Introduction to Terms of Reference in UAE

In law and indeed in many blogs pertaining to law, you will come across the phrase ‘Terms of Reference’. In broad, simple terms, this is a document in which scope and limitations are to be defined.

This document is used in International Arbitrations signed as an agreement between the parties and the arbitrator which defines the time period (usually 6 months if not defined), terms, language and place of arbitration. The intention is to make the arbitration proceedings quicker and to facilitate the implementation (execution) of the outcome of that arbitration.

Terms and conditions defined in a Terms of Reference govern the arbitration proceedings under civil and arbitration rule in the UAE.

Operating under these express Terms of Reference has the added benefit of ensuring there is far less opportunity or possibility for an arbitration award to be annulled.

The information provided in the Terms of Reference should include the dispute itself, right of appeal, submissions of particulars (the facts) and defense of the parties involved.

Challenging Arbitration in UAE (Article 216)

The conditions under which the parties to an arbitration award may challenge (make a request to annul) its validity are governed by Article 216 as follows:

a- If the required number of arbitrators to hear the case were not present or where the arbitrators were not legally appointed, qualified or competent.
b- If the arbitration award was reached with reference to inadequate, out of date or non-existent terms of reference.
c- If the award was made based on Terms of Reference in which the specific dispute is not mentioned, or if the arbitrator exceeds the limits of jurisdiction given under those Terms of Reference.

It is becoming increasingly common for the losing party to challenge an arbitration award by filing an annulment case claiming it to be invalid due to the person signing the contract not having official permission although an experienced legal professional in the arbitration field will be aware of this point and be well prepared to effectively deal with it.

There is a possibility that both parties gave up the right to object to an award by virtue of not objecting in the first possible instance. This highights the importnce of having help and guidance from persons who are not only competant in arbiration protocol but also who have experience with the local processes and procedures.

Personal Guarantee in the UAE

A personal guarantee is the legal promise to pay an amount of debt by for which that person will be held responsible in the event they are unable to pay the amount.

Implementation of Shariah law has lead to UAE Laws on personal guarantee being amended and as per Article 1068 as follows,

  • A guarantee given by a guarantor compels him or her to meet their obligation to the guaranteed person on time and, if failing to do so can incur a fine issued by a competent judge.
  • In case of a penal sentence (jail term) being issued in relation to failure to meet a personal guarantee, the guarantor may be compelled to pay a specified amount in addition.

The increase in trade due to the strong economic growth in the UAE has resulted in a higher number of transactions which require quick debt collection method to be adapted.

The most common mode used by institutions and traders is the post-dated or undated cheque which is fast and safe as compared to other methods.

Maritime Law – Assets to Be Taken Through Arrest

The Federal Maritime Law (FML) lays the foundation for the possible seizure (arrest) of a vessel under certain conditions to claim against a maritime debt. All laws relating to maritime transactions are governed by the Federal Maritime Law of 1981.

For the purpose of clarity, a ‘Vessel’ is defined as a structure such as a ship or a container.

Assets such as a vessel owned by a party against which a judgement has been issued are subject to seizure against that claim or judgement. This can include vessels that are not specifically mentioned in the claim itself unless the claim relates specifically to the use of that vessel.

The Federal Maritime Law (FML) covers debts that can be claimed against damage, salvage, disputes, mortgage, insurance and more.

The selling price and the date on which a vessel will be sold are to be decided by the court and the sale will only be carried out after a final judgement has been issued.

Appointing an Arbitrator

Arbitration is an alternate independent body to resolve a dispute as an alternative to the court system.

When drawing up a contract, you can specify that in the event of a dispute, arbitration will be the jurisdiction to resolve it. Although it is possible to select more than one arbitrator to hear a case, the default number of arbitrators will be set to unless specified to the contrary. If the parties in a dispute are not able to agree on who the arbitrator will be, the arbitration centre will select one independently. It is possible to appeal that decision if either party has a valid cause to do so. It is also possible to appeal against the selected arbitrator if they are, for example, not independent, impartial or correctly qualified. Any such challenge needs to be made within 5 days of discovering any problem or discrepancy.

Some of the ways to appoint an arbitrator are as follows

a- Through the court,
b- Through the Arbitration center
c- By specific request by name

It is mandatory to appoint the selected arbitrators in odd numbers 1, 3, 5, 7, 9. Under the Civil Procedure Code, Federal Law No. 11 of 1992, Article 206, ensure there can be no ‘stalemate’ in the matter. It goes without saying that any arbitrator appointed should be of sufficient capacity and good standing hence:

a- The arbitrators should not be a minor
b- He/she should not be guilty of a criminal offence
c- They should not be deprived of their legal capacity

Consumer Protection Law of UAE

A consumer, by definition, is anyone who purchases goods or services for personal use and Consumer Protection Law exists to manage or improve consumer confidence and the relationship between consumers and the business community.

To protect consumers in the UAE from any fraudulent activity and over-pricing, there is a federal law no. 24 of 2006 which clarifies the rights of a consumer.

The rights of a consumer are as follows,

a- The consumer has the right to demand a healthy and non-hazardous environment

b- He or she should be aware of their legal rights with easy access of information and through designated awareness programs

c- A consumer has the right to express and share their opinions to enhance the products or services available in the market place

d- They have the right to choose from multiple goods and service providers available in the market and can demand that they are furnished at a reasonable price and quality

e- They should be provided with detailed knowledge of a product including (but not limited to) expiry and comprehensive listing of ingredients for example

f- To be kept safe from any products or services that may causes harm or damage to their health or person.

Fraud in the UAE

Any personal or financial gain that a person obtains through wrongful or criminal deception is known as fraud.

Fraud in UAE is considered a serious crime and a person who is found guilty of committing fraud may receive a jail sentence or a fine. The punishment for fraud can range from 1 month to 3 years in jail although in a case of fraud against a government institution, that punishment could be extended up to 6 years in jail. If a judge was to decide that the punishment will be by way of a fine, that could range from AED 30,000 to AED 60,000, depending on the severity and the judges discretion.

Even in the event both parties agree upon a settlement, the guilty party may still be required to pay a fine. In that case, however, it may be possible to have the fine lowered.

If a person found guilty of committing fraud is convicted of the same crime again, they can be put under surveillance for a period of up to 2 years or even for a period that matches the previous jail sentence.

The punishment for attempted fraud can be up to 2 years in jail with a fine of up to AED 20,000 if that person is found guilty.

The rules change somewhat if a charge of fraud is related to a family member. In that instance, the public prosecutor is not able to pursue the case independently and the charges themselves must be brought by the accuser. In this instance, if the case is settled out of court, there will be no further action by way of fines issued over and above the settlement.

End of Service Benefits in UAE

The most frequently asked questions raised about UAE labor law are, am I entitled to end of service pay or gratuity pay? According to UAE labor law, an employee becomes entitled to receiving end of service pay once they have completed 1 year of service.

The actual amount of end of service pay you may be entitled to varies greatly based on the length of service and whether you are employed in a free zone or by a mainland (non-freezone) company. Although Freezones are required to follow UAE labor law, some do have different (slightly more beneficial) calculations for this benefit.

Note: The employer may deduct from the gratuity any amount owed to them by an employee for advanced pay or loans. Expenses such as visa costs and recruitment costs should not be deducted.

The actual calculation can become quite complicated depending on individual circumstances as will include unused leave or holiday and can also include regular commissions. It is also based on your actual current salary rather than the starting salary that may be listed on your original employment contract.

The calculation is also different depending on whether you resign from your position or are terminated by the company (remember that there is also the possibility of compensation if you are terminated for any reason other than work related performance).

As a rule of thumb, the calculations are based on the criteria listed below and there is a useful calculator provided on the Ministry of labor web-site (http://www.mohre.gov.ae/en/end-of-service-calculator.aspx). Some freezones also provide their own calculator on their web-sites to guide you.

Generic Guidance for End of Service Calculations

Limited contract if terminated,
– Must serve at least one year for gratuity pay
– For service of more than 1 year but less than 5 year, the employee will get 21 days basic salary for each year
– For service of more than 5 year , the employee will get 30 days basic salary for each year

Unlimited contract if terminated,
– Must serve at least one year for gratuity pay
– For service of more than 1 year but less than 5 year, the employee will get 21 days basic salary for each year
– For service of more than 5 year , the employee will get 30 days basic salary for each additional year but must not exceed 2 years pay

Resigned under unlimited contract then,
– Must serve at least one year for gratuity pay
– For service of between 1 year to 3 year, the employee will get 1/3 of 21 days basic salary for each year
– For service of between 3 year to 5 year, the employee will get 2/3 of 21 days basic salary for each year
– For service of more than 5 year , the employee will get 21 days basic salary for each year

Construction contracts and VAT?

The introduction of VAT scheduled for January 2018 is going to have an impact on construction and consultancy contracts already in place and will be a pertinent point for consideration in new contracts being drawn up in the UAE. Those well ahead of the game may have already included articles to deal with the direct and indirect costs associated with VAT but it is highly likely that a great number have not. For those that have not included such clauses, the additional costs will most probably have to be absorbed under the existing payment terms which will have a knock-on effect to profitability. Those that have included the relevant clause will have the ability to add these costs over and above the contract rates or will at the very least have the grounds to take effective action to do so. As the time for implementation is fast approaching, having your contracts reviewed is something not to be put off any longer.

For many contracts across the construction sector in the UAE, the FIDIC standard forms are commonly used, particularly the FIDIC Conditions of Contract for Construction 1999 (Red Book). The Red Book specifically states that the contractor is obliged to pay all taxes as required under the law hence the contract price is understood to include such taxes based on the applicable rates in force at the ‘Base Date.’ That being said, there are also sections in the same book that state a contractor is able to claim additional costs that arise as a result from a change in the laws of the country where the works are being carried out.

Clause 14.1 (b) of the General Conditions of the Red Book states:

“the Contractor shall pay all taxes, duties and fees required to be paid by him under the Contract and the Contract Price shall not be adjusted for any of these costs except as stated in Sub-clause 13.7 [Adjustments for Changes in Legislation].

Clause 13.7 of the General Conditions the Red Book helpfully provides,

“The Contract Price shall be adjusted to take account of any increase or decrease in Cost resulting from a change in the Laws of the Country (including the introduction of new Laws and the repeal or modification of existing Laws) or in the judicial or official government interpretation of such Laws, made after the Base Date, which affect the Contractor in the performance of obligations under the Contract.”

The Base Date is defined as “the date 28 days prior to the latest date for submission of the Tender.”

What is particularly important to note is that Clause 14.1 includes the phrase “Unless otherwise stated in the Particular Conditions…” That translates to mean if the conditions do not impact clause 14.1 (b) or clause 13.7, a contractor may be permitted to claim amendments to the Contract Price because of the introduction of VAT. For a contractor to make such a claim for extension of time and/ or costs, the contractor should consider the notice requirements under clause 13.7. When looking carefully at additional conditions you should also be wary of sub clause 13.8 which refers to Adjustments for changes in cost and whether such a claim for changed costs has already been dealt with to ensure such a change is not doubly applied.

This standard clause is not included in contracts for Dubai Municipality and the costs of VAT will need to be absorbed in the contract price.

Construction contracts post January 2018
It is safe to conclude that the introduction of VAT will have an impact on the contract price of construction contracts. Specifying whether VAT is to be paid on top of the tender price or if it is included in the Contract Price will be necessary to avoid any misunderstanding or confusion.

Breach of Trust (UAE)

Any action that goes against the implicit trust granted by an agreement between the trustor (the person giving the trust) and the trustee (the person entrusted) is known as breach of trust

For a breach of trust to have taken place, some specific elem Mrs should exist.

1- The person in breach must obtain possession of an object either on the basis of trust, usage, lease or mortgage for breach of trust to happen

2- A breach of trust can only apply to a moveable object such as money or a document.

3. To be classed as a breach of trust, the object in question needs to be obtained, damages or wasted or lost without proper authority having been granted. This is a specific difference to theft or fraud as an actual physical damage must be suffered.

4- Where a shareholder prevents other shareholders from exercising their rights for personal gain, a clear breach of trust exists.