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When crisis appears, how would resist market practice clauses commonly used in transactional agreements concluded in the UAE and how would judgments derived from such clauses be enforced in the UAE

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by Raphaele François-Poncet, Associée / Partner and Farah el Hajj Purice, Associate - LPA Dubai

INTRODUCTION

The UAE has without doubt managed to attract people from all around the world by offering a great platform to conduct businesses and launch and/or consolidate international careers. Indeed, by (i) consisting of a strategical entry point to emerging markets (ii) having a pro-business government approach as demonstrated through the creation of free zones[1], and (iii) offering a friendly tax environment, the foregoing seems obvious.

Business put aside, from a legal perspective, it is not common to have on the same territory different sets of courts that apply different sets of rules, some of which being completely foreign to the national laws and customs. Dubai International Financial Center (“DIFC”) one of the most famous free zones in the UAE, has for instance its own courts system and specific legal framework[2] derived from common law. Similarly, the Abu Dhabi Global Market (“ADGM”) adopts English law as a default position. As a consequence, parties dispose of a large set of combinations to define the laws and jurisdictions governing their relations when operating in this country. 

Despite the fact that UAE is based on a civil law system [3] which many companies could feel familiar with, international corporate key players originating from civil law jurisdictions when entering into agreements in the UAE with foreign or Emirati counterparts are sometimes more likely to choose and elect, when the option is given,  the laws of a common law jurisdiction to govern their contractual relationship than those of the UAE. In addition, even when governed by a civil law regulation, those players tend to use more and more market practice concepts derived from common law to cover damages and breach of commitments rather than referring to civil law in their contractual documentation.

Finally, arbitration is now considered as the ordinary forum for the resolution of disputes arising out of significant international commercial agreements.

When the time come for discussing early termination of commercial, financing or share purchase agreements, what are the consequences of such commonly observed trend ? and will such practices be modified by the ongoing pandemic of the coronavirus? 

The virus has not only affected people’s health worldwide but has also disrupted business, finance and general interactions and most business and legal players now have to analyze the accuracy of existing provisions in their contracts.


[1] A free zone or a free trade zone is a geographical zone within the UAE in which foreign investors can benefits from easy setups, preferential tax and duty, privacy of shareholders, assistance with the issuance of work permits and visas for employees and so forth

[2]See www.difccourts.ae

[3] See the UAE Governmental Portal- www.u.ae

 

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