31 Mar 2020

Important UAE Update: Ten considerations to “flatten the curve” in the COVID-19 world

Authored by: Hadef & Partners Press Office

In brief:

  • Practical guidance on some considerations for businesses during the current challenging and somewhat uncertain times,
  • The topics covered are relevant to the management and mitigation of risk in the UAE in the COVID-19 world.
  • Topics include: commercial and operational contracts; staffing levels; insurance; lease arrangements; liability of directors and managers; cheques and banking arrangements; new and current disputes; intellectual property; and Federal, Local Government and Free Zone support.

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 (including the recent Ministerial Resolution No. (279) of 2020 on Employment Stability in Private Sector during the Period of Application of Precautionary Measures to Curb the Spread of Novel Coronavirus), 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

       a. 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 has 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.

We have not yet received a an official circular from the Abu Dhabi Courts of Cassation, however, we understand from our contacts at the Courts of Cassation that whilst new cases are being registered, dates for judgments are not being provided for new cases. Where judgment dates have already been notified, the judgments are expected to be issued on those dates.  

We have also recently received a circular from the Notary Public (Notary Public Circular) regarding suspension of services. The Notary Public Circular provides that all physical Notary Public services, in all branches, have ceased until 9 April 2020. During this period, certain Notary Public services will be conducted remotely. We are happy to advise you on the process going forward.

       b. 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).

      c. ADGM Court Cases

The ADGM Courts have confirmed that they expect no interruption to service as they will continue to seamlessly support local and global investors and business communities via their eCourts Platform. The ADGM Courts have stated that their eCourts Platform was designed to ensure that the Court did not experience any boundaries of access, including as to time or location.

      d. 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.

2. 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, local Governments and Free zones 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.
  • Dubai Free Zones Council announced an economic stimulus package which addresses the following five key elements:
  • postponing rent payments by a period of 6 months;
  • facilitating installments for payments;
  • refunding security deposits and guarantees;
  • cancelling fines for both companies and individuals; and
  • permitting temporary contracts that allow the free movement of labour between companies operating in the free zones to continue for the rest of the year.

Banks have also come together to offer a comprehensive relief package to ease the financial pressure on customers in the current economic environment.

10. The importance of “positivity and optimism in the face of all challenges”.

His Highness Sheikh Mohamed bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, shared some inspirational and positive words which are important to consider during these challenging times:

"We will get through the ongoing tough times and survive the myriad challenges we and the entire world are now experiencing. The hard time will pass anyway; we might just as well put that passing time to get stronger than before" and "The UAE is faring well, all thanks to the early efforts and measures in place to face this virus."

His Highness went on to ask “all to arm yourselves with positivity and optimism in the face of all challenges. Challenges are opportunities for success. Our fathers & forefathers faced many challenges with patience, hope & optimism. Let us today take their lead and make their attitudes our example.”

Conclusion and Next Steps

There are clearly many issues 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. Hadef & Partners is here to support your business, 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 in the UAE.

Authors: Victoria Woods, Rachel Hill, Alan Rodgers, Zarghona Fazal and James Dunne.


This article, together with any commentary, does not constitute legal advice. It is provided solely for information purposes on a complimentary basis, without consideration of any specific objectives, circumstances or facts. It reflects then current views of the writer which may modify in time and based on differing objectives, circumstances or facts. A writer's view may differ from views of colleagues and/or the firm. You should seek legal advice on each specific matter. Access to this article does not form an attorney-client relationship.