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Middle East - An international perspective – Views on key issues from around the globe

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  • Middle East

    01-09-2020

    Supply chain disruption
    Insolvency and restructuring
    Health and Safety issues
    Restrictive covenant enforcement
    Employment tribunals and employee relations
    Increasing risk of fraud
    Construction issues
    Real Estate

    Supply chain disruption

    In the Middle East, particularly in relation to construction projects, the impact on supply chain has not only affected the suppliers in that chain but also many of the largest and most prestigious projects that are currently being undertaken. The Civil Law jurisdictions of the region do not always provide the same protections on force majeure and impossibility as Common Law jurisdictions and this is forcing suppliers and those to whom they supply to have to make difficult decisions about sustainable of their current contractual arrangements.

    While there is no letup in demand for products and materials for on-going projects, the timing and cost of supplying these has been affected by the pandemic and little or no relief is provided in many of the supply contracts and related construction contracts that were already in place. Cashflow that was already tight is now critical to the survival of many specialist suppliers and delays in payments flowing the top of the pyramid are sending some suppliers into unrecoverable positions. In all cases, using the leverage of the necessity of the product being supplied and re-assessing its delivery and timing should be part of the negotiations that supply chain participants are now undertaking. The same concerns around force majeure and changes in law in particular are impacting the ability of smaller, boutique suppliers to ensure their own survival in the current circumstances.



    Paul Taylor
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    Insolvency and restructuring

    COVID-19 has caused wide-scale economic disruption at a global level to many industries. Whilst the UAE Government has launched economic stimulus packages to minimize the disruption, the financial and social cost of the virus will be felt for many months, if not years, to come. In light of this severe economic disruption, companies of all sizes are likely to feel the impact of this disruption in some form.

    The current insolvency regime in the UAE, the Federal Law No.(9) of 2016 on Bankruptcy (the “Bankruptcy Law”), came into force on 29 December 2016.

    The Bankruptcy Law applies to companies incorporated in line with the Commercial Companies Law, including corporate entities and individuals trading for profit (such as lawyers and accountants) that are not incorporated in Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).

    Governmental bodies and entities wholly or partially owned by the local or federal government are excluded from the scope of the Bankruptcy Law, unless they choose to opt in. The Bankruptcy Law does not apply to companies incorporated within Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), both of which have their own insolvency regimes, which is beyond the scope of this article.

    Until the Bankruptcy Law came into force, the UAE had no single source of law governing the insolvency process. Instead, the process was governed by multiple sources and, as a result, did not reflect the growing global trend towards restructuring. The Bankruptcy Law is introduced to streamline the insolvency regime, making it more userfriendly and thereby promoting restructuring. For more details, please see: https://www.eversheds-sutherland.com/global/en/what/ articles/index.page?ArticleID=en/coronavirus/coronavirusuae- insolvency-process-050520



    Clint Dempsey
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    Health and Safety issues

    Health and safety has been pushed to the forefront of the UAE government’s agenda since the start of the pandemic. They were quick to introduce general measures of caution such as mask-wearing and prohibiting gatherings and, quite early-on, they enforced working from home for nonessential workers. Now the restrictions are starting to ease, we have seen quite different approaches amongst the Emirates with regards to health and safety precautions in the workplace. Currently in Dubai, 100% of the workforce may return to their workplaces providing social distancing measures can be followed.

    Abu Dhabi have taken a more cautious approach in allowing 60% of the workforce to return to work. They must also abide by social distancing measures of a 2m space between each employee at all times. Masks and gloves must be worn throughout the day, and employees must record their temperature each day when they arrive at work. The Ministry of Human Resources is conducting frequent spot-checks and penalties – usually fines – which are severe. The rules are changing constantly and employers must be careful to keep abreast of developments to ensure legal compliance.



    Geraldine Ahern
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    +971 50 220 5983
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    Anna Zeitlin
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    Restrictive covenant enforcement

    The majority of employees employed in the UAE will have their employment governed by Federal Law No. 8 of 1980 (“UAE Labor Law”). There are two main exceptions, namely the UAE’s financial free zones known as the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market (“ADGM”) which have their own laws and courts which are based on common law rather than civil law systems. Notably the DIFC courts and ADGM courts can grant injunctive relief and will do so where the relevant clause which has been breached is reasonable, and goes no further than is necessary to protect the company’s legitimate business interests.

    In summary the position outside of the DIFC and ADGM, is that there are provisions in UAE laws which expressly provide that employers may impose post-termination restrictions and which seek to protect confidential information and trade secrets. However, these provisions are notoriously difficult to enforce as the local UAE courts cannot grant immediate injunctive relief and so these clauses are often considered to “lack teeth.”

    The main remedy an employer has where it considers that there has been a breach of a post-employment restriction, is to bring a claim for damages. In order for a claim for damages to succeed, not only would the restrictive covenant clause have to be deemed reasonable, the employer would need to adduce documentary evidence to show that it has sustained financial loss as a result of the employee’s breach which is often difficult.



    Sarah Anderson
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    +971 50 649 4075
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    Employment tribunals and employee relations

    The majority of employees employed in the UAE will have their employment governed by Federal Law No. 8 of 1980 (“UAE Labor Law”). There are two main exceptions, namely the UAE’s financial free zones known as the Dubai International Financial Centre (“DIFC”) and the Abu Dhabi Global Market (“ADGM”) which have their own laws and courts. The DIFC and ADGM courts adopt an English language common law system. In respect of employmentrelated claims in the DIFC and/or ADGM, their respective courts will apply the relevant employment law.

    For all other employment-related disputes, employees would bring their claims in the local UAE Labor courts, which are based on a civil law system where there is no doctrine of binding precedent. The official language is Arabic and all proceedings are conducted entirely in Arabic. Unlike other jurisdictions, the UAE Labor Courts (in common with other civil courts) will generally only rely on documentary evidence and will not consider oral witness evidence. There is also no duty of full and frank disclosure.

    We have already seen an increase in the number of labor claims. A key driving factor behind these claims may be the fact that employees can retain their UAE residence visa while the proceedings are ongoing which makes remaining and residing in the UAE much easier.



    Sarah Anderson
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    Increasing risk of fraud

    The financial challenges caused by COVID-19 are unsurprisingly causing businesses to increase their scrutiny around financial audit trails and general housekeeping before costs are approved. This in turn is uncovering financial red flags and anomalies which may previously have stayed under the radar. Consequently, in some respects and notwithstanding the strains on legal spend, we are seeing a greater increase in instructions to investigate allegations of potential fraud, embezzlement and wrongdoing as the need to run a tight financial ship and recover monies lost has never been so great. This in turn has increased the need for firms who can quickly offer cost-effective, experienced resource in the region and across the globe.



    Rebecca Copley
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    +9 71 527 420 913
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    Construction issues

    In the Middle East, where there has been an unprecedented construction boom in recent years, a combination of these factors is affecting the key stakeholders in virtually all on-going projects. In particular, in UAE, KSA and Qatar, the lack of any statutorily imposed adjudication or mediation, means that claims for time and cost that cannot be resolved by early negotiation are being forced into lengthy and costly arbitration or litigation.

    Going forwards, already, we are seeing the detrimental effects on contractors and consultants of contractual clauses and obligations that were not originally put in place with a pandemic of this nature ever in mind. Rejection of force majeure, penalty clauses for delay (distinct in this region from LD clauses), adverse change of law provisions, notice clauses and substantiation requirements are all exacerbating the difficult situation, along with the risk of ‘scope creep’ and re-scheduling. The prevalence of on-demand bonds and unsustainable cashflow is causing some contractors, including those who have been in the region for many years, to re-assess their participation and presence in the market.



    Paul Taylor
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    Real Estate

    The issues facing the Middle Eastern economies because of COVID-19 are potentially greater than for many other globalized economies combined, with the fall in price of the lifeblood of the region, crude oil. This has had a significant and immediate impact on retailers and corporate offices with many prominent businesses looking to reduce floor space and close stores in a very short space of time.

    All that being said the impact on leasing documentation is in itself still open for debate. Even before the pandemic there was an increasing split in the real estate market between small commercial units, where landlords would routinely apply highly standardized Government-approved tenancy documents and high-end office and commercial lettings, where documentation was akin to anything you would find in London or New York.

    In the short term it would appear in the more mature markets, Dubai, Abu Dhabi and Bahrain talk is turning to more turnover-focused leasing structures. Terms were already short (sub-three years commonly) but still the market is looking towards a five-year norm (admittedly with the liberal employment of break clauses). One thing is for certain, that rent-free periods and rental holidays are likely to be a feature of the market for some time to come.



    Andrew Thomson
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    +97 143 89 7066
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