In financings of UAE projects with sovereign involvement, one of the common issues of major concern to the lenders is to what extent their ability to recover from sovereigns can be affected by sovereign immunity available under UAE law. This issue needs to be carefully considered both from the point of view of UAE federal laws and local laws of the particular Emirate.
- In the UAE, it is not unusual to see contractual clauses waiving sovereign immunity entered into by the sovereigns or related entities.
- Lenders’ ability to recover lender financings to sovereigns needs to be carefully considered both from the point of view of UAE federal laws and local laws of the particular Emirate.
- No permission of any person or authority is known to be required as a pre-condition to sue the Government of Abu Dhabi or a related entity. In Dubai however, local sovereign immunity laws require particular consideration.
At the federal level, the UAE Civil Procedures Code sets an overall prohibition on seizing "public property owned by the state or one of the Emirates" for the purposes of enforcement.
There are many issues which stem from the prohibition. For example, whilst the UAE Civil Code defines “public property“
for the purporses of civil transactions, what is “public property“ in the context of commercial transactions and to what extent might overarching public policy consideration come into play?
Yet another question is to what extent the UAE Civil Procedures Code prohibition stands in relation to commercial transactions where the enforcement is sought against the government-owned corporations or other institutions established as being purportedly independent legal entities with a direct or indirect sovereign ownership. Contracts with entities formed prior to the enaction of the UAE Commercial Companies Law (and which may not thus be corporate entities under the UAE Companies Law and would have more propensity to have sovereign immunity) add yet another dimension to the issue.
These considerations should not be overlooked and need to be carefully assessed, including in the context of the relevant constituent and other governing documents and legislation.
At the local level, in the Emirate of Abu Dhabi, no permission of any person or authority is known to be required as a pre-condition to take legal action against the Government of Abu Dhabi or a related entity. This is not however the case for instance in the Emirate of Dubai, whose sovereign immunity laws require particular consideration.
To summarise the main sovereign immunity issues of concern to the lenders, in the Emirate of Dubai:
a. Filing of of lawsuits by or against the Government of Dubai and any department thereof, including public corporations, is subject to procedural requirements.
b. Recovery of debts or obligations of the Government of Dubai and any department thereof, including public corporations, by attachment, sale by auction, or taking possession in any other legal manner, of their properties and assets is prohibited.
There is a theoretical argument in favour of a possible exemption at the Dubai local level from the application of the federal sovereign immunity provisions of the UAE Civil Procedures Code outlined above. Until the exemption has in practice been granted, it remains a theory.
Legislation has also recently been passed at the Dubai local level which now makes it possible to apply for exemption from the application of one of the articles of the Dubai sovereign immunity law in relation to a particular transaction. The exemption seems however to relate to a procedural matter and as such, would not be of much comfort to the party seeking to recover from the sovereign. Technically speaking, there has always been a possibility to seek an exemption directly from the H.H. the Ruler of Dubai or other relevant authorities. Any instances of the grant of an exemption are not made publicly known.
It is not unusual to see contractual clauses entered into by the sovereigns or related entities waiving sovereign immunity. However, it is unclear whether or not and to what extent these clauses would be upheld in the UAE courts.
Author: Valeriya Lysenko
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