UAE must push ahead on commercial law reforms
Friday, 19 March 2010
Paul Stothard
If the United Arab Emirates is to continue its development as a regional legal centre, it must pursue reform of its laws and legal infrastructure, particularly in relation to commercial disputes.
International lawyers practise in a free market. Not long ago, the Gulf's biggest deals were negotiated, and the biggest disputes resolved, in London and Paris. In recent years, this has changed. As the region has developed, the Gulf has attracted its fair share of exceptional legal talent from abroad and has developed some notable home-grown firms.
The UAE legal system is still relatively young. The federal courts were established in 1978, and were heavily influenced by the civil model, especially Egypt's systems. International lawyers and their clients remain concerned about how the UAE's civil courts are coping with the increasing complexity of commercial issues. Civil procedure rules lack modern case-management tools, and all but the smallest judgments can face multiple appeals without significant cost sanctions. As a result, disputes often last years.
Problems have been exacerbated because legal reform has been unable to keep pace with significant changes, particularly the growth in real estate business and Islamic finance. The courts have also had to struggle with insolvency laws that were largely unknown and untested. A new insolvency law, though, is being planned, and Abu Dhabi, in particular, has improved its judiciary through training.
While encouraging, it is difficult to conclude that this will provide a complete solution. In recognition of the difficulties that wholesale reform would involve, Dubai took an innovative step when it established the Dubai International Financial Centre (DIFC) in 2004. The DIFC is a "free zone" in the centre of Dubai's business district that has adopted its own laws and established an independent court.
When Dubai announced these plans, the business community hoped it would be possible to "opt in" even if there was no connection with the financial centre, but this idea was rejected. The concept, however, may not have been abandoned permanently. The Dubai government has turned to DIFC judges to administer the restructuring procedure for the Dubai World group. This is a tacit acknowledgement that the DIFC court has acquired the international credibility to take on the most difficult, sensitive and high-profile disputes.
International business tends to turn to arbitration in order to avoid the idiosyncrasies of local courts. Dubai has promoted itself as an international and domestic arbitration centre, and is home to two respected bodies, the Dubai international Arbitration Centre and a joint venture between the DIFC and the London Court of International Arbitration. These efforts were boosted in 2006 when the UAE joined the New York Convention, which enables foreign arbitral decisions to be enforced in more than 140 states worldwide.
Yet efforts to promote the UAE as a credible arbitration venue continue to be hampered by local laws that require parties to ask courts to ratify arbitrators' decisions, enabling mischief by a disgruntled party and further litigation and expense. A modern federal arbitration law has been promised, which, it is hoped, will address this issue and streamline the process.
Meanwhile, Dubai has again taken a lead by adopting an international standard arbitration law within DIFC, which allows its arbitration centre to admit parties with no connection to the free zone.
Dubai's competitors are also promoting themselves as arbitration centres. Last year, Bahrain formed a joint venture with the American Arbitration Association to promote the island as an international centre with modern laws and procedures backed by the New York Convention.
It is difficult to predict whether the reforms being adopted in the UAE will be sufficient to enable the country to be crowned the regional legal centre for dispute resolution services. As always, and particularly in the face of stiff competition to become a credible venue for international arbitration, the market will decide.
If the United Arab Emirates is to continue its development as a regional legal centre, it must pursue reform of its laws and legal infrastructure, particularly in relation to commercial disputes.
International lawyers practise in a free market. Not long ago, the Gulf's biggest deals were negotiated, and the biggest disputes resolved, in London and Paris. In recent years, this has changed. As the region has developed, the Gulf has attracted its fair share of exceptional legal talent from abroad and has developed some notable home-grown firms.
The UAE legal system is still relatively young. The federal courts were established in 1978, and were heavily influenced by the civil model, especially Egypt's systems. International lawyers and their clients remain concerned about how the UAE's civil courts are coping with the increasing complexity of commercial issues. Civil procedure rules lack modern case-management tools, and all but the smallest judgments can face multiple appeals without significant cost sanctions. As a result, disputes often last years.
Problems have been exacerbated because legal reform has been unable to keep pace with significant changes, particularly the growth in real estate business and Islamic finance. The courts have also had to struggle with insolvency laws that were largely unknown and untested. A new insolvency law, though, is being planned, and Abu Dhabi, in particular, has improved its judiciary through training.
While encouraging, it is difficult to conclude that this will provide a complete solution. In recognition of the difficulties that wholesale reform would involve, Dubai took an innovative step when it established the Dubai International Financial Centre (DIFC) in 2004. The DIFC is a "free zone" in the centre of Dubai's business district that has adopted its own laws and established an independent court.
When Dubai announced these plans, the business community hoped it would be possible to "opt in" even if there was no connection with the financial centre, but this idea was rejected. The concept, however, may not have been abandoned permanently. The Dubai government has turned to DIFC judges to administer the restructuring procedure for the Dubai World group. This is a tacit acknowledgement that the DIFC court has acquired the international credibility to take on the most difficult, sensitive and high-profile disputes.
International business tends to turn to arbitration in order to avoid the idiosyncrasies of local courts. Dubai has promoted itself as an international and domestic arbitration centre, and is home to two respected bodies, the Dubai international Arbitration Centre and a joint venture between the DIFC and the London Court of International Arbitration. These efforts were boosted in 2006 when the UAE joined the New York Convention, which enables foreign arbitral decisions to be enforced in more than 140 states worldwide.
Yet efforts to promote the UAE as a credible arbitration venue continue to be hampered by local laws that require parties to ask courts to ratify arbitrators' decisions, enabling mischief by a disgruntled party and further litigation and expense. A modern federal arbitration law has been promised, which, it is hoped, will address this issue and streamline the process.
Meanwhile, Dubai has again taken a lead by adopting an international standard arbitration law within DIFC, which allows its arbitration centre to admit parties with no connection to the free zone.
Dubai's competitors are also promoting themselves as arbitration centres. Last year, Bahrain formed a joint venture with the American Arbitration Association to promote the island as an international centre with modern laws and procedures backed by the New York Convention.
It is difficult to predict whether the reforms being adopted in the UAE will be sufficient to enable the country to be crowned the regional legal centre for dispute resolution services. As always, and particularly in the face of stiff competition to become a credible venue for international arbitration, the market will decide.