25 Mar 2020

Important UAE Update: The top legal issues you must address to “flatten the curve” in the COVID-19 world

Authored by: Hadef & Partners, Sector Groups

You will have received many emails regarding COVID-19 from a range of sources. Some law firms may have sent updates and technical analysis of issues such as force majeure and market disruption.

We would like to address the needs your business and operations may have in the UAE. Our experts have prepared practical guidance on some key issues that businesses should consider during the current challenging and somewhat uncertain times. Please do not hesitate to contact us should you wish to discuss any issue.

The following nine topics are relevant to the management and mitigation of risk in the UAE.

1. Commercial and Operational Contracts

Contracts with suppliers and customers should be reviewed to assess how you may be protected in the event of disruption to your supplies or ability to perform your obligations. The contract is likely to address force majeure, or market disruption or some other form of extraordinary circumstance, but how these scenarios are defined and applied could substantially impact your position and ability to recover damages or avoid default.

Although payment obligations are rarely considered to be subject to force majeure (and are accordingly often carved out of such relief provisions in contracts), for the most part, being bespoke arrangements, there are likely to be a wide range of approaches to these situations within your contracts, and indeed as between your various suppliers and customers. Other parties’ terms may well have been adopted at the start of your contractual relationship, so do not assume that there will be a standard approach in your portfolio of operational contracts.

There will also be other, statutory rights, to consider, as well as the governing law and the disputes resolution mechanism selected under each contract; all of which will have an effect on the way you assess the risk of failure to supply, delay or terminate arrangements.

In all cases, it is prudent, so far as you are able in the circumstances, to be proactive in limiting your loss to the extent possible. Consider, where the circumstances require, contacting your suppliers and customers to discuss ways of effectively continuing working together in the spirit of your contracts, and fulfill obligations to each other. Remember to document any agreed variation to your dealings, even if, as we all hope, the deviations resulting from COVID-19 are temporary.

2. Current Staffing Levels

Many employers are reviewing staffing levels in the context of different scenarios including remote working, flexible hours, part time working, reduction in benefits, restructure and redundancies. Before implementing any change, it is important to comply with UAE laws and regulations, and to handle any change in a manner that balances protection and continuity of business with maintenance of goodwill in relation to staff and community.

3. Insurance

Your current insurance policies need to be reviewed in the context of the current situation. In undertaking such a review, it is important to verify whether you have any business interruption or other coverage that may apply. Likewise, policies covering directors and officers liability, general liability, and workers compensation should be considered to assess any risks associated with continuing working practices that may have been appropriate in the pre-COVID-19 environment. In addition, policy conditions should also be reviewed to ensure there is no breach that invalidates the insurance: for example, there may be time limits on disclosure of events, including any foreseeable event, which gives rise to a claim or potential claim.

4. Lease Arrangements

Leasing costs are likely to be a significant proportion of your expenses and the contractual arrangement should be reviewed in the context of current market conditions as applicable to your business. Many leases address force majeure, market disruption and/or extraordinary circumstances and it is therefore important to establish whether there is a right to delay performance of obligations or for the contract to be terminated.

In general, non-contractual force majeure (i.e. under the UAE Civil Code) does not recognise the ability of a party to simply delay performance when an event arises. Therefore, understanding how each contract addresses force majeure is necessary to accurately assess the risks applicable to your business. From a lessee’s perspective, it is possible that the current situation gives rise to relief and this depends on a detailed analysis of the text of the specific contract. There are also general principles of law to consider, including extraordinary circumstances and relief from oppressive obligations, as well as statutory rights to seek relief in some contracts.

5. Liability of Directors and Managers

The laws of the UAE, the DIFC and the ADGM address the potential liability of directors and managers for failure to pay the debts of companies and businesses. If you or any other business critical suppliers or customers may delay or fail to make payment, it is important to have a clear understanding of how and when directors or managers may become personally liable for business debts.

6. Cheques and Banking Arrangements

For any borrower, maintaining a clear dialogue with their lender (and managing expectations) is likely to be key in addressing the current challenges. Constructive engagement with lenders is paramount in such circumstances, particularly where the business may be under financial pressure or distress.

Some of the obvious provisions in a typical loan agreement which will require careful review are: when interest and principal repayments fall due, what security has been given, have post-dated cheques been signed and whether default interest may be applied. In addition, there may be financial covenants and recurring testing dates and you therefore must be familiar with such obligations, including whether you might be in breach, the extent of any ‘cure rights’, and the consequences of any breach.

Current market conditions may also trigger ‘material adverse effect’ or ‘material adverse change’ clauses in your loan agreement and this may in turn lead to debt repayment acceleration, and if you have multiple loans, a payment default under one agreement may trigger cross-default under other agreements.

7. New and Current Disputes, Onshore Cases, DIFC Court Cases and Arbitration Cases

  1. Onshore Cases

For the time being, the Abu Dhabi and Dubai Courts are accepting new claims provided they are filed electronically.

In terms of ongoing cases, the Dubai Courts have issued a Circular postponing judicial hearings scheduled between 22 March 2020 and 16 April 2020 in the Courts of Cassation, Appeal and First Instance, including the issue of certificates and personal status documents. However, the postponement does not apply to judges issuing rulings on urgent matters including, criminal cases and appeals involving inmates and detainees which will continue remotely.

The Abu Dhabi and Sharjah Courts have also postponed judicial hearings. On 23 March 2020, the Abu Dhabi Judicial Department confirmed that hearings before the Abu Dhabi Court of First Instance and Abu Dhabi Court of Appeal will be postponed for 30 days. Moreover, the Crown Prince of Abu Dhabi directed the Abu Dhabi Judicial Department to suspend, for two months, all rental eviction cases and enforcement applications, such as requests for the imprisonment of debtors, seizure of property and attachment of bank accounts.

  1. DIFC Court Cases

The DIFC Registrar confirmed that the DIFC Courts and DIFC Court Registry will operate remotely until 26 April 2020, pending further notice. All hearings from 17 March 2020 will be conducted by telephone conference. These changes also affect cases lodged in the Small Claims Tribunal, hearings for such cases will be held by telephone conference (if in the UAE) or through video conference (if overseas).

  1. Arbitration Cases

The current situation also impacts arbitration proceedings. If you have a scheduled arbitration hearing you may consider the possibility of postponement, particularly if the hearing involves international travel or the participation of hosting overseas visitors. You may also consider digital alternatives to physical hearings, for example video and telephone conference, or determining the dispute without a hearing on the basis of documents alone. If alternative means cannot be agreed, you can request for Tribunal to take appropriate measures. Alternatively, the Tribunal may propose postponement or alternative hearing arrangements of its own accord.

In a recent arbitration hearing in which we acted, the circumstances surrounding COVID-19 impacted the hearing in two material respects:

  1. Our client’s witness requested to give evidence by video conference rather than travelling and attending in person. Despite the opposing counsel’s objection the Tribunal permitted this request.
  1. Opposing counsel was not permitted to attend the hearing in person as they had arrived in the UAE on the morning of the hearing from a country on the restricted list, and therefore required a 14 day isolation period. Counsel was obliged to make submissions by telephone conference.

Foreign visitors not generally permitted to enter the UAE at present which is likely to impact some hearings. If you are in the early stage of an arbitration, you should consider the implications of COVID-19 on procedural steps such as the appointment of arbitrators and counsel (travel restrictions could impact international travel), the conduct of preliminary hearings (hearings by telephone or videoconference may be preferable) and the procedural timetable generally (for example Government decisions could impact your ability to instruct counsel or meet procedural deadlines).

Finally, if you are considering commencing arbitration proceedings, all the major arbitration centres are open for business and accept the filing of new Requests for Arbitration by email or through online filing systems.

8. Intellectual Property

In the near future, the world will return to business as usual. It may take longer in some countries than others but, as seen in the global financial crisis in 2008-2009, economies continue to operate and the downward trend eventually reverses.

While expansion plans for business, new products/services and/or into new territories will be reviewed and various projects may be suspended, it is important to also consider the position post crisis.

During the global financial crisis, there were many instances of entities (distributors, business partners or unrelated third parties) seeking to take advantage of the uncertainty. One common activity was the attempt to register the trade mark of the brand owner:

  • For resellers, distributors and others in the supply chain, this was ostensibly to protect the brand but, in some cases, to provide a point of leverage in the contractual arrangements.
  • For unrelated third parties, the intention was often more nefarious and may have been aimed at hijacking the brand in certain markets, or for other goods or services.

The recent spate of ‘COVID’ based trade mark applications around the world is illustrative of the opportunistic approach some may take. We can expect similar activity to occur in relation to medical goods and equipment, such as masks, respirators, or health-related services.

Existing brand owners in these sectors will need to be vigilant against attempts by others to register similar or identical trade marks. Equally, steps should be taken to ensure that sufficient protection is in place with the various enforcement authorities (such as customs) to ensure that counterfeit products are seized and action is taken against infringing parties.

The same approach should be adopted by all businesses, and not just in the medical and health sectors, in relation to their trade marks and other intellectual property rights such as designs, patents and copyright.

On a broader commercial level, businesses should bear in mind that it is less cost in the long run to secure and retain control of intellectual property rights now than to engage in future legal proceedings to regain control of rights from a third party.

9. Federal and Local Government Support

The UAE Federal and local Governments have launched several economic stimulus and aid packages, including:

  • AED 100 billion comprehensive Economic Support Scheme for retail and corporate customers affected by COVID-19, including AED 50 billion from Central Bank funds and AED 50 billion of funds freed up from banks’ capital buffers.
  • AED 1.5 billion Dubai economic stimulus package for the next three months to support companies and the business sector in Dubai which includes 15 initiatives focused on the commercial, retail, trade, tourism and energy sectors.
  • Abu Dhabi economic stimulus package including the continuation of all approved capital expenditure and development projects in Abu Dhabi and various other initiatives including AED 5 billion in water and electricity subsidies, AED 3 billion to a SME Credit Guarantee Scheme, AED 1 billion to financial markets, exempting all commercial and industrial activities from property registration (Tawtheeq) fees, exemptions for property registration fees, and many other initiatives.
  • AED16 billion economic stimulus package from the Federal Government, including a number of renewable six-month suspension of work permit fees and reduction of labour and other charges to cut the cost of doing business, support small businesses and accelerate major infrastructure projects.
  • Banks have also come together to offer a comprehensive relief package to ease the financial pressure on customers in the current economic environment.

Conclusion and Next Steps

There are clearly many issues for you to consider, and all this in addition to managing day to day business and boosting morale.

Although maintaining the commercial side of your business is likely to be your top priority, managing legal risk is also important. We are here to help you, and relieve pressure, where required, which may help enable you to focus on meeting the challenges of the market.

If you would like assistance in reviewing key contracts and addressing risks and liabilities, we would be happy to help.

We wish you the very best of health and every success in your business operations.


This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.