Bringing a claim - initial considerationsKey issues to consider
What key issues should a party consider before bringing a claim?
A party should consider two essential issues before bringing a claim: first, the economic viability of the defendant; and second, the likelihood of the defendant absconding or phoenixing. These two issues are common among smaller foreign entities. A party is advised to consider a precautionary attachment application to ensure that assets are not dissipated during the course of litigation. This is discussed in further detail in question 9.Establishing jurisdiction
How is jurisdiction established?
As previously stated, UAE courts have a wide interpretation of jurisdiction. UAE courts exercise jurisdiction pursuant to the provisions of Federal Law No. 11 of 1992, as amended, concerning the Civil Procedures Law (CPL). CPL article 20 provides that, except in respect of actions concerning real estate abroad, UAE courts have jurisdiction to hear actions filed against UAE citizens and foreigners who are domiciled in or reside in the UAE. CPL article 21 sets out a list of instances where the UAE courts will have jurisdiction should claims be raised against a foreigner who is not a resident of or domiciled in the UAE. Of particular relevance are CPL articles 21(3) and 21(7). CPL article 21(3) confers jurisdiction upon UAE courts where the action concerns an ‘obligation entered into or performed or that is stipulated to be performed in the [UAE]’. Most importantly, CPL article 21(7) grants jurisdiction to UAE courts if any one of the defendants against whom the claim has been brought is a resident of or domiciled in the UAE; this includes having an address in the UAE.
Any objection to the jurisdiction of the UAE court must be raised at the first hearing of a case; otherwise, the defendant is deemed to have waived his or her objection. However, UAE courts do not usually determine the objection as a separate preliminary procedural matter, and the UAE court may only decide if it holds competent jurisdiction when it renders its final judgment on all the issues. A party seeking to rely on a lack of jurisdiction defence may therefore have to defend the merits of the claim in the event the court determines it has jurisdiction.Preclusion
Res judicata: is preclusion applicable, and if so how?
Res judicata is codified under CPL article 92. The principle permits a litigant to provide the defence that the claim should be dismissed as it has already been decided on previously.Applicability of foreign laws
In what circumstances will the courts apply foreign laws to determine issues being litigated before them?
Article 19 of Federal Law No. 5 of 1985, as amended (Civil Code) provides that the form and substance of contractual obligations are governed by the law of the state in which both contracting parties reside, but if they reside in different states then the law of the state in which the contract was concluded applies, unless the parties have agreed on another law or it is apparent from the circumstances that the parties intended for another law to apply.
In practice, a UAE court, if it considers that it has jurisdiction, generally applies UAE law and disregards any provision in a contract that provides for a foreign law to apply. Where UAE courts decide to apply a foreign law, the parties will be required to submit expert legal opinions from those foreign jurisdictions.Initial steps
What initial steps should a claimant consider to ensure that any eventual judgment is satisfied? Can a defendant take steps to make themselves ‘judgment proof’?
The most common issue in this regard is where a defendant will phoenix the defendant company. This is where a defendant establishes a new company, with a similar name and trading activity as the defendant company, and transfers all of the assets of the defendant company to the phoenixed entity. The most common and recommendable step for a claimant is to apply for a precautionary attachment (discussed in question 9).Freezing assets
When is it appropriate for a claimant to consider obtaining an order freezing a defendant’s assets? What are the preconditions and other considerations?
A precautionary attachment is the closest proximate to a freezing injunction in the UAE. Precautionary attachments may be sought prior to commencing substantive proceedings or at any time during the course of the proceedings.
CPL article 252 provides the legal process for seizing assets, to ensure satisfaction of a foreign or local court judgment or arbitration award, in circumstances where there is a justifiable risk and apprehension that the assets will be disposed of prior to a final judgment or award being issued. An attachment order will be issued to protect the interests of the claimant if the UAE court is convinced that there is such a risk of dissipation. The purpose of a precautionary attachment order is to secure a genuine claim. Such a claim can be founded on court proceedings or arbitration proceedings pending in the UAE or abroad.
Precautionary attachments are applied for through an ex parte application (ie, on the application of one party alone), and they are usually granted or refused within a few days of being presented to the judge. The court has discretion whether to make an order. UAE courts, especially Dubai courts, have in recent years become reluctant to grant precautionary attachment orders. The usual reason for the court declining to do so is a failure by the applicant to convince the court that there is a risk the debtor may dissipate its assets before a judgment is enforced. The courts have in the past considered there to be no or low risk of dissipation of assets where the party is a longstanding UAE onshore company. Generally, the courts have held that the risk of dissipation of assets meets the threshold to obtain attachments over the assets of companies based in free zones owned by foreign nationals.
Although it may be possible to apply for and obtain a precautionary attachment order, preserving the attachment may be more difficult to achieve. There are several procedural requirements and judicial hurdles that must be overcome.Pre-action conduct requirements
Are there requirements for pre-action conduct and what are the consequences of non-compliance?
The UAE does not require pre-litigation action; an aggrieved party may immediately commence legal proceedings against a breaching party. That said, it is usual for aggrieved parties to send letters before action. Moreover, the UAE has been attempting to ease the strain on the court system by encouraging parties to submit civil disputes to alternative dispute resolution forums such as reconciliation committees. Abu Dhabi and Dubai have established alternative dispute resolution centres for settling disputes with the aim of reducing the burden on parties and the court system.Other interim relief
What other forms of interim relief can be sought?
The most common interim remedy is a precautionary attachment as discussed in question 9.Alternative dispute resolution
Does the court require or expect parties to engage in ADR at the pre-action stage or later in the case? What are the consequences of failing to engage in ADR at these stages?
Some emirates, namely Abu Dhabi and Dubai, have established centres for mediation and conciliation that are ancillary to the courts. Settlements obtained through mediation or conciliation are contractual in nature and may be enforced through the UAE courts.
In Abu Dhabi, civil, labour or personal status disputes must first be submitted to the Reconciliation and Settlement Committee (RSC) or the Family Guidance Section (FGS), which attempt to amicably settle disputes between parties. The parties may apply for a no objection letter from the RSC or the FGS where settlement is impossible. Abu Dhabi courts cannot commence proceedings unless the matter has been first presented to the RSC or the FGS and a no objection letter has been issued.
In Dubai, the Centre for Amicable Resolution of Disputes (CARD) commenced operations in 2012. CARD may consider mediating disputes that involve:
- the distribution of undivided property;
- a value not exceeding 50,000 dirham;
- a request to commission an expert either individually or related to another request;
- a bank being one of the parties; and
- actions originally commenced in the Dubai courts where the parties request mediation (this must be approved by the judge).
Certain actions fall outside the jurisdiction of CARD. Disputes that are under the purview of CARD cannot be filed with the Dubai courts unless the dispute is submitted to CARD and a decision by CARD is made referring the dispute to the Dubai courts.
Similar ADR centres are being considered by other emirates in the UAE.Claims against natural persons versus corporations
Are there different considerations for claims against natural persons as opposed to corporations?
One of the notable differences in litigating against a corporation is, by means of a precautionary attachment, the ability to attach the company’s trade licence, thereby preventing the entity from trading and conducting business. This power, which can be used as an effective tactic in settlement negotiations, is often overlooked by claimants.Class actions
Are any of the considerations different for class actions, multi-party or group litigations?
UAE law does not legislate for class action lawsuits or for how such suits would be brought or heard in the UAE courts. In theory, a group of claimants may collectively commence legal proceedings against a single defendant. This theory may work in tort claims where various claimants suffered harm as a result of a single defendant (eg, a group of passengers on a bus). However, this is difficult in contract cases, as each individual claimant has a separate breach of contract claim.
Where a claimant lacks jurisdiction against a defendant, the claimant is usually advised to include an additional related UAE-domiciled defendant in the litigation as this will guarantee the jurisdiction of the UAE courts to adjudicate.Third-party funding
What restrictions are there on third parties funding the costs of the litigation or agreeing to pay adverse costs?
Third-party litigation funding is still in its infancy in the UAE.Contingency fee arrangements
Can lawyers act on a contingency fee basis? What options are available? What issues should be considered before entering into an arrangement of this nature?
Generally, complex commercial litigation is billed on a time spent basis, at times with capped fee stages. Contingency fees are a relatively new phenomenon in the UAE. Contingency fees historically have been unattractive fee structures for law firms due to the unpredictable nature of UAE court decisions as well as the lack of summary judgments and automatic right to appeal. However, contingency fees are becoming more common.