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Ahmad Al Awamleh
The jurisdiction of the UAE courts is regulated by Law No. 11 of 1992 (the “Civil Procedure Law”). Articles 20, 21 and 24 of the Civil Procedure Law provide for original jurisdiction and power to the UAE courts to accept and hear any dispute in defined circumstances. These Articles are characterized as Pubic Order provisions and any agreement contrary to them dealing with foreign law and jurisdiction is void.
Lawyers, across the GCC, are often advising on commercial transactions that must take the laws of multiple jurisdictions into account.
Recently, the Abu Dhabi Court of Appeal handed down a decision in once such transaction that has serious implications for transactions with a potential UAE nexus that are based on documentation governed by foreign law and selecting foreign courts.
Using several articles of the Civil Procedure Law the court took original jurisdiction based on a promissory note given by a party with an Abu Dhabi address that was ancillary to a transaction with multiple GCC parties and governed by English law. In taking such jurisdiction, the court also applied UAE law to the promissory note, notwithstanding the parties’ express intent to be governed by English law and subject to English jurisdiction. The analysis of this case follows.
Party A and Party B entered into a Master Agency Agreement for the sale of commodities covered by an agency contract (the “Agreement”) whereby Party A appointed Party B to act as its agent for the purpose of investing Party A’s money in purchasing commodities from suppliers on a COD basis then selling them to purchasers for immediate delivery on a deferred payment basis on the terms and conditions set out in the Agreement.
Party A brought legal action before the Abu Dhabi Court of First Instance against Party B seeking judgment against Party B for USD 33 Million or its UAE Dirham equivalent of AED 121 Million along with an order for court fees, costs and advocate’s fees.
Facts of the Claim
On several dates, Party B was given certain amounts of money under the terms of the Agreement and purchased international commodities from different suppliers on behalf of Party A then sold them on its behalf to itself on the basis that payment would be made to Party A at its offices in the UAE. As a result, Party B executed four promissory notes in favour of Party A of total value USD 33 Million.
Party B defaulted on its installments due to Party A which resulted in the acceleration of payments under the Agreement.
A few weeks later, Party A served Party B with a notice of acceleration under the Agreement and requested immediate payment for all investment transactions involving the promissory notes.
Party A filed an application for the provisional attachment of Party B’s assets and accordingly the court issued an order directing the provisional attachment of all Party B’s funds in banks in the UAE up to the amount of USD 33 Milliom or its UAE Dirham equivalent.
Party A holds promissory notes in the amount of the debt which were due and payable at its UAE offices.
Abu Dhabi Court of First Instance
Abu Dhabi Court of First Instance ruled in favour of Party A by ordering Party B to pay, to Party A, the sum of USD 33 Milliom or its UAE Dirham equivalent at the date of payment while confirming a prima facie provisional attachment up to the amount of the award, together with costs and minimal advocate’s fees.
Party B subsequently appealed to the Abu Dhabi Court of Appeal.
Abu Dhabi Court of Appeal
Party B requested the Court to reverse the decision of Abu Dhabi Court of First Instance on the following grounds:
The Court opined as follows:
Jurisdiction is part of public policy and is an attribute of sovereignty, UAE Courts are necessarily excluded from hearing cases involving property abroad but otherwise retain original jurisdiction in the situations described in Articles 20 and 21 of the Civil Procedure Code and any agreement contrary to Articles 20 and 21 dealing with foreign jurisdiction is void as per Article 24 of the Civil Procedure Law.
ARTICLE 20 PROVIDES:
“With the exception of actions in-rem concerned with real estate abroad, the courts have the power to hear actions brought against UAE citizens and against ex-patriates having an address or place of residence in the country.”
ARTICLE 21 PROVIDES:
“The courts have the power to hear an action against a foreigner with no address or place of residence in the country in the following circumstances:
ARTICLE 24 PROVIDES:
“Any agreement contrary to the provisions of this section is a nullity”.
Based on the pointes outlined above, the Abu Dhabi Court of Appeal decided to admit the appeal in form and, on the merits, to dismiss the appeal and uphold the appealed decision with court fees, costs and minimal advocates’ fees.