Karim Nassif (left) and Gordon Blanke (right) provide an insight for those unfamiliar with litigation in the UAE, including a detailed look at the court structure and procedures, the decision-making powers, and how UAE and foreign judgments are enforced In light of the recent global economic downturn, international investors have become increasingly exposed to actions before UAE courts, whether as claimants or defendants. To be in a position to claim or defend successfully before the UAE courts, international investors need to become more familiar with the proceedings before them, and ensure that they engage with qualified legal counsel to act in their best interests and exert the requisite leverage with the UAE judiciary. In this article we provide some initial guidance for the unaware. The UAE is a federation of seven Emirates: Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Umm Al Quwain and Ras Al-Khaimah. As a federation, the UAE is governed by a federal constitution, the UAE Federal Constitution, which provides for a certain distribution of legislative powers between the federation and the individual Emirates. According to articles 120-122 of the Constitution, there are certain matters that are vested exclusively with the federation as regards their enactment and implementation, while there are others that are left to the individual Emirates to implement. The federal laws have supremacy over the laws of the individual Emirates. However, the individual Emirates are permitted to enact their own legislation in matters that are not exclusive to the federation, as well as in those matters in relation to which – albeit exclusive to the federation – the federation has not exercised its legislative powers. Generally speaking, the laws applicable to civil or commercial transactions are of a federal nature, with the exclusion of property law. The UAE constitutes a civil law jurisdiction. As with all jurisdictions of civil law origin, the UAE is governed by several statutory codes, which regulate, inter alia, civil and commercial relationships between natural and legal persons across the UAE. The UAE Civil Code governs civil transactions and is codified in the UAE Federal Law of Civil Transactions (no 5 of 1985, as amended by federal law no 1 of 1987). The UAE Commercial Code governs commercial transactions and is codified in the UAE Federal Commercial Transactions Law (no 18 of 1993). Both the civil and the commercial codes are supplemented by the application of the Islamic Shari’ah in matters that are not specifically addressed in either of the codes. The Islamic Shari’ah has its origin in the Islamic law of the Shari’ah, which is the custom-based body of law based on the Koran and the religion of Islam. More specifically, pursuant to article 1 of the UAE Civil Code, there is a hierarchy of Islamic doctrines according to which the courts have to rule. Essentially, the courts have to apply the most appropriate solutions from the doctrines of Imam Malik and Imam Ahmad Bin Hanbal. In the event that these doctrines do not offer a suitable solution, courts will invoke the doctrines of Imam Shafa’ee and Imam Abu Hanifa (such as serves best the public interest) by default. Other laws of regular application in the UAE are federal law no 8 of 1984 on commercial companies and federal law no 8 of 1980 on the regulation of labour relations. Being a federation, the UAE legal system is governed by the UAE Federal Constitution. Under the Constitution, each Emirate is allowed to either establish its own legislature and judiciary or to merge with the federal court system. As a result, there is a combination of federal and local (or Emirate) courts in the UAE with parallel jurisdictions, depending on which system the individual Emirate has opted for. The judicial systems of most of the Emirates – except for Dubai, Ras Al-Khaimah and Abu Dhabi, which have retained their own distinct and autonomous local judicial systems – have merged into the UAE Federal Judicial Authority. Both Emirate and federal courts are competent to apply UAE federal laws, as well as laws and regulations promulgated by the rulers of the various Emirates, provided that they properly govern the underlying civil or commercial transaction. In the exercise of their mandate, the UAE judiciary will also be guided by specific local laws, established usage or custom, and the underlying contract or contracts (pactasunt servanda). Further, the application of the Islamic Shari’ah is confined to situations where there is a lacuna in the law. In terms of judicial hierarchy, both the UAE federal and the local judicial systems are divided into courts of first instance (CFI), courts of appeal and courts of cassation. The UAE Federal Supreme Court, with seats in Abu Dhabi, is the highest court in the federal judicial system. This Court is also commonly referred to as the (UAE) Supreme Court of Cassation. By contrast, the local judicial systems of the Emirates of Dubai, Abu Dhabi and Ras Al-Khaimah have their own courts of cassation, entirely separate and distinct from the Supreme Court of Cassation. The Courts of Appeal in each separate judicial system seated in the individual Emirates hear appeals of rulings from the lower courts in their home Emirate. As regards procedure, civil proceedings before both the local and the federal courts are governed by the Federal Law of Civil Procedure (no 35 of 1992, as amended in 2005). As the UAE has a civil law origin, there is no system of binding precedent (stare decisis). However, affirmation by the UAE Supreme Court of lower courts’ rulings generally results in the formation of established principles that provide reliable guidance on the judiciary’s approach in future cases. A similar practice has been established with respect to the rulings of the various Courts of Cassation. A major part of the judiciary in the UAE is recruited from other Arab countries in the Middle Eastern region (in particular, Egypt, Jordan, Lebanon and Sudan). Any advocate who holds a valid license from the UAE Ministry of Justice has rights of audience before UAE local and federal courts. This said, additional licenses may have to be obtained from the governments in Dubai, Abu Dhabi and Ras Al-Khaimah to appear before their respective courts. Licenses to appear before UAE courts are only granted to nationals (with some exceptions). In the UAE, proceedings are commenced by filing a statement of claim (together with a cheque for the attendant court fees), with the court clerk of the court competent to hear the dispute. Once the statement of claim has been filed with the competent court, the court clerk will open a court file and schedule a hearing for the case to be heard before the court. As soon as the hearing date has been fixed the court clerk notifies the claimant and hands the file over to the bailiff of the court to serve on the defendant the statement of claim, together with the summons for the hearing. The defendant is required to file a statement of defence and counterclaim no later than three days before the hearing. If the defendant or their authorised attorney fails to attend the hearing on the appointed date, the court may render a judgment ex parte in absentia, ie in the absence of the defendant. In the event of a full trial, the judgment will usually be pronounced by the CFI within six months to one year from commencement of the court action. Depending on the nature and complexity of the individual dispute, the overall duration of the proceedings may differ on a case-by-case basis. In the event of further appeals to the Court of Appeal and the Court of Cassation, proceedings may take in excess of two years. With effect from 28 June 2009, the Amicable Settlement of Dispute Center, which has been established pursuant to law no 16 of 2009 and which is attached to the Dubai courts, has been competent to hear disputes to promote amicable settlement before referral to the Dubai CFI. Settlement shall be achieved within one month of appearance of the parties before the Center, subject to extension of the period of settlement to the degree justified on a case-by-case basis. In the event that a settlement is achieved, the parties shall enter a settlement agreement reflecting the terms and conditions of their settlement. Cases may only be referred to the Dubai CFI following a resolution by the Center to that effect. Further, so-called reconciliation committees have recently been introduced at the federal court level, excepting, however, the courts of Dubai and of Ras Al-Khaimah (federal law no 4 of 2001). These committees have been created to encourage and facilitate amicable settlement of civil and commercial disputes, irrespective of the amounts in dispute, before filing an action with the competent CFI. A party that does not wish to settle the dispute amicably is entitled to apply to the relevant reconciliation committee for a so-called no objection letter. The competent CFI will not hear a case unless the parties have attempted amicable settlement before the committee or a non-objection they have obtained. Given that the UAE is a civil law jurisdiction, the extent of disclosure in court proceedings is limited (article 18, federal law no 10 of 1992, the Civil and Commercial Evidence Law). More specifically, a litigating party may request disclosure of specific documents from its opponent if it believes that those documents are in the opponent’s possession. The request for disclosure must provide a brief description of the document and indicate its significance to the requesting party’s case, as well as the reasons why it is believed to be in the other party’s possession. The right of specific disclosure is, however, very restricted and disclosure will be ordered only provided that: The court may order disclosure from third parties on the application of one of the litigating parties, provided that there is strong reason to believe that the requested document is materially relevant to the requesting party’s case and shown to be in the third party’s possession (article 20, Civil and Commercial Evidence Law). Once disclosed, documents may only be used for the purposes of the proceedings for which disclosure has been permitted. Like in other civil law jurisdictions, witness evidence will, generally speaking, only be served to complement written pleadings. However, in commercial transactions the rules of evidence are more flexible. The party that wishes to rely on witness testimony to prove (part of) its case has to indicate, either in writing or orally, before the hearing at which the witness is to be called the exact facts it intends to prove by adducing the witness evidence. If witness evidence is admitted, the opposing party has a right to rebut. The parties themselves are normally not allowed to testify in their own cause (article 115, UAE Civil Code), unless expressly requested by one of the parties with the consent of the court. If, once called, a party does not appear for examination before the court, the court has the right to draw adverse inferences. Hearsay evidence is normally not admissible. Contrary to the situation in most common law jurisdictions, party-appointed experts are not permitted in litigious proceedings before the UAE courts. The court is, however, authorised to appoint one or more experts to assist in resolving the issues that are before them. They may do so of their own motion if the parties do not agree on the appointment of an expert. The courts are not bound by the opinion given by the expert, but they need to provide reasons for not following the expert’s opinion. The court is empowered to call any witness testimony it deems necessary to ascertain the truth of any matter before it. Each witness is required to give their testimony in isolation, ie in the absence of any of the witnesses that have not yet been heard by the court. Rebuttal evidence is to be heard at the same hearing as the testimony it seeks to rebut. Witnesses testify on oath. The exact wording of the oath may be varied, taking into account specific requirements of the individual witness’s custom or religion. As the UAE legal system has a civil law origin, taking an oath is compulsory and a witness’s refusal to do so may entail a penalty. If a witness does not appear before the court even though called by the court or one of the parties to attend to give their testimony on 24-hour notice, the court has the discretion to disregard any evidence relating to their testimony. Cross-examination as it is known before the English courts is alien to the UAE legal system. Questions are directed to the witness by the court. The court will first put the questions of the party that called the particular witness and then those of the opponent. Cross-examination is only permissible to a limited extent. Rebuttal testimony is admissible where warranted by the circumstances. The court is further empowered to ask questions of its own motion to ascertain the truth. The answers provided by the witness are placed on record by way of a statement, which is subsequently, after having been read back to them and corrected as necessary, signed by the witness. If it crystallises in the course of the proceedings that a witness has given false testimony, the court will report the witness to the public prosecutor for them to initiate criminal proceedings as appropriate. Essentially, the two main types of contractual remedies available in the UAE are specific performance and damages. Further, a party may obtain injunctive or interlocutory relief. As a general rule, damages are evaluated on the basis of damnum cessans and/or damnum emergens. Under UAE law, actual loss, loss of profit, moral damages and loss of opportunity are factored into the calculation of recoverable damages, to be determined on a case-by-case basis. There is, however, no one single methodology for assessing damages. The major general guiding principles are the foreseeability of the damages concerned at the time of the parties entering into the contract and the certainty of the occurrence of damages. In fact, compensation for hypothetical or probable damages is not acceptable. Further, according to article 2 of the UAE Commercial Code and article 1 of the UAE Civil Code, when applicable to the dispute, there is a strict hierarchy of principles that will influence the determination of the laws applicable to the assessment of damages. In addition, all damage assessments are subject to the influence of Islamic Shari’ah, such as on issues relating to the award of interest. ‘Summary judgments’ are alien to the UAE legal system, unlike in England and Wales. However, discrete provisions of the Federal Law on Civil Procedure provide a power for the CFI to make so-called orders for payment or orders for settlement of debt prior to filing an action. The procedure underlying the application and issuance of such an order for payment is somewhat similar to the procedure that common law jurisdictions use to render a summary judgment. In a first step, the creditor will send a statutory demand for payment to the debtor, requesting the debtor to pay the specified debt within five days from receipt of the demand. In the event that the debtor fails to comply, the creditor will apply to court for the issuance of an order of payment. The application essentially takes the form of ordinary pleadings, appending the statutory demand as proof of notice served on the creditor. In case the application is granted, the court will issue an order within three days from the date of filing the application, whereby the debtor is directed to make payment of the sum due. Service of the order on the debtor needs to be effected within six months from the date that the order is issued, otherwise it will become null and void. The debtor may object to the order within 15 days of it having been issued. In addition, the debtor is also entitled to appeal the order to the Court of Appeal within 30 days after expiry of the 15-day objection period. If the judge decides that the order for payment was not rightfully granted, they may remit the case to the competent court of first instance for a full trial. Last but not least, in the event that a debtor fails to comply with a payment order made against them, the court may impose a prison sentence of a maximum of 36 months, depending on the gravity of the circumstances on a case-by-case basis. A debtor may also be subjected to travel restrictions by surrendering their passport to the competent public authorities until payment of the outstanding debt. In practice, orders for payment have proven difficult to obtain. Attachment orders are usually issued ex parte following an application to the competent court on limited grounds (eg where a debtor has no permanent residence in the UAE or if there is reason to believe that the debtor will dissipate their property to avoid payment of a debt), and are hence difficult to obtain. It is in the court’s discretion to decide whether to order the applicant to provide a bank guarantee or other form of security as a pre-condition for granting an attachment order. Certain assets are exempt from attachment, such as the debtor’s main domicile, as well as wages and salaries exceeding half of the basic wage or salary (tools etc), which the debtor requires for the exercise of their regular employment. UAE courts may even grant attachment orders over assets located in the UAE even though they are not seized to hear the main action. So-called urgent or precautionary applications are available in matters that require urgent action by the courts. This is usually the case where the applicant is requesting the court to appoint an expert or to make a site inspection to confirm the current status or progress of a building project. UAE courts usually grant interest at the rate of 9% per annum on the total amount awarded, which may increase up to 12% in commercial transactions. Interest will start running either: Importantly, UAE courts do not award compound, but only simple interest, although this may be dependent on the Emirate in which a claim is brought. Compound interest is acceptable in the Emirate of Dubai, but not in the Emirate of Abu Dhabi, although both Emirates form part of the UAE. UAE courts usually apply the ‘costs follow the event’ principle, whereby the prevailing party in the proceedings is awarded costs and expenses, to be payable in full by the losing party. Expenses include the court fees, any expert fees and counsel fees, latter of which, however, are usually only recoverable nominally. UAE civil court rulings can be appealed to the Civil Court of Appeal on grounds of law and/or fact within 30 days of the date of the appealed ruling. The procedure before the Court of Appeal is similar to that followed before the CFI. Appeals from the Federal Courts of Appeal lie to the Supreme Court of Cassation in Abu Dhabi. A judgment rendered by the Court of Appeal is good for execution even though it may be further appealed to the Supreme Court of Cassation. For claims up to AED10,000, leave to appeal to the Supreme Court of Cassation is required from the competent Court of Appeal. If the claim amount is in excess of AED10,000, leave to appeal from the competent Court of Appeal is automatic. Appeals to the Supreme Court of Cassation are on points of law only and the submission of further evidence is not admissible, bar in exceptional circumstances. Provided an appeal succeeds, the Supreme Court of Cassation will usually refer the case back to the competent Court of Appeal for it to revise its previous ruling, taking account of the directions on the law provided by the Court of Cassation in its judgment on appeal. The ruling of the Supreme Court of Cassation is final and is usually not subject to any further appeals. A second appeal, however, lies to the revised ruling of the Court of Appeal, in which case the Supreme Court of Cassation will not remit the case a second time to the Court of Cassation, but make a final ruling itself. Importantly, an appeal to the Supreme Court of Cassation does not have a suspensory effect with respect to the appealed judgment of the lower court. To suspend execution of the lower court’s judgment, a specific application to that effect has to be made to the Supreme Court of Cassation. As mentioned previously, given the autonomous judicial system governing the Emirate of Dubai, Ras Al-Khaimah, Abu Dhabi, judgments of the Dubai, Ras Al-Khaimah, Abu Dhabi Court of Appeal are appealable to their respective Courts of Cassation. The procedure discussed above in relation to the Supreme Court of Cassation is applicable mutatis mutandis to the procedure before the Dubai, Abu Dhabi and Ras Al-Khaimah Courts of Cassation. Enforcement of a domestic judgment or order falls within the responsibilities of the execution judge at the execution court. To clear a domestic judgment for enforcement, the execution judge is required to certify that the judgment concerned has become final and is hence good for execution. To initiate this process, the judgment creditor has to apply to the execution court for an order of enforcement. In ordinary cases, the judgment debtor will be notified by the registrar of the execution court, informing them that an application for an order of enforcement has been filed by the judgment creditor. In urgent cases, such as an urgent application or an application for a precautionary attachment, the judgment creditor may apply for summary enforcement, ie immediate enforcement without prior notice to the judgment debtor. The judgment debtor may appeal the enforcement order in accordance with the ordinary procedures of appeal before the Court of Appeal within three days from the date of issuance of the order. Enforcement of the execution order will be stayed until the appeal has been heard and determined. Alternatively, the judgment debtor may file an objection against the execution procedure commenced against them with the execution judge, in which case the execution proceedings will be stayed and the execution judge will hear the judgment debtor’s objection. If the objection is dismissed, the execution judge will resume the execution proceedings. If the judgment debtor does not comply with the enforcement order and fails to pay any amounts due under the original judgment, the judgment creditor may apply to the court for an attachment order against the judgment debtor. In the event that the judgment debtor continues to fail to make payment even despite the issuance and enforcement of an attachment order against them, the court is empowered to make an order for selling the judgment debtor’s assets by public auction and order banks to transfer any money credited to the judgment debtor’s accounts to the court in satisfaction of the judgment debt. As a last resort, non-compliance with the judge’s execution orders for the payment of any outstanding debt may attract a prison sentence. In accordance with a federal agreement signed between the various Emirates that make up the UAE (www.worldstatesmen.org/uae_const.doc), the courts in one Emirate will enforce judgments and orders of the courts of another Emirate as a matter of form. Generally speaking, foreign judgments and orders may be enforced in the UAE under the same conditions as apply to their enforcement in their country of origin. Application for the order of enforcement is made to the CFI of the Emirate where the foreign judgment or order is to be executed in compliance with the standard procedures for filing an ordinary court action. Importantly, the application must append a licensed Arabic translation of the relevant judgment and of any supporting documentation. Further, the foreign judgment or order must be notarised in its country of origin, legalised by the Ministry of Foreign Affairs and authenticated by the UAE Embassy in that country. The court will then notify the defendant of the application, who will be entitled to make their own submissions in defence. The court will consider the parties’ respective arguments for and against enforcement, and finally will deliver judgment on whether or not to recognise the judgment or order in question as good for execution in the UAE. A foreign judgment or order will only be recognised provided that: These provisions are without prejudice to the application of any bilateral international conventions between the UAE and other states in relation to the mutual recognition and enforcement of their respective judicial instruments (such as China, Egypt, France, Jordan, Morocco, Somalia, Sudan and Syria). A court order for the enforcement of a foreign judgment or order is subject to appeal before the Court of Appeal and the Court of Cassation. Alternatively, the judgment debtor may raise objections to the execution procedure once execution has been ordered. Litigating before UAE courts raises procedural difficulties. Any international investor who wishes to proceed or is required to mount a defense in court actions brought against it before the UAE courts will be well-advised to garner specialist local advice to ensure the best possible outcome of the proceedings in its own very best commercial interest. Nota bene also that when seeking to initiate proceedings against a UAE governmental entity, a waiver of sovereign immunity will be required. By Karim Nassif, partner, and Gordon Blanke, senior associate, Habib Al Mulla & Co. E-mail:
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.UAE Federation and UAE Federal Constitution
Civil law jurisdiction
Court structure and judicial hierarchy in the UAE
Civil procedure rules
Judiciary and legal representation
Outline procedure
Initiation of proceedings
Amicable settlement
Disclosure
Witness and expert evidence
Calling and cross-examining witnesses
Decision-making powers of UAE courts
Range of available remedies
Summary judgment
Attachments
Urgent applications
Interest
Recovery of costs
Levels and rules of appeal
Enforcement of UAE and foreign judgments
UAE judgments
Foreign judgments
Conclusion