts have powers to Employment Law. Other than these undertaking”. further examine the reasons provided situations, the Employment Law provides by the employer in order to determine that a valid reason for terminating an The Disciplinary Code actually completes whether the reason is relevant to the unlimited contact should be any reason and complements the provisions of work or not. Courts usually use their that is “work related”. Article 122 of the Article 102 of the Employment Law that discretion in understanding the merits and Employment Law provides the following: deal with penalties which employers or circumstance of the termination - usually their representatives may impose on by the facts presented by the parties “A worker’s service shall be deemed to employees and provides the authority and in light of the Employment Law and any have been arbitrarily terminated by his reference of imposing such penalties. other regulations or guidelines set by employer, if the reason for the termination employers. The court has the final say in is irrelevant to the work, and more In practice, several companies have case of dispute. particularly, if the reason is that the worker adopted the Disciplinary Code and have has submitted a serious complaint to the drawn up human resources policies that In conclusion it is true to say that competent authorities or has instituted set out requirements and procedures in the employers’ right to terminate an legal proceedings against the employer dealing with employee contraventions. unlimited employment contract is subject that have proven to be valid”. We have also seen some employers to the adherence to valid reasons for include job targets or requirements for termination. It is therefore crucial to read From the above, it is clear that the right of their employees in employment contracts, the provisions of the Employment Law as termination of an unlimited contract under including the methods of assessing the a whole and not to rely on one provision in the Employment Law is not an unfettered employees’ performance and the action isolation of another. right and is subject to the requirement that that will be taken in case an employee fails an employer demonstrates the existence to achieve such job target or requirement. of a valid reason for such termination. A good example of such requirement
Law Update 21 Technology, Media & Telecommunications
Open Source Software – WALDO STEYN TMT What are the risks? [email protected]
INTRODUCTION portfolios of organizations will be “… a development method for software accounted for by open source that harnesses the power of distributed During January 2011 Gartner, Inc. (a software. peer review and transparency of technology research and advisory process. The promise of open source company) published a report According to the survey, open is better quality, higher reliability, entitled “Survey Analysis: Overview source software is clearly becoming more flexibility, lower cost, and an end of Preferences and Practices in an increasingly large contributor to to predatory vendor lock-in.” the Adoption and Usage of Open- software portfolios of organizations, Source Software” that surveyed 547 a conclusion supported by the OSI provides a useful definition of information technology leaders in numerous public enterprise entities open source software by setting organizations in eleven countries. throughout the world formulating out the licensing conditions under According to the survey: procurement strategies that require which software must be released to the consideration of open source be considered “open source”. This • 22% of the entities surveyed software as an alternative to vendor definition includes the following were adopting open source specific software solutions. elements: software consistently in all departments; and DEFINING OPEN SOURCE • free redistribution of software; SOFTWARE • 46% of the entities surveyed • allowing distribution in source used open source software The meaning of the term “open code and compiled form; in specific departments and source” remains in a stage of constant projects. change. The Open Source Initiative • allowing modifications and (OSI), a non-profit organization for the derived works to be made/ Gartner predicted that by the middle open source community, describes created; of 2012, 30% of the overall software “open source” as:
22 Law Update Technology, Media & Telecommunications
• permitting distribution of • There are fewer restrictions on license models including the General software built from modified the users of the software; Public License, the Lesser General source code; Public License, BSD-Style licenses • It may reduce vendor lock-in; and Permissive Licenses. Depending • no discrimination against on the terms of the relevant license, persons, groups or fields of • It allows users to view and how a licensee is entitled to act with endeavor; and modify source-code; software code derived from the open source software will be dependent on • no dependence or restriction • It allows users to take advantage the nature of the relevant license. on the program being part of a of improved functionality of new particular software distribution. releases more rapidly; and In terms of, for example, a General Public License, licensees are required BENEFITS OF OPEN SOURCE • It may increase interoperability to submit the code of the software SOFTWARE by inter alia reducing the cost of they developed as derivative works integration. from the original licensed open source According to a Computerworld software back to the open source survey of 143 information technology RISKS ASSOCIATED WITH OPEN community. Clearly, this approach is professionals (reported in an article on SOURCE in line with the “open” philosophy of the 10 May 2010 by Brandel, M. entitled open source community and brings “Open-source software’s hidden Intellectual Property Ownership with it the benefits of having a large snags”), 80% of those surveyed cited General Public License open source cost saving as the number one benefit The term “copyleft” was created as community. The implication when of open source software. The appeal a play on the term “copyright” and combining open source software with of open source software is, however, captures the “open” philosophy of the other software however, may include not limited to the apparent cost open source community as it relates to an obligation on the licensee to reveal savings that may be associated with the ownership and “restriction” of the the code for the whole “combined it, but also includes a higher level of use of copyrighted works. The term software work” to the open source flexibility, faster solution delivery times “copyleft” (which is also sometimes community – meaning possibly giving and swifter responses to required referred to as “reciprocity”) reflects the access to competitors to proprietary solution updates. A guide published use of copyrights to ensure that works source code. by the Australian Government during derived from open source licensed March 2011 entitled “A Guide to software code are made available to Open Source Software for Australian the open source community. Government Agencies” cites the following as benefits of using open Copyleft is included to various source software: degrees in different forms of open source license agreements and it is • There is usually no upfront accordingly of particular importance payment; to carefully consider the nature of the open source license in terms of which • It encourages a competitive open source software is procured. market for support services; There are a number of different Technology, Media & Telecommunications
Any proposed use of open source Warranties and Indemnities software should accordingly take into consideration the terms of the Software code is protected through the Typical open licenses under which the open source intellectual property rights associated software will be used. Those terms with the code. In commercial source software and the obligations on the licensee software license relationships, it is the must be aligned with the general right to authorize third parties to use licenses do not commercial goals of the licensee and those intellectual property rights that the specific nature of the solution the underpin the commercial relationship. include intellectual open source software is considered Where a party is incurring a significant for. expense when acquiring the right to property use software, it expects the owner warranties and indemnities in favour of the licensees.
24 Law Update Technology, Media & Telecommunications
of that software to provide it with (i) a When considering the absence of An analysis of the legal risks warranty that the use of that software such warranties and indemnities associated with the use of the open will not infringe the intellectual from a practical point of view, it can source software; property rights of a third party and/or be concluded that it will in any event (ii) an indemnity in the event that an be challenging to recover anything An analysis of the commercial risks action is brought against the licensee against an open source software associated with the use of the open for the infringement of third party licensor in a case of intellectual source software; and rights. property right infringement, as many of the open source software projects An analysis of the business In the case of open source software, appear to be owned by entities with requirements and ongoing costs the relevant license terms are little financial/capital substance. associated with the maintenance of structured in a way that affords little the open source software or related protection to licensees. Typical Fitness for Purpose and Quality solution. open source software licenses do not include intellectual property Another legal risk to consider is Open source software appears to warranties and indemnities in favour the absence of representations of offer real benefits and may present a of the licensees. Considering that fitness for a particular purpose or feasible alternative to vendor specific open source software projects quality of the software. Open source software. However, just like in the comprise a development process that software licenses do not contain such case of the procurement of vendor creates numerous opportunities for provisions and licensees will have to specific software, organisations need contributors to introduce infringing consider the risks associated with to carefully assess the legal and code, it is understandable why such software errors and possibly viruses commercial implications of the use of provisions are not included. However, that may impact business operations open source software. at the same time it compounds the from a commercial point of view. risk of a possible claim of intellectual property right infringement. CONCLUSION
Despite the many apparent benefits of the use of open source software, it is to be it is important for organisations to be aware of the risks associated with the use thereof. Most notably, such use expected that is not unconditional, but subject to licenses, the terms of which have been successfully enforced in for example the appeal the United States of America. of the use of With continued economic pressures on organisations, it is to be expected that the appeal of the use of open open source source software will increase as a possible cost saving strategy. If such software will a strategy is to be pursued, (assuming it is in alignment with the commercial purpose of an enterprise) it is increase as advisable that a specific open source software use and risk management policy be formulated. Such a policy a possible may, as a minimum, require: cost saving Identification of the relevant open source license; strategy. A review of the legal obligations related to the use of the open source software;
Law Update 25 Intellectual Property
Qatar Passes a New Law RASHA AL ARDAH Intellectual Property for IP Border Measures [email protected]
Although intellectual property rights protection is relatively However, the law provides for some exceptions; which are related new in Qatar, the intellectual property legal regime is quite to small quantities of non-commercial goods, personal goods comprehensive in terms of the number of laws protecting almost and gifts arriving with passengers or in small packages; transit all types of intellectual property rights; in fact, Qatar has a goods; products that were placed in the country of export by the separate law for the protection of copyright, a law for trademarks, right holder or according to his permission (parallel imports) and trade names, geographical indications and industrial designs products received through the inter-state borders with another and models, a law for the protection of trade secrets, a law for country with which Qatar constitute a customs union where most the protection of layout designs for integrated circuits and a law restrictions on good movement were canceled. for the protection of patents. This in addition to the international treaties related to intellectual property to which Qatar is a party. According to this law, recordation of intellectual property rights with the Customs Administration will now be possible; as the law In an addition to this comprehensive regime, a new law was allows right holders to record all the data related to their rights issued on November 17, 2011 with respect to the border with the Customs with their address within the country. measures for the protection of intellectual property rights. Recordation of trademark protections with Customs authorities The new law No. 17 of the year 2011 prohibits the entrance of any is possible in a number of jurisdictions in the region, namely products that infringe any intellectual property rights protected Jordan, UAE, Egypt, Lebanon, Syria, Tunisia, Morocco and under the law in Qatar. Furthermore, the new law obliges the Algeria. General Administration of Customs to take all measures required to prevent the entrance of infringing products into the The law provides for significant penalties for entering any country, when it has prima facie evidence that these products products infringing IP rights; the penalties are imprisonment not are infringement. exceeding one year and/or fines not exceeding 10,000 Qatari Riyal. This is in addition to the confiscation of the infringing The law provides for a mechanism for IP right holders to stop products. However, the law does not provide for the destruction the release of imported products that constitute infringement of the infringing products. of their rights; this request shall be substantiated with sufficient evidences. The decision issued by the Customs Administration This law maybe the first stand alone legislation regulating IP is subject to appeal before the Court of First Instance, which protection in border measures in the region and will inevitably should issue its decision within a short period of time, 3 days result in improvement as to the IP eco system and enforcement according to the law. against piracy and counterfeiting.
26 Law Update NEWS AND EVENTS
OMAR OBEIDAT RAK CUSTOMS AND PORTS Partner Head of Intellectual Property AWARD TO IP DEPARTMENT [email protected]
Al Tamimi & Company received an award from the Ras Al Khaimah Customs and Ports Department. The award was presented to Partner and Head of the Intellectual Property Department, Omar Obeidat, on behalf of the Director of Customs Affairs, Mr Fahim Al Habsi. The award was presented as recognition of the efforts of Al Tamimi’s IP Department including their role in spreading awareness and the training of public officers and inspectors on intellectual property protection and enforcement. The cooperation between Al Tamimi and RAK Customs & Ports is owed to the growing importance of RAK sea and land ports as entry and exit points, and accordingly dictating the need to introduce border measures against goods that are in violation of intellectual property rights. RAK Ports & Customs have already introduced a trademark recording and notification process allowing trademark owners to record their registered rights with the Customs to be monitored against suspected counterfeit goods.
LATVIA TRADE MISSION TO IZABELLA SZADKOWSKA Corporate Commercial GULF COUNTRIES [email protected]
On 11 March 2012, Izabella Szadkowska, Senior members of the Board of Directors of the Abu Dhabi Associate, Corporate Commercial Department, Chamber of Commerce, including H.E. Mr Rashid Saif participated in a business meeting organised by the Jaber Al Suwaidi. Abu Dhabi Chamber of Commerce with a delegation of the Government and key representatives from the As there has been increasing interest by Central Eastern business community in Latvia. European and Baltic businesses in the UAE legal and business environment, Izabella briefly presented Al The meeting formed part of the Latvia Trade Mission to Tamimi & Company as the law firm of choice for the the Gulf Countries (10 – 18 March 2012). Latvian business community considering transacting with parties in the GCC region, and particularly in the The delegation was headed by the Prime Minister UAE. of Latvia H.E. Mr Valdis Dombrovskis and hosted by
Law Update 27 FOREIGN DIRECT INVESTMENT: THE ASIA LINK
In this photo: Husam Hourani (Al Tamimi & Company), Abdullah Al Awar (DIFC) and Mohammed Juma (DIFC).
In March this year Al Tamimi were both delighted seminar focused primarily on Foreign investment and excited to host a seminar on ‘Foreign Direct restrictions, investment structures, and the setting Investment in Asia’ along with Rajah & Tann. The up of foreign investment enterprises in China. Also event held at Emirates Towers followed on from a highlighted were the steps involved in the approval very successful similar reciprocal event held last year process, various joint venture issues and dual listings. in Singapore. This year’s seminar was presented by Kim Huat – Head of Corporate & Capital Markets Rajah & Tann LLP is the largest full-service law firm in & Howard Cheam - Partner, Corporate Finance & Singapore and Southeast Asia. Over the years, they Capital Markets at Rajah Tann LLP. have been at the leading edge of Asian law, having worked on many of the biggest and highest profile The seminar opened with a special welcome given cases in the region. They have the reach and the by Mr Abdulla Al Awar, Chief Executive Officer, DIFC resources to deliver excellent service to clients all followed by a brief introduction by Husam Hourani, over the region, with offices in Singapore, Shanghai, Managing Partner at Al Tamimi & Company. The Vientiane, Ho Chi Minh City and Bangkok.
28 Law Update IN-HOUSE CONGRESS SAMIR KANTARIA Partner DUBAI Head of Employment [email protected] Pacific Business Press was delighted to present the sixth annual In-House Congress Dubai at the Crowne REBECCA FORD Plaza Hotel on 7th March this year, which formed part Partner of the highly successful In-House Congress series. Employment The seminar brought together over 140 leading [email protected] in-house lawyers, compliance professionals and senior business executives from both the private The In-House Congress, now in its fourteenth year, is and public sectors in UAE. Delegates participated in the largest series of events specifically for in-house specific practice area workshops featuring prominent lawyers along the New Silk Road and has become a business leaders and private practice lawyers, hosted regular fixture on the corporate counsel calendar in by leading law firms. Hong Kong, Beijing, Shanghai, Seoul, Kuala Lumpur, Mumbai, Delhi, Jakarta, Tokyo, Bangkok, Singapore, Samir Kantaria, (Partner and Head of Employment at Dubai and Abu Dhabi. Al Tamimi & Company) and his Colleague Rebecca Ford (Partner, Employment) were honoured to present The In-House Community constitutes a mutually at the event, which provided an excellent opportunity supportive community of In-House Counsel to meet with industry peers and thought leaders. helping In-House Counsel and Compliance Professionals meet their ethical, legal and business Senior In-House Counsel deemed the event “… a commitments and responsibilities within their great forum for interaction and the exchange of ideas organisations. and views…”
ID WORLD ABU DHABI WALDO STEYN TMT 2012 [email protected] On 18 and 19 March 2012 the international ID World Dr. Andrew Jones, Program Chair for Information Abu Dhabi conference took place in Abu Dhabi under Security at Khalifa University of Science, Technology the patronage of Lt Gen Shaikh Saif Bin Zayed Al and Research and Marcus Klishe, Security Advisor at Nahyan, Deputy Prime Minister of the UAE and Research In Motion. Minister of Interior. Waldo presented on “Privacy in the Cloud” focusing The conference focused on the evolution of RFID, on the privacy and data protection regulatory biometrics and smart card technologies exploring frameworks enterprises need to consider when issues related to automatic identification and the contemplating cloud computing services. Based on adoption of smart technologies to achieve security a number of international surveys, he found that cloud and mobility. The conference was attended by both computing services are increasingly being adopted public and private sector entities, including identity-, by small, medium and large enterprises as well as the law enforcement-, border control-, transportation and public sector. Waldo explained how enterprises need health authorities, cargo and passenger carriers, to fully understand the general, and industry specific logistics and postal services operators and various data protection regulations of the jurisdictions they smart technology developers. operate in, the jurisdictions where service providers may operate from, as well as jurisdictions to which Waldo Steyn, Senior Associate in the Technology, service providers may otherwise have a connection, Media and Telecommunications department was when considering the use of cloud services. He invited to address a session on Cloud Computing concluded that enterprises need to be creative in and Mobile Applications. Fellow speakers during the finding cloud services solutions that work for their session included Christophe Amaud, Vice President business or industries, whether in the form of private-, Marketing & Business Development of IER, Prof. public-, hybrid- or community clouds.
Law Update 29 Banking & Finance
Legal perspective of converting a conventional business into an Islamic one
HUSAM HOURANI DENA ELKHATIB
Islam is a way of life, it encompasses all although a conventional business and aspects of an individual’s life including an ‘Islamic business’ are fairly similar, social, economic and political. This there are a few key elements to be noted. phrase is often used when describing Several key elements to be considered the broad scope of the religion. What include: the structural business this phrase fails to do is de-mystify the arrangements (i.e. loan agreements, statement in that the conventional view of business to business contracts, etc), the life is not contrary to that of Islam. Rather investments and debts of the company, in some instances the conventional business sectors in which the company model may be used to further Islamic is involved which may be banned under principles or it may be converted to Shariah (i.e. alcohol, gambling, etc), any further such principles. Examples of this licensing requirements, the appointment include the conversion of conventional of a Shariah board or a consultant to assist entities to Shariah compliant entities such in matters of question, and amending as: Banks, companies and or the use of any internal controls or constitutional conventional means for wealth planning. documents of the company to ensure This article will focus on methods that a Shariah compliant practices. conventional business may operate on an Islamic basis. However, it is important to The first element in relation to the note that, from a UAE legal perspective, structural business arrangement, there are no specific laws or regulations requires that the company review and that govern corporate Shariah practices. amend its business arrangements The information provided below is a set to ensure compliance with Shariah of general guidelines that may be used principles. The form of these liabilities internally by a business. must also be in compliance with Shariah standards, which includes the prohibition There are many facets to a business and of interest in any of its dealings. Such
30 Law Update Banking & Finance
arrangements may include the review of In the event that the company sells any facility arrangements the company the stock of the alcohol on hand in the has undertaken with any financial restaurant, then the company may not be institution and ensure that the facilities are considered Shariah compliant until the Shariah compliant. For instance, property products are discarded and the funds are finance facility from a conventional bank not utilized in the working capital or used will have a prevailing interest rate, a term, as a benefit to the company. Although non-payment penalties, and the company this element is transparent, it becomes retains ownership of the property. Islamic more intricate and complex as companies finance for that property will commonly engage in multiple activities and projects require an ijara model, whereby a that are in possession of underlying profit fundamental difference is that the property centers (i.e. the airline industry which will be owned by the bank and leased to sells beverages that include alcoholic the company. This element requires the beverages). This element may also be HUSAM HOURANI company to review its business loans an issue of concern for entities that have Head of Banking & Finance and business arrangements to ensure shareholding in other companies that [email protected] compliance with Shariah principles, engage in prohibited activities. Even if the which will often include converting shareholding is a minimal percentage it is its conventional facilities into Shariah important that the activities undertaken compliant ones. This review will not only are Shariah compliant. It is important entail a review of the outstanding facility to note that this also extends to the arrangements, third-party guarantees, marketing practices of a company for corporate credit cards, but also business instance, raffles and other marketing to business arrangements that impose plans may include elements that could be penalties, fines or interest. After reviewing considered under Shariah as gambling these arrangements the company needs practices and would require modification to amend these transactions to reflect a in order to proceed as Shariah compliant Shariah compliant standard. offerings.
Second, the company needs to ensure that its investments are in accordance DENA ELKHATIB with Shariah standards, which may Banking & Finance be a fundamental change in the risk [email protected] management of the company. The It is important company may be in possession of assets (i.e. savings accounts, stocks, bonds, that the company It is important for any institution to mutual funds, stock in trade, etc) that ensure that the new business model may have elements that are inconsistent incorporate any is in compliance with all licensing and with Shariah principles. For instance, regulatory requirements within the if an investment has an interest bearing additional or jurisdiction. In the United Arab Emirates, element, these assets must be converted the UAE Commercial Companies Law, into investments that are Shariah varied regulatory Federal Law no. 1 of 2009 (“Companies compliant. If a company owns grocery Law”) does not regulate independently stores and has alcohol or pork products requirements within Shariah compliant companies, rather that are prohibited under Shariah, then the same Companies Law applies to the company would be required to discard the new Shariah both conventional corporations and these products and not profit from the Shariah compliant corporations. This is funds or mingle those funds with its contrary to financial institutions licensed receivables. compliant model and by the UAE Central Bank which have additional regulatory requirements for The third element involves ensuring provide the necessary Islamic institutions. In the event that Shariah compliance within the various the company is registered in a separate business sectors in which the company training for the jurisdiction, it is important to identify participates. Shariah prohibits engaging if there are any particular licensing in any business that involves transacting employees to ensure requirements. It is important that the with pork, alcohol, gambling, pornography, company incorporate any additional or etc. A practical example of this is if a proper and adequate varied regulatory requirements within company or a subsidiary company owns the new Shariah compliant model and a restaurant, the company must ensure compliance provide the necessary training for the underlying business operations the employees to ensure proper and are Shariah compliant, which includes adequate compliance. However, outside not serving, owning, or distributing any of Islamic finance institutions, the option alcohol or pork products at the restaurant. to adopt Shariah compliant business will
Law Update 31 Banking & Finance
often be an individual choice with no legal articles of association. Using the form or regulatory requirements. of a corporate structure the business owner has the flexibility to retain control Another element that a company may over the assets during his/her lifetime. consider is the appointment of a Shariah Furthermore, the corporate structure may board or a Shariah consultant to aid in continue after the passing of the business the transition and review of the company owner and ensuring that each beneficiary and its activities. Although, this is not retains his/her respective authority. compulsory, it is of interest to a company to ensure the Shariah compliance of the The conversion of a conventional entity company’s overall structure, dealings, to an entity in compliance with Shariah etc. A Shariah board may also note standards requires a great attention to small elements of a company’s internal the details of the business. It is most operations or asset management that recommended to initiate the process would require attention and modification with a Shariah consultant who is not only in order to ensure compliance. Currently, familiar with a business model, but with it should be noted that there is no global the necessary laws and regulations to or regional standard that governs Shariah ensure compliance of both the Shariah compliant companies. standard as well as the legal jurisdictional requirements. A Shariah consultant The company may elect to indoctrinate the will aid in outlining the more specific Shariah policies in the corporate structure procedures necessary for the conversion of the company. This may include the as well as oversee the process reducing development of internal policies that are the risk to the business operations during drafted according to Shariah standards, the conversion process. or imposing restrictions within the Memorandum and Articles of Association First published in Islamic Wealth of the company. For instance the Management Report 2012, Volume 3. Memorandum and Articles of Association may restrict the borrowing practices of the company to ensure that all lending (including shareholder loans, guarantees, acquisition of subsidiaries, etc.) will be undertaken in accordance with Shariah principles and standards.
Lastly, a business owner has Islamic wealth management options when converting the business, even if the business is in a jurisdiction that does not support the division of inheritance in accordance to Sharia law. There are various mechanisms that may be used to aid a business owner in devising his or her wealth in accordance with Sharia law. This article will review the options pertaining exclusively to a corporate structure. This option provides for the greatest amount of flexibility by the business owner in the distribution of his wealth and at the same time
The shareholding of the business may be distributed in accordance to any share percentage desired, including distribution in accordance with Sharia principles. Furthermore, the business owner may maintain control over the new corporate entity through various mechanisms that include statutory reserves, controlled voting, sale of stock restrictions, voting restrictions, and outlining guidelines for the management of the company in the
32 Law Update Banking & Finance
RAFFIQ JAFFER Banking & Finance [email protected]
Asset Finance in the UAE Financing Structures and AZLIN AHMAD Banking & Finance Creation of Security [email protected]
Introduction ASSET CLASSES (d) Aircraft
Asset finance should be distinguished We examine below the different categories This category deals with aircraft that are from financing where movable assets are of assets which usually form the subject of registered by the General Civil Aviation provided to a lender only for the purpose asset financing in the UAE: Authority. of securing a debt. Asset finance is a form of financing that is applied toward the (a) Plant and equipment FINANCING STRUCTURES purchase of tangible and movable assets. The purpose of this type of financing This category covers a broad range of Term Loan is to facilitate the purchase of capital assets, including industrial equipment equipment required for the day to day such as machinery, generators, cranes The most common form of financing used running of businesses, and on a larger and storage units purchased by the is to provide a term loan to the borrower scale, asset financing can also cover borrowing entity. to purchase the asset. The asset that larger assets such as aircraft and vessels. is being financed will be pledged or The key components of the asset finance (b) Vehicles mortgaged to the lending bank and the are that the asset being financed is receivables used to repay the outstanding the primary security provided to the This category covers a range of vehicles debt. lender and the revenue generated from which are used in the course of the the asset is used to repay the debt and borrowing entity’s business, and apart Lease Finance service interest payments. Depending from the normal fleet of cars, trucks and on the structure of the asset financing other forms of conventional transportation, Here the asset remains in the name of the agreement, the borrowing entity may also can also include tractors, bulldozers, bank and leased to the lessee. At the end of be afforded additional flexibility such as excavators and cranes. the finance period the asset is transferred having the option to replace or update the to the lessee. This type of structure may equipment at the end of the lease period. (c) Vessels pose legal issues in the UAE as there is This article sets out the typical financing no specific law that governs lease finance structures available in the UAE and the This category deals with vessels that and conventional banks and finance possible means by which security over are over ten tons and that have been companies are restricted from owning the financed assets may be provided. registered at the National Transport assets and carrying out commercial Authority in the relevant Emirate. activities such as leasing.
Law Update 33 Banking & Finance
Shari’a Compliant Structures Since there is no registration of pledged COMMERCIAL MORTGAGE movable assets in the UAE, the signing In both cases above, Shari’a compliant of a pledge agreement in a notarised This is a mortgage over the tangible and financing alternatives are also available document serves as a document that intangible assets of the borrowing entity, as solutions to their conventional fixes the time of signature of the pledge and includes tools, machinery (listed in counterparts. A direct financing may be agreement and thereby confirms priority the mortgage agreement) and intangible granted by way of Murabaha, where the over other unsecured and subsequent elements such as goodwill or trade bank purchases the asset directly from secured creditors. Notarisation is the name. The requirements for creation of a a third party and immediately resells the recognised and accepted practice to business mortgage are as follows: same asset to the borrowing entity at a create time certainty. profit. It is possible for the bank to enter (i) The mortgage must be notarised in into a pledge over the assets in question. (ii) The pledged assets must be in front of a UAE notary public. Generally However, this structure is not popular for existence and be identified. the notary will require notification prior to medium or long term financing because the profit rate may not be benchmarked to The Civil Code in general, requires that LIBOR or EIBOR and must be a fixed rate. the subject of a pledge is identifiable at the time of the contract. Therefore, future Alternatively, the bank can purchase assets are not able to be captured, nor is the asset and subsequently lease the a ‘floating’ pledge possible. asset to its client pursuant to an Ijarah structure. Ownership of the leased asset (iii) The secured party must take custody is then transferred to the client upon the of the pledged assets. termination of the lease. The Civil Code and Commercial Code Creating Security over Assets both require that custody of the pledged assets should either be held jointly or by The following are the types of security that the creditor or by a neutral third party. can be created over the different types of movable assets. Therefore, if the lenders do not intend to have physical possession over the PLEDGE pledged asset, it would be required that the pledge agreement provides that the In this section of the article, we are custody of the pledged asset should be referring to movable assets that are not transferred to a third party “Bailee”. If registered with any government authority the borrower is a company (as with most in the UAE. financial institutions’ facility agreements) the pledge agreement may appoint the A pledge would be relevant in case of general manager of the borrower (in his unregistered moveable assets, being personal capacity) as a Bailee. assets which are not of a permanently fixed nature (i.e. assets which can be The following are some issues to be removed without damaging or alerting considered in the context of a pledge: its structure, physical appearance or surroundings). Simply put, moveable • It is not likely that a pledge can be assets are assets which do not comprise entered over a portion of the relevant real property (i.e. land) or any structure asset, unless such portion can be permanently affixed to the land. In cases identified separately (for example, by way where the asset subject to the asset of a distinct serial number which would financing can be specifically defined distinguish it from the rest of assets to and ownership interests therein are not which it is attached). capable of being legally mortgaged, the pledge is a more appropriate form of • A pledge is specific to the assets listed security. The requirements for perfection in the pledge document itself. Unlike a of the pledge are set out below: commercial mortgage, a pledge is not publicly registrable, and does not embody notarizing the mortgage. (i) The Pledge should be executed in a notification to the world at large. Hence, written form and time certain. the bank and the borrowing entity have (ii) A search of the Commercial Register to weigh their respective objectives in (nominal fee) is undertaken to ensure no A pledge over movables is ineffective achieving the best solution. It is suggested prior business mortgage is recorded. against non-contracting parties unless that a pledge, which is perfected in an instrument showing the debt and the accordance with applicable formalities, (iii) Once notarization is complete, property held in pledge together with the would be more suitable in the context of and the search is obtained, the mortgage transfer of possession to a pledgee is asset financing. must then be registered with the made.
34 Law Update Banking & Finance
appropriate Commercial Registry. Until renewed prior to expiry of the five (5) year in its jurisdiction the vessel is being now, only four established Commercial period; otherwise, it will be automatically constructed, stating the length and other Registries exist in the UAE, the Emirates cancelled. The registration of a mortgage dimensions of the vessel, its approximate of Dubai, Abu Dhabi, Sharjah and Ras with the Commercial Registry may not be tonnage, and the address of the yard al Khaimah. Thus, the mortgage over cancelled except by the consent of both or place in which it is being built. The commercial business may only be parties or pursuant to a final court order. National Transport Authority is currently effected in these Emirates (or anywhere putting in place procedures to register else which has a commercial register). VEHICLES mortgages over vessels that are under construction. One difference between a pledge Security over vehicles is effected by way Aircraft and commercial mortgage is that the of registration of a mortgage with the mortgagor may continue to maintain relevant Traffic Department. There is an Financing the purchase or lease of absence of clear written law on this topic, aircraft is common in the UAE where such however, in general all dispositions and aircraft are being acquired or leased by ownership interests over vehicles must private operators or airlines. In relation be registered. Accordingly, the borrowing to private operators or high net worth party still retains the legal ownership individuals acquiring a single aircraft, the of the vehicles, such ownership being financing structure usually includes a term subject to the mortgage. loan coupled with an aircraft mortgage registered at the General Civil Aviation There may be cases in which the scope of Authority (GCAA). Once the mortgage is the mortgage is not clear cut. For example, perfected, the GCAA will issue a certificate a trailer forming part of the vehicle, and of registration confirming the details of is hence detachable, may arguably the owner/mortgagor, the operator (if the fall outside the scope of the mortgage, operator is a separate entity) and the depending on how the mortgage was financing bank as mortgagee. registered. Other assets, such as cranes, may not obviously fall into the “Vehicles” In relation to financing of a fleet of aircraft category. for airlines or private operators, the structure would include a special purpose Vessels company (jointly owned by the financier and the relevant airline) which is the Vessel mortgages in the UAE are owner of the aircraft and such special created pursuant to the UAE Commercial purpose vehicle would lease the aircraft Maritime Law No. 26 for the year 1981 to the airline. In certain instances, such and amendments as per law No. 11 for leasing structures are also supported by the year 1988 (the “Maritime Law”). The a further layer of financing provided to the Maritime Law permits the mortgage of special purpose company. Accordingly, a vessel if its total tonnage exceeds ten the special purpose vehicle would provide tons. The vessel being mortgaged in a mortgage to its financier. the UAE should be registered with the National Transport Authority, in other Banks and financial institutions would in words, the vessel should maintain a UAE addition to the mortgage registered at the flag. GCAA require an additional registration A vessel mortgage is only valid if it is made of a security interest over the aircraft by an official instrument. The practical (airframe and engines) at the International steps for perfection of a mortgage include Registry pursuant to the Cape Town the following: Convention on International Interests in Mobile Equipment 2001 as adopted under • A notarized vessel mortgage UAE law. Such registration is effected agreement is filed with the National through the GCAA which acts as an Transport Authority. Authorized Entry Point in relation to the • The National Transport Authority International Registry for the UAE. will issue a new vessel registration possession of the commercial business or certificate noting the mortgage unit even after mortgaging the commercial registered in favour of the business or unit. mortagee.
Registration with the Commercial The Maritime Law permits the creation Register provides protection for a of a mortgage over a vessel that is under period of five (5) years from the date of construction however; the mortgage registration. Such registration must be must be preceded by a declaration from the relevant Maritime Office in the port
Law Update 35 Banking & Finance
Jordan: The draft of the Reorganisation, Bankruptcy and Liquidation Law for the year 2012 SALEEM KHARRAZ Corporate Commercial (the “Draft Law”) [email protected]
In an attempt to offer some aid to 2. Judicial settlement of debt there has to be a chance that his merchants and businesses struggling incurred by merchants practicing commercial operations could be revived. financially in the midst of this financial commercial activities. Further to the above, and given that a crisis, a new law draft has been submitted merchant is eligible for reorganization, for the competent authority’s approval. 3. Bankruptcy of merchants the same could submit an application According to Article 3 of the Draft Law, conducting commercial activities. to the Controller of Companies or to the these provisions are applicable to Registrar of Companies requesting that all merchants practicing commercial 4. Optional liquidation of merchants his commercial activities be reorganized activities except for the following: conducting commercial activities. in accordance with the regulations issued pursuant to the Draft Law. When 1. Companies licensed in accordance 5. Compulsory liquidation of submitting the application, the merchant with the provisions of the Banking merchants conducting commercial is required to list the reasons which justify Law and the Currency Exchange activities. the application of the same as well as Law. a proposed plan for reorganization, if 6. Penalties applicable to the actions possible. Further, the Draft Law provides 2. Companies licensed in accordance carried out in discordance with the that the merchant shall bear all the with the Laws regulating the provisions of this Draft Law. fees and expenses resulting from the dealings with the foreign stock submission of the said application. exchange. 7. Other general provisions applicable to merchants carrying After submission of the application, 3. Insurance companies licensed out commercial activities. the controller of companies or the in accordance with the Draft Law registrar shall review the aforementioned regulating the Insurance activities REORGANISATION application, or appoint experts for the or any Draft Law that may replace same. Afterwards, they are required the same. According to Article 4 of the Draft Law, it to submit an initial report including the is possible to reorganize the commercial following information: When this Draft Law comes into effect, it activities of merchants conducting will deal with issues such as the following: commercial activities, in the event they 1. Whether the merchant’s activities fall into financial turmoil, to a degree that and financial standing are 1. The reorganization of businesses would allow it to continue its operations. deteriorated to the point it would in financial trouble. It is important to note, however, that in not revive without reorganization; order to for a merchant to be eligible,
36 Law Update Banking & Finance
2. That the Merchant’s business has the potential to be reorganized;
3. Any further suggestions the reviewer sees fit.
In the case the controller of companies or the registrar accepts the reorganization application; it is then transferred to the competent Court of First Instance (the “Court”) for their review. If the said court approves the application, a “Reorganization Plan” is prepared. This plan shall include the merchant’s rights and obligations as well as the names of the creditors and debtors. Further, the plan shall include the financial, administrative and operational procedures regarding the reorganization of the business.
Further, Article 10 of the Draft Law states that the court is responsible for sending a notice to all the company’s creditors, within 7 days of receiving the Reorganization Plan, informing them of the name of the business holder, as well as a time and a place for holding the Creditor’s Meeting. The court is also responsible for sending the creditors a copy of the Reorganization Plan. Either the merchant or his legal representative is required to attend the meeting. Further, the assessor that developed the Reorganization Plan is required to attend as well as any merchant whose presence the court requires. During the meeting, the people as well as the creditors are welcome to give notes and suggestions regarding the suggested Reorganization Plan and have the right to contest any of the proposed of The merchant’s activities or any 2. If the merchant does not commit to items. Creditors are required to then vote other activity necessary for the or execute the Plan in accordance and sign on the issued discussed in the implementation of the Plan; with the conditions agreed upon meeting before the court authorizes and within the specified time limit. endorses the Reorganization Plan. 3. That the proposed action cause the continuation of the merchant’s 3. If the merchant does any fraudulent According to Article 13 of the Draft Law, activities for the longest time or prohibited acts, or acts contrary the court reserves the right to reconstruct possible and achieve better pay to to the agreed Plan. the Plan and agree to the selling, renting, the creditors; investing, or the giving up of a part of the merchant’s assets and/or projects if they 4. That the assessor supervise the are not mentioned in the Plan. This is it undertaking of the proposed action may be necessary to do so for the purpose after attaining the court’s approval. of discharging the same and conserving his business. This, however, could only Article14 of the Draft Law states that the be done after the following conditions are Reorganization Plan is considered to be satisfied: executed in the following cases:
1. Notifying the merchant of the 1. After the completion of the same and giving him no more than execution of the Plan in 7 days to object; accordance with the provisions of the Draft Law and the regulations 2. That the execution of the said issued pursuant thereto. action does not affect continuation
Law Update 37 Corporate Commercial
THE KUWAIT CAPITAL MARKETS AUTHORITY WASSIM SASSIA Corporate Commercial (CMA) AMENDMENTS [email protected]
The Capital Market Authority (the articles under Chapter 8 which deals upon subscription, by allowing for the “CMA”) has issued on 13 February with Investment Fund Advisor and Real Estate Investment Funds and the 2012, an administrative resolution the Safekeeping of Investment Fund Private Ownership Funds to pay the no. 4 of 2012 that was published in Assets. subscription value in installments as per the Official Gazette on 19 February the articles of association of the Fund. 2012 with respect to amending certain Under the Types of Investment section, The amendment sets the minimum articles of Chapter 8 (Investment Fund) Article 294 was amended by adding the investment fund capital to be not less of the bylaws and adding two more following Paragraph to the 2 forms of than KD 5 million or its equivalent in articles to the same (the “Resolution”). the Investment Fund. other currencies.
The amendments were made to certain The investment fund and according to Under the Requirements of Investment articles under Chapter 8 which deals the nature of its activity, must take one Fund Incorporation section, a paragraph with the following sections: (i) Types of the following forms: was added to Article 300, stating that of Investment; (ii) Requirements of the fund manager’s participation ratio Investment Fund Incorporation; (iii) A) Securities Investment Fund. in the fund should not be less than 5% Articles of Association of the Fund; B) Real Estate Investment Fund. of the fund capital, and is not allowed (iv) the Issuance Memorandum; C) Cash Fund. to dispose of the subscribed ratio so (v) Investment Funds Incorporated D) Debt Instruments Fund. long the fund is existent. Further, the outside Kuwait; (vi) the Obligations of E) Private Ownership Fund. certificates for this ratio shall be kept Investment Fund Manager; (vii) Rules of F) Holding Fund with the Fund Trustee. Investment; (viii) Financial Statements; Or any other type – approved by the Moreover, Article 301 under the (ix) CMA power to Request Information; CMA. Requirements of Investment Fund and (x) Cancelation of License (the Incorporation, added that after a lapse “Amendments”). Article 295 of the Types of Investment, of 3 months from the issue date of the was amended by adding the following license and the minimum limit of the The Resolution also added two more exception to the payment of units’ value fund’s capital is not covered, then the Corporate Commercial
fund manager is allowed to request Article 346 of the Investment Rules are invested within limits of the methods from the CMA for similar period and, section has been amended where the and policies specified in the Articles the CMA shall study the request and Investment Fund must invest a minimum of Association of the Fund, decisions finalize it within ten (10) working days. of 75% of the net value of its assets – and instructions of the Fund’s Board of in realization of its basic investment Directors. For the Articles of Association of the objectives, instead of investing of 75% Fund section, Article 306 has been of the Investment Fund Capital as it was The Investment Controller should amended by adding the following prior to the amendments. inform the CMA and the Board of information to the necessary Directors of the Fund of any violations information that shall help the investors Article 347 of the Investment Rules occurring by the Fund Manager. on taking a sound and well-studies section has been amended to allow decision for the proposed investment: the CMA to lay down the investment Moreover, the Investment Controller rules for each type of the funds – under shall evaluate shares or investment 1. Form and type of the Fund. a decision – issued from the Board of units in the method and on the schedule 2. Name and address of the Fund Commissioners of the CMA. times fixed in the Fund’s Articles of manager. Association. 3. Investment Controller and Fund Under Article 350 of the Financial Trustee. Statements section, the Investment Another Article was added to Article 4. The Fund period. Fund Manager must submit to the CMA 339 of the Safekeeping of Investment 5. The Fund capital and its way of the audited statements of the financial Fund Assets section as follows: payment. year within a maximum period of thirty 6. A statement stating that the (30) working days from the end of the The Trustee must abide by the following Fund Manager is licensed by financial year of the Fund. Prior to the matters: the CMA. amendments, it was 30 days without specifying working days. • To keep the Fund’s money and Under the Issuance Memorandum assets in accounts -separate section, Article 308 has been amended Under Article 356 of the CMA power and independent from its by adding to the necessary information to Request Information section, the accounts or accounts of third of the Issuance Memorandum to capacity of the Trustee was added to parties and must be under the include the short description of not only the Fund Manager and the Investment watch of a key person. the Fund Controller but also a short Controller that must provide all of the • To receive, keep and deposit description on the Fund Manager and information, documents and details the cash profits and any other the Trustee, as per the form approved which are required by the CMA. distributions arising from the by the CMA. Fund activity. Under Article 360 of the Cancelation • To inform the Fund Manager of Article 311, under the Investment Funds of License section, the amendments any offers or rights caused by Incorporated outside Kuwait section, made to the CMA must notify, in addition the Fund’s assets and send any has been amended to allow to the CMA to the Fund Manager and/or Investment notices he receives within the to cancel the marketing permission for Controller, the CMA must also notify period prescribed for it. an Investment Fund established outside the Trustee, in writing, that it intends • To execute the Fund Manager’s of the State of Kuwait, in addition to to cancel the license of Fund and the instructions relating to the scope the case when the Fund Manager or reasons justifying the same. The Fund of work of the Trustee. Investment Controller breaches any of Manager or Investment Controller provisions in the Law No. (7/2010) and and/or the Trustee, shall also submit In our opinion, the Amendments above this bylaw, or provides the CMA with undertakings within fifteen (15) days as were essential, particularly the changes an incorrect, inaccurate or misleading of the date of notice – acceptable to the made to Article 347 of the Rules of information. Such cancellation of the CMA, for avoidance of cancellation of Investment, by allowing the Investment marketing permission includes the the Fund’s license. Fund to invest in more than 10% of their breach stated above made by the net value of investment fund assets in Trustee as well. In addition to the Amendments stated the field of securities. above, the Resolution added two more Under the Article 312 of the Obligations Articles; one Article was added to of Investment Fund Manager section, Articles 320 of the Investment Fund the said Article has been amended to Advisor as follows: include in clause 6, that the Investment Fund Manager shall ensure the The Investment Controller must abide existence of a system sufficient for by the following matters: settlement of the dealings entered in the accounting system with the cash To make sure the Fund’s assets are and securities accounts opened in invested and managed as per the the Investment Fund name with the provisions of law No. (7/2010) and its Trustee. bylaws ,decisions and instructions of the CMA regulatory thereof and further,
Law Update 39 Insurance
IRAQ:INSURANCE REGULATION LAW NO. 10 OF 2005
By implementing the Insurance Regulation Law no. 10 of 2005 (the “Law”), the Iraqi government has given the following entities the right to conduct insurance services: MODHER MAJEED Corporate Commercial [email protected] 1. Iraqi public companies;
2. Iraqi joint stock and joint venture companies; and the public. These include the following: 3. Foreign insurance companies or subsidiaries registered in Iraq. a. Maritime and aviation insurance (maritime and aviation transports both locally and internationally). This includes the Issuance of a license to conduct insurance services mode of transportation as well as money and goods transported, such as the transportation fees as well as ship and plane bodies; According to the law, granting a license to conduct insurance services requires the following: b. Insurance against fires;
1. A copy of the insurer’s Memorandum of Association c. Car insurance; and its rules of procedure; d. Engineering insurance - this includes damage to civil 2. Type of insurance engineering projects during implementation, as well as any damages incurred by the machinery and equipment. a. Life insurance - this includes all the insurance which involves human life (or the danger related to human life), temporary e. Agricultural insurance; insurance as well as postponed insurance; f. Insurance against accidents - this includes the insurance b. Personal injury insurance - this includes the payment of fixed of any accidents not mentioned in the insurance against theft, amounts on a regular basis to ensure the insured is covered due insurance against fires and any other types of insurancee. an external accident occurs causing the death or disability of the aforementioned; and It is required that the applying branch of the foreign company should not apply to perform a type of insurance different to that c. Health insurance - this includes providing specific benefits exercised by the parent company; and due to the disability of the insured caused by retaining a particular disease. Further, the Law provides that this shall 4. Estimated amount of capital paid. include the expenses of operations needed because of retaining this disease. CONCLUSION
3. Branches of insurance There is room for expansion in the insurance industry in Iraq and within the framework and guidelines provided for by the There are several branches of insurance available for the use of aforementioned Law. Insurance
DIVERSIFICATION OF ACTIVITIES OF INSURANCE COMPANIES AND ITS RECONCILIATION WITH ARTICLE 25 OF
FATMA EL ZEINI FEDERAL LAW NO. 6 Transport/Insurance [email protected] OF 2007
Being mindful of the time frame stipulated by the Insurance Regulator (United Arab Emirates Insurance Authority) as the ultimate deadline for insurance companies to comply with the above mentioned law, I thought that the topic of this article warranted prompt attention.
Pursuant to the Federal Law No. 6 of 2007 concerning Establishment of The Insurance Authority and Organization of its Operations, insurance companies that were established and existed before the issuance of said law; which are carrying out the activities of life insurance and funds accumulation operations together with the property and liability insurances; shall reconcile their position so as not to carry out a combination of these two types of insurance activities, as the said law prohibits an insurance company from practicing both types of insurance activities.
Article 25(1) of the said law states that:
1. “The company shall not carry out life assurance and funds accumulation operations together with the operations of properties and life liability insurances.
2. The existing companies engaged in the two types of insurance as provided for in Para (1) of the Article herein shall adjust their situations within five years as from date of enforcing the law herein. However, the said period may be extended by resolution of the Cabinet.
3. The existing companies engaged in the two types of insurance as provided for in Para (1) of the law herein upon enforcing the provisions of the law herein shall abide by the directives issued by the Board organizing the operations of each of these two types of insurances.”
Article 25(2) provides a five year grace period (from the date the statute entered into force) for all existing insurance companies to comply with the then new formal requirements of “permissible” activities.
As the said law entered into force on 28 August 2007, the five year grace period expires on 28 August 2012.
For those who have already initiated steps in order to comply and those who have yet to commence the process of compliance, if any assistance is required, Al Tamimi & Company have the expertise and are happy to provide sound and practical assistance towards full regulatory compliance before the fast approaching deadline. Legislative Update
OFFICIAL GAZETTE
United Arab Emirates Ministry of Justice 42nd Year Issue No. 533 7 Rabi Ul Akhir 1433 AH 29th February 2012
FEDERAL DECREES
15 of 2012 Ratifying the Agreement on Setting Up a Joint Committee for Cooperation between the UAE and the Republic of Senegal
16 of 2012 Ratifying the Agreement for the Establishment and Operation of an Office for the Islamic Corporation for the Insurance of Investment and Export Credit
17 of 2012 Ratifying the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income between the UAE and the Republic of Bangladesh
18 of 2012 Ratifying the Agreement on Mutual Encouragement & Protection of Investments between the UAE and the Republic of Bangladesh
MINISTERIAL DECISIONS
· From the Ministry of Interior:
55 of 2012 Minister of Interior decision reshuffling the Permanent Disciplinary Board of the Police College
· From the Ministry of Environment & Water:
9 of 2012 Minister of Environment & Water decision setting forth the conditions for import of thermally treated red meat and poultry
13 of 2012 Minister of Environment & Water decision amending Ministerial Decision No. 186 of 2011 and Ministerial Decision No. 849 of 2010 and Ministerial Decision No. 554 of 2009 concerning pesticides that are banned and restricted in the UAE
23 of 2012 Minister of Environment & Water decision amending Ministerial Decision No. 132 of 2011 banning and regulating food imports from Japan
33 of 2012 Minister of Environment & Water decision regulating the trade of HCFC’s
34 of 2012 Minister of Environment & Water decision amending Ministerial Decision No. 555 of 2009 governing imports of beef from countries where there have been cases of mad cow disease
· From the Ministry of Social Affairs:
44 of 2012 Minister of Social Affairs decision announcing the incorporation of Ihsan Charity Association
· From the Ministry of Economy:
637 of 2011 Minister of Economy decision announcing an amendment of the legal form of the Arab Company for Poultry Production Fujairah PSC `
647 of 2011 Minister of Economy decision announcing a revision of the Articles of Association of Sharjah Group Company PSC
8 of 2012 Minister of Economy decision announcing a revision of the Articles of Association of Maf Orix Finance PJSC
Legislative Update
9 of 2012 Minister of Economy decision announcing a revision of the Articles of Association of Daman Investments PSC
ADMINISTRATIVE DECISIONS
· From the Ministry of Interior:
52 of 2012 Decision of the Undersecretary of the Ministry reshuffling the Permanent Disciplinary Board of the General Directorate of Civil Defense, Abu Dhabi
· From the Securities & Commodities Authority:
1/T of 2012 Decision of the Chairman of the Board of Directors of the Securities & Commodities Authority to delete Premier Financial Brokerage from the Brokers Register and cancel its license
4/T of 2012 Decision of the Chairman of the Board of Directors of the Securities & Commodities Authority to delete National Financial Services Centre from the Brokers Register and cancel its license
5/T of 2012 Decision of the Chairman of the Board of Directors of the Securities & Commodities Authority to delete Shaheen Financial Brokerage from the Brokers Register and cancel its license
6/T of 2012 Decision of the Chairman of the Board of Directors of the Securities & Commodities Authority to delete Premium Financial Services from the Brokers Register and cancel its license
7/T of 2012 Decision of the Chairman of the Board of Directors of the Securities & Commodities Authority to delete Atlas Financial Brokerage from the Brokers Register and cancel its license
· From the Emirates Authority for Standardization & Metrology:
1 of 2012 Decision of the Chairman of the Board of Directors of the Emirates Authority for Standardization & Metrology approving UAE technical regulations laying down mandatory requirements for weights & scales
2 of 2012 Decision of the Chairman of the Board of Directors of the Emirates Authority for Standardization & Metrology approving UAE standard specifications
3 of 2012 Decision of the Chairman of the Board of Directors of the Emirates Authority for Standardization & Metrology approving control regulations for lubricating oils used in internal combustion engines under the Emirates Conformity Assessment Scheme - form (b)
4 of 2012 Decision of the Chairman of the Board of Directors of the Emirates Authority for Standardization & Metrology approving guidelines for the control of vehicle tires
· From the UAE Central Bank:
41/10/2009 Decision of the Chairman of the Board of Directors of the UAE Central Bank approving the issue of a commemorative Dirham coin to mark World Environment Day under the United Nations Environment Program
ANNOUNCEMENTS
· From the Ministry of Economy: - Concerning the application filed by Bauer Spezialtiefbau GmbH to delete the registration of their Sharjah Branch from the Register of Foreign Companies at the Ministry
- Concerning the application filed by Asiana IDT Inc. (Korea) to delete the registration of their Ras Al Khaimah from the Register of Foreign Companies at the Ministry
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44 Law Update OUR REGIONAL FOOTPRINT
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KEY CONTACTS
SENIOR PARTNER ARBITRATION LITIGATION - UAE Essam Al Tamimi Paul Turner Hussain Eisa [email protected] [email protected] [email protected] +971 4 364 1525 +971 4 364 1669 +971 4 364 1710
MANAGING PARTNER BANKING & FINANCE LITIGATION - DIFC Husam Hourani Lynette Brown Rita Jaballah [email protected] [email protected] [email protected] +971 4 364 1531 +971 4 364 1622 +971 4 364 1526
DEPUTY MANAGING PARTNER CONSTRUCTION & ENGINEERING PROPERTY Hassan Arab Steven Hunt Lisa Dale [email protected] [email protected] [email protected] +971 4 364 1723 +971 4 364 1716 +971 4 364 1641
DUBAI WORLD TRADE CENTRE COMMERCIAL ADVISORY TRANSPORT & INSURANCE Bassem Zein El Dine Marcus Wallman Yazan Al Saoudi [email protected] [email protected] [email protected] +971 4 318 8406 +971 4 364 1697 +971 4 364 1530
ABU DHABI CORPORATE PROJECTS SPECIAL PROJECTS Stephen Forster Gary Watts Khalid Al Hamrani [email protected] [email protected] [email protected] +971 2 403 8409 +971 4 364 1590 +971 4 364 1587
JORDAN / IRAQ CORPORATE STRUCTURING TECHNOLOGY, MEDIA & TELECOMMUNICATIONS Khaled Saqqaf Samer Qudah David Yates [email protected] [email protected] [email protected] +962 6 577 7415 +971 4 318 8412
KINGDOM OF SAUDI ARABIA EMPLOYMENT Abdullah Al Tamimi Samir Kantaria [email protected] [email protected] +966 1 4169666 +971 4 364 1652
KUWAIT HOSPITALITY Alex Saleh Tara Marlow [email protected] [email protected] +965 2 246 2253 +971 2 674 4537
SHARJAH INTELLECTUAL PROPERTY Zafer Sheikh Oghli Omar Obeidat [email protected] [email protected] +971 6 572 7255 +971 4 364 1506
QATAR LEGISLATION & DRAFTING Mohamed Khodeir Mohammed Ak Bik [email protected] [email protected] +974 4 457 2777 +971 2 403 8406 PARTNERS AT AL TAMIMI & COMPANY UNITED ARAB EMIRATES
ESSAM AL TAMIMI HUSAM HOURANI HASSAN ARAB Senior Partner Managing Partner Deputy Managing Partner [email protected] Head of Banking & Finance Regional Head of Litigation [email protected] [email protected]
AHMED ALLOUZ EL-AMEIR NOOR Partner BASSEM ZEIN EL DINE Partner Dispute Resolution Partner Dispute Resolution [email protected] Head of DWTC Office [email protected] [email protected]
GARY WATTS HUSSAIN EISA SHIRI JAMES MACCALLUM Partner Partner Partner Head of Corporate Commercial Head of Litigation Corporate Commercial [email protected] [email protected] [email protected]
JASSIM M. ABDULLAH JODY GLENN WAUGH KHALID AL HAMRANI Partner Partner Partner Dispute Resolution Banking & Finance Head of Special Projects [email protected] [email protected] [email protected]
LISA DALE LYNETTE BROWN MARIE-GRACE SEIF Partner Partner Partner Head of Property Banking & Finance Corporate Commercial [email protected] [email protected] [email protected]
MOHAMMED MARZOUQI MARCUS WALLMAN MOHAMMED AK BIK Partner Partner Partner Dispute Resolution Corporate Commercial Head of Legislation & [email protected] [email protected] Drafting [email protected] OMAR OBEIDAT OMAR OMAR REBECCA FORD Partner Partner Partner Head of Intellectual Property Transport & Insurance Employment [email protected] [email protected] [email protected]
RITA JABALLAH SAMER QUDAH SAMIR KANTARIA Partner Partner Partner Dispute Resolution Corporate Commercial Head of Employment [email protected] [email protected] [email protected]
STEPHEN FORSTER YAZAN AL SAOUDI YAQOUB AL MUNAYAE Partner Partner Partner Head of Abu Dhabi office Head of Transport/Insurance Joint Venture Partner [email protected] [email protected] Litigation [email protected] ZAFER SHEIKH OGHLI Partner Head of Sharjah office [email protected]
KUWAIT QATAR
ALEX SALEH MOHAMED KHODEIR HANI AL NADDAF Partner Partner Partner Head of Kuwait office Head of Qatar office Dispute Resolution [email protected] [email protected] [email protected]
PHILIP KOTSIS SAMI FAKHOURY MOHAMMED AL MARRI Partner Partner Partner Banking & Finance Banking & Finance Dispute Resolution Corporate Commercial [email protected] [email protected] [email protected] JORDAN/IRAQ KINGDOM OF SAUDI ARABIA
KHALED SAQQAF ABDULLAH AL TAMIMI MUHAMMAD ARIF SAEED Partner Partner Partner Head of Jordan / Iraq office Head of Litigation - KSA Corporate Commercial [email protected] [email protected] [email protected] Abu Dhabi I Amman I Baghdad I Doha I Dubai I Kuwait City I Riyadh I Sharjah