Contracting with governments: pitfalls, arbitration, sovereign immunity and enforcement

Entering into a contract with an entity owned or controlled by the state poses unique challenges not faced when dealing with a private commercial counterparty. Parties should be aware of certain distinctive features of negotiating with a state entity from the start of any commercial relationship. It is particularly important for parties to consider these implications when conducting business in the Middle East given that:

i. state entities play a major role in the procurement of major projects, particularly in GCC countries; and

ii. the reconstruction of infrastructure and the development of natural resources in countries such as Iraq require significant foreign investment in the form of contracts with state-owned entities.

Determining whether or not a commercial party is dealing with a state entity is not always a straightforward process in the Middle East. As such, parties should take extra care and consider the following factors at the outset:

a) the capacity of the entity to enter into an arbitration agreement;

b) the ability of the state in question to raise a defence of sovereign immunity in the future; and

c) the investment treaty protections that a company may be able to utilise.

In this article, we set out the key factors that parties should consider when negotiating with a state entity in order to maximise the protections available should a dispute arise at a later point.

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First insight – the new UAE Federal Arbitration Law and the future for UAE arbitration

On 3 May 2018, HH Sheikh Khalifa bin Zayed Al Nahyan, the President of the United Arab Emirates, issued Federal Law No. 6 of 2018 promulgating the country’s much anticipated new Federal Arbitration Law (the “New Law“). The New Law, which is heavily based on the UNCITRAL Model Law on International Commercial Arbitration, will replace and supersede Articles 203 to 218 of the Civil Procedures Code (Federal Law No. 11 of 1992 (as amended)) which currently govern arbitrations seated onshore in the UAE (the “Civil Procedure Code“).  The New Law applies to any arbitration conducted in the UAE, unless the parties have agreed that another law should apply, (Article 2) and to ongoing arbitration proceedings, even if the arbitration agreement was concluded before the Law came into effect (Article 59).

The New Law will take affect one month after its date of publication in the Official Gazette.  This article highlights some of the most significant developments and identifies key similarities and differences between the New Law and the UNCITRAL Model Law on which it is based. Continue reading

New UAE Federal Arbitration Law issued

The President of the United Arab Emirates has issued Federal Law No. 6 of 2018, promulgating the much anticipated new federal arbitration law in the UAE. As we reported in March, the new federal law, which is based on the UNCITRAL Model Law, will replace and supersede Articles 203 to 218 of the Civil Procedures Law No. 11 of 1992, which currently govern arbitrations seated onshore UAE, and will provide a properly structured procedural framework for domestic and international arbitrations seated in the UAE. The law will be published in the Official Gazette of the Union, and will come into effect one month after the date of publication.

Craig Shepherd, Head of the Global Contentious Construction Practice at Herbert Smith Freehills and Head of the Dubai Dispute Resolution team, commented: “The new Federal Arbitration Law is a very exciting development for the whole of the UAE. While the state has developed a reputation as the pre-eminent seat in the Middle East for arbitration, it did risk falling behind other nations who have introduced comprehensive new laws. That issue has now been addressed, and I am sure the new law will help cement the UAE’s position in the global arbitration market.”

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Recent arbitration developments in the UAE

In the last few months, there have been two notable developments in the United Arab Emirates relating to arbitration. First, it was announced on 27th February 2018 that the Federal National Council of the United Arab Emirates has approved the highly anticipated draft of the Federal law on Arbitration (understood to be based on the UNCITRAL Model Law on International Commercial Arbitration). Second, the Legal Affairs Department of the Government of Dubai has clarified that all lawyers who are licensed in Dubai have the right of audience before any arbitration tribunal in Dubai, including foreign lawyers, and that visiting lawyers may also appear before arbitral tribunals in Dubai. These significant and welcome developments are discussed further below.

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New restrictions appear to limit clients’ choice of counsel in UAE seated arbitrations – but is it a storm in a teacup?

On 27 November 2017, Ministerial Resolution No. 972 of 2017 (the “2017 Regulations”) of the Executive Regulations to the Federal Legal Profession Law No. 23 of 1991 came into force, replacing the previous Regulations issued in 1997.

The effect of the 2017 Regulations is arguably that only UAE nationals registered on the Roll of Practicing Lawyers (“Local Counsel”) can represent clients in the UAE national courts and arbitration proceedings seated ‘onshore’ in the UAE. The 2017 Regulations do not, however, apply to Dubai International Financial Centre (“DIFC”) Court proceedings, arbitrations seated in the DIFC, Abu Dhabi Global Market (“ADGM”) Court proceedings or arbitrations seated in the ADGM.

Non-UAE national lawyers (“International Counsel”) have never been permitted to appear before the UAE national courts and so the impact of the 2017 Regulations on these proceedings is limited. But the 2017 Regulations could be of great significance to arbitrations. We explore below the implications of this potentially significant and unexpected legislation on UAE seated arbitration proceedings (“Onshore Arbitrations”). Continue reading

Has the pendulum swung back in favour of the DIFC courts? Two new decisions of the Judicial Tribunal

We recently reported on three decisions of the Judicial Tribunal (please click here) following our commentary on the Judicial Tribunal’s controversial first decision in Daman v Oger and the effect on the Banyan Tree jurisdiction (click here). We concluded that, notwithstanding the absence of detailed reasoning in individual decisions, it was possible to piece together the Judicial Tribunal’s approach from its decisions taken as a whole. The two new decisions shine further light on that approach. Continue reading

Sovereign immunity in the DIFC Court

Last week, the Dubai International Financial Centre Court issued its decision in Pearl Petroleum Company Limited & Others v The Kurdistan Regional Government of Iraq. The Court upheld its earlier decision which recognised two LCIA arbitration awards totalling US$2 billion issued against the Kurdistan Regional Government of Iraq (the “KRG”) and dismissed KRG’s arguments (1) that the enforcement proceedings should be set aside on the ground that the Court did not have jurisdiction to make such orders against it, and (2) that the DIFC Court should not decide issues of immunity and its waiver. Continue reading

ICC to open representative office in Abu Dhabi

The ICC has announced that it will be opening a representative office in the United Arab Emirates to service the Middle East and North Africa region.  The office aims to be open by early 2018 in the new arbitration hearing centre of the Abu Dhabi Global Market (ADGM) in Al Maqam Tower on Al Maryah Island in the UAE capital, Abu Dhabi.

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New Arbitration Law in Qatar

Introduction

The Emir of Qatar, Sheikh Tamim bin Hamad al Thani, issued Law No 2 of 2017 on 16 February 2017 (the "New Arbitration Law"). The New Arbitration Law has not yet been published in the Official Gazette and implementing regulations are yet to be issued, but the New Arbitration Law will come into force 30 days after this occurs.

Overview

The New Arbitration Law replaces Articles 190 to 210 of the Qatari Civil Code, which previously governed arbitration proceedings seated in Qatar. In a positive step, it is substantially based on the UNCITRAL Model Law, which is the benchmark for arbitration legislation, and will apply to all ongoing and future disputes. Although other jurisdictions in the region (such as the UAE) have considered adopting or have adopted the UNCITRAL Model law (for example, the 2005 Arbitration Regulations are heavily based on the Model Law), Qatar will be the first in the region to implement them onshore. Nevertheless, it remains to be seen how these provisions will be applied in practice and the courts' approach when asked to exercise their supervisory jurisdiction.

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