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Dubai Cassation Court Exempts Pre-2018 Supplies from VAT in Construction of Property That Extended Past 2018 into VAT Implementation

In a matter concerning the application of Value Added Tax (VAT) to a long-running construction project that began before 1 January 2018 but concluded years later, the Dubai Court of Cassation issued a notable ruling (Judgment No. 685 of 2024) regarding how VAT should be calculated. The dispute centered on whether the contractor could collect VAT on portions of the work that were either completed or invoiced prior to the official effective date of the UAE’s VAT regime. Before reaching the Court of Cassation, the lawsuit originated in the Dubai Court of First Instance under Case No. 2154 of 2022 Commercial (Partial). In that lower court judgment dated 28 March 2023, the factual background shows that the claimant (contractor) entered into a three-party construction agreement in mid-2017 with (1) the landowner and (2) the consulting engineer, who was in charge of supervision. The primary court found that the contract covered the construction of a villa consisting of a ground floor, upper floor, and a service block. Originally, the project term was set at 13 months. However, work on the villa extended well beyond that schedule. According to the primary court’s findings, the final completion certificate was eventually issued on 12 June 2022: “…after five years and 12 days from the date of signing the contract between the parties, which was originally intended to last 13 months.” The contractor had alleged that it completed 76.34% of the works by the time the project stalled in 2018. It further claimed that it stopped construction because of the owner’s refusal to provide the required finishing materials, which the owner was contractually obliged to supply. By the time the dispute reached the courts, one key question involved the sum of AED 363,389 that the contractor demanded as payment, plus a requested declaration that a check held as security should be canceled. While the primary court eventually awarded the contractor AED 171,996.50 plus legal interest, the issue of VAT became pivotal upon reaching appellate review and, ultimately, the Court of Cassation. The contractor argued that VAT should apply broadly to the amounts claimed. However, the Court of Cassation partially disagreed, confining VAT only to portions of the supply that took place after VAT’s effective date (1 January 2018). In its judgment, the Court of Cassation directly addressed whether sums paid for work done before January 2018 could be subject to VAT. It explained: “…if a service is provided on a phased basis or in installments such that part of the supply occurred before the law’s effective date, then VAT at the rate of 5% applies only to the portion of the supply executed after 1 January 2018. The work completed and paid for beforehand remains outside the scope of the new law.” Referring to the contractor’s specific situation, the Court of Cassation noted that the contractor received certain payments in 2017, well in advance of the 1 January 2018 VAT start date. and that the owner had disbursed AED 807,000 to the contractor during that period. Thus, the Court reasoned: “It was established through the expert’s supplemental report that the respondent [the owner] paid an amount of 807,000 dirhams to the contractor in 2017, prior to the effective date of the VAT law. Therefore, no VAT is due in connection with this amount because the supply of those services was completed before 1 January 2018.” Consequently, the Court “partially quashed” the lower judgment regarding the contractor’s VAT entitlement. It revised the amount due to the contractor down to AED 128,801.49, specifically excluding any VAT on sums invoiced and paid before 2018. In the final dispositive clause, the Court stated: “We rule to amend the appealed judgment so that the sum due to the contractor shall be 128,801.49 dirhams, and the contractor is not entitled to VAT on the works paid for in 2017.” It is relevant to note that the case reached the Court of Cassation through a petition by the Dubai Public Prosecutor’s Office “in the interest of the law.” Once the highest court in Dubai rendered its decision, it clarified the treatment of VAT for a construction project that began prior to the introduction of the tax but was completed—and indeed extended—well after the tax took effect. The Court, however, only addressed the parties to the dispute, and its ruling does not establish direct obligations on the Federal Tax Authority (FTA) itself, as the FTA was not a party to the proceedings and the Cassation Court does not exercise jurisdiction over the FTA. From a factual standpoint, the primary court’s judgment documented how the villa construction started around mid-2017, that the contractor and the owner disagreed about responsibility for supplying finishing materials, and that work effectively concluded in June 2022 under the contractor’s name, even though the original timeframe was set at 13 months. The Court of First Instance awarded the contractor the principal sum but did not separate out pre-2018 VAT liabilities in its calculation. Only at the Court of Cassation stage was the VAT element clarified, leading to a partial reduction of the final amount payable. Outside the specifics of this ruling, there is a broader historical position concerning development projects that transition from the pre-VAT to the post-VAT period, especially regarding property transfers. The general authoritative position has been that if the legal ownership of a property is transferred to the buyer—or if the buyer takes possession of it—before 1 January 2018, then that supply is considered outside the scope of VAT. However, if ownership or possession transfers on or after 1 January 2018, the entire supply may be considered subject to VAT under Article 80(1) of the Decree-Law, regardless of whether payments were received before or after the law’s implementation. In such situations, Article 70(4) of the Executive Regulations, which deals with partially supplied goods or services before VAT took effect, would not apply to commercial units fully handed over after the effective date. Thus, a developer generally charges VAT on the entire value if the property is

War Series: Trump’s Tariffs and How US Businesses Can Challenge Foreign Retaliatory Tariffs Under Bilateral Investment Treaties

In Light of the April 2, 2025, Executive Order on Reciprocal Tariffs On April 2, 2025, President Trump signed the Executive Order titled “Presidential Action: Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits.” This order targets countries deemed to be engaging in unfair trade practices and imposes reciprocal tariffs to counterbalance the perceived disadvantage to American goods. In turn, several trading partners—claiming that the Executive Order undermines existing market access arrangements—have swiftly introduced retaliatory tariffs aimed at United States exports. These foreign duties potentially affect a wide swath of American industries, including manufacturing, technology, agriculture, and other key sectors. Amid this new climate, US manufacturers, industrial firms, farmers, and investors with international operations may find themselves confronting sudden and detrimental market barriers. Unexpected surcharges on goods entering foreign countries or discriminatory policies targeting US-based enterprises can quickly erode profit margins and disrupt long-standing commercial relationships. Although these retaliatory tariffs arise in part from a broader geopolitical and trade-policy standoff, they can directly harm the bottom lines of individual American businesses. Critical to US businesses is that Bilateral Investment Treaties (BITs) or similar international agreements sometimes offer a legal avenue to challenge such foreign measures. This article explores how businesses—ranging from large-scale manufacturers to family-owned farming enterprises—can potentially invoke BIT protections and pursue arbitration when confronted with retaliatory tariffs that unfairly or discriminatorily harm US investments abroad. Background: Retaliatory Tariffs and Their Impact on US Industries Retaliatory tariffs are hardly new in global commerce. Still, the 2025 Executive Order has generated considerable turbulence because it establishes reciprocal tariffs targeted at countries the administration views as contributing to persistent US goods trade deficits. Countries subject to these reciprocal measures are employing their own instruments to counter perceived US pressure. For instance, additional duties might be levied specifically on American agricultural products, advanced machinery, or technology components—often those with significant export volume or strategic political influence. For US manufacturers that depend on selling products overseas, these newly imposed foreign tariffs can disrupt supply chains, inflate operational costs, and render American goods uncompetitive in key markets. Similarly, farmers who have cultivated relationships with foreign buyers—often built over decades—could see the demand for US-grown commodities plummet if foreign tariffs place local producers at an advantage. In the technology or industrial sectors, certain retaliatory measures may specifically target cutting-edge components, crippling the ability of some American firms to remain profitable in international markets. These actions are often politically motivated: foreign nations, frustrated by the US’s reciprocal tariff approach, design retaliatory tariffs to exert pressure on policymakers in Washington. However, the brunt of this pressure frequently falls on everyday American businesses—who may be singled out for punitive treatment to achieve diplomatic or economic goals. How BITs Can Offer a Path to Relief Bilateral Investment Treaties typically grant a private party—the investor—the right to sue a host government if that government’s actions cause harm to the investor’s business or property in the host’s territory. Traditionally, these claims arise from expropriation, unfair or inequitable treatment, denial of justice, or discriminatory measures. Retaliatory tariffs can, in certain circumstances, fit within these categories if they disproportionately burden US investors compared to local or third-country businesses. The key question for many in the US business sphere is whether their foreign presence qualifies as a protected “investment.” BITs often define “investment” broadly, potentially encompassing cross-border supply chains, distribution agreements, or minority stakes in foreign companies—arrangements that might be significantly harmed by retaliatory duties. If the effect of a tariff is to undermine a US investor’s capacity to sell goods or to operate profitably, that investor may argue that the tariff contravenes BIT standards. This legal reasoning has gained traction in international jurisprudence. One notable reference is the Costello judgment in Ireland’s Supreme Court, which, while addressing the constitutionality of the Canada-EU trade agreement, illustrates how investor-state tribunals wield authority to rule on alleged breaches of treaty obligations—even when those breaches manifest as tariff disputes (Costello v The Government of Ireland, Ireland and the Attorney General (Approved) [2022] IESC 44_5). In paragraph 127 of the Costello judgment, the Court comments on how retaliatory tariffs—adopted in response to a finding that one party had violated trade rules—spurred lawsuits from private companies suffering trade restrictions: “[127. As it happens, the CJEU has taken a similar view with regard to liability of the Union under Article 340 TFEU (ex. Article 288 EC). Thus, for example, in FIAMM and Fedon (Joined Cases C 120 and 121/06P, EU: C: 2008: 476) two Italian companies contended that they had suffered loss when a WTO Disputes Panel had authorised the US to impose retaliatory tariffs on certain products …]” This observation underscores that retaliatory tariffs can become a focal point for investor claims, especially where a measure deliberately singles out goods from a particular country. If the duties disrupt an American company’s ability to access a foreign market or fulfill contractual obligations, the possibility of a BIT-based challenge arises. Potential Grounds Under BITs: Fair Treatment and Non-Discrimination Many BITs contain provisions on national treatment (treating foreign investors no less favorably than domestic investors) and most-favored-nation (MFN) treatment (treating investors from one treaty partner no less favorably than investors from other countries). When a retaliatory tariff exclusively targets American goods or is intentionally calibrated to disadvantage US-produced items, it may violate one or both of these commitments. For instance, the language in several US BITs is quite explicit. A typical article might state: “Each Party shall accord treatment no less favorable than that it accords … to investments of its own nationals or companies (national treatment) or to investments of nationals or companies of a third country (most-favored-nation treatment).” Should a government’s retaliatory tariff exclude local producers or third-country producers from comparable duties, US businesses could argue the measure amounts to less favorable treatment of American investments. When these measures carry signs of punitive or protectionist intent, the case for discrimination is further bolstered. Additionally, many BITs

When Crypto Claims Collide with Multiple Jurisdictions: Lessons from Coinbase

In Shirodkar v. Coinbase Global, Inc., 2025 ONCA 298, the Court of Appeal for Ontario grappled with a question that often arises in modern crypto-related disputes. A Canadian plaintiff, seeking to sue a network of Coinbase entities spanning multiple jurisdictions, challenged whether an Ontario court could properly assume authority over all of them. This judgment delves into jurisdiction simpliciter, the principle of forum non conveniens, and how user agreements can affect a court’s ability to hear a dispute against global crypto exchanges with tentacles spread across borders. In the decision, the plaintiff claimed that various Coinbase entities violated Ontario’s Securities Act by trading or offering what he argued were securities without complying with mandatory disclosure and registration requirements. He aimed to lead a proposed class action on behalf of all Canadians who had transacted in crypto tokens on the Coinbase platform during a specified period. Yet, his biggest hurdle was showing that Ontario was the right (and legally permissible) place to litigate against Coinbase’s U.S. and Irish operations, in addition to its Canadian subsidiary. The Court of Appeal began by analyzing whether there was consent-based jurisdiction over the international Coinbase defendants. The plaintiff insisted that a 2023 Canadian User Agreement, which contained a non-exclusive choice of forum clause favoring Ontario, applied retroactively to all the Coinbase entities. The motion judge, whose order was under appeal, found that only Coinbase Canada was a party to that Canadian User Agreement. The foreign Coinbase companies were not signatories and thus had not agreed to have all claims against them heard in Ontario. The Court of Appeal endorsed this reading. It concluded that a forum clause in a contract between one Canadian entity and a user cannot automatically rope in non-parties—even if they belong to the same corporate group. Much of the decision revolves around whether Coinbase’s dealings with Ontario securities regulators or the fact that its overall crypto platform is accessible in Ontario could confer jurisdiction over the other foreign-based entities. The appellant argued that Coinbase Global, Coinbase Inc., and Coinbase Europe all should face claims in Ontario because they allegedly operate in an “intertwined web of Coinbase entities.” The court rejected this argument, emphasizing that the plaintiff must show more than a general connection to Ontario. A regulatory application or any parallel oversight by Canadian authorities is not, in itself, proof that a foreign defendant consented to or expected that private litigants could sue it in Ontario. The mere existence of corporate affiliations also does not automatically expand the reach of Ontario’s courts. On the question of jurisdiction simpliciter (whether an Ontario court has the authority to decide the matter at all), the Court of Appeal turned to the criteria developed in Club Resorts Ltd. v. Van Breda. Under Van Breda, certain “connecting factors” link a defendant to a forum in a way that allows an assumption of jurisdiction. The fact that the plaintiff accessed the Coinbase platform from a computer in Ontario, or suffered financial loss in Ontario, was not by itself enough to pin down the foreign Coinbase entities. Otherwise, as the judgment explained, a global internet company could be sued nearly anywhere in the world, simply because a user clicked “buy” or “sell” from a particular location. The final issue was the question of forum non conveniens, which arises when a court has jurisdiction but wonders whether another forum would be better suited to hear the dispute. The court recognized that it did have jurisdiction over Coinbase Canada, because that entity is domiciled in Ontario and had taken clear steps indicating its presence in the province. Yet, the Court of Appeal affirmed the stay of the action even against Coinbase Canada. The motion judge found that Ireland was plainly the more appropriate forum for the dispute, since the relevant agreements and transactions all pointed toward Irish-based Coinbase operations. Ontario’s connection to the plaintiff’s claims was weak and essentially hinged on the plaintiff’s personal decision to trade from within the province at certain points. From a policy standpoint, the court also stressed the comity principle. This means courts in one jurisdiction should not take it upon themselves to regulate activity that occurred primarily elsewhere, especially when the dispute could be fairly addressed in the foreign forum. For investors considering disputes against a multi-entity, multi-jurisdictional crypto exchange, this decision underlines the importance of clarifying which corporate entity the claim actually targets. It also shows that choice of law and choice of forum clauses in standard user agreements can be quite powerful, but they are only binding on those actually signing them. Where an exchange sets up numerous subsidiaries in different countries, an investor must establish clear links between each named entity and the chosen forum. This can be an uphill battle if most platform operations happen abroad or on servers located elsewhere. Another critical takeaway is that local regulators can oversee certain aspects of a global crypto firm’s business, but that does not automatically allow investors to sue the entire organization in one forum (court or arbitration). This decision also signals that, in cross-border disputes, a court might still keep jurisdiction over the local subsidiary, but it can choose to stay the claim if a foreign venue is the “clearly more appropriate” forum. Ireland, in this case, was deemed preferable because that is where the primary defendant (Coinbase Europe) is located, and that is where the core of the alleged wrongdoing occurred. Shirodkar v. Coinbase Global, Inc. underscores how critical forum selection, corporate structure, and regulatory engagement are when deciding where to sue a multinational crypto exchange. For anyone considering litigation or arbitration, it is wise to carefully check the user agreements they accepted, evaluate how and where the trades took place, and weigh the pros and cons of the available forums. Otherwise, the case might ultimately unfold in the exchange’s home jurisdiction, leaving investors facing unfamiliar procedures.

When Private Keys Mean Real Control: A Landmark Ruling on Crypto

A recent decision in the Supreme Court of Tasmania, reported as [2025] TASSC 2, provides clear guidance on how principles of possession apply to cryptocurrency. The matter involved an appellant and a respondent who agreed that the appellant would invest ten thousand dollars of the respondent’s money in Bitcoin. A dispute later arose when the appellant retained some of the purchased cryptocurrency as a fee, rather than transferring all of it to the respondent. In considering whether the respondent could successfully bring claims in detinue and conversion, the court turned to a principle that remains vital in physical and digital property cases alike: it is trite law that a person is in possession of property if that person has actual control of the property and an intention to possess it. In this dispute, the court examined whether the appellant maintained actual control over the relevant Bitcoin and intended to possess it as his own. Although Bitcoin is intangible, the court emphasized that its owner is the one who controls the private keys for the digital wallet in which the currency is held. Because possession for legal purposes depends on excludability and control, having sole access to the private keys is essentially equivalent to having physical custody of a tangible item. Moreover, the appellant did not disclose or prove any arrangement suggesting that the appellant lacked such control or that another entity actually had possession of the keys. An important dimension to the court’s reasoning was the fact that the appellant consistently acted as if he personally oversaw the Bitcoin and had sole authority regarding transfers. The respondent had trusted the appellant to invest the funds, and the court concluded that the appellant was the only individual capable of granting or denying access to the cryptocurrency. That exclusive ability to decide who received the Bitcoin, combined with evidence of the appellant’s intent to keep some of it as a fee, satisfied the requirement for possession as traditionally defined by case law. The intangible nature of Bitcoin did not undermine its status as property and did not invalidate claims that relied on principles of physical property law. The court made it clear that so long as something can be controlled, held, and excluded from others, it can be the subject of detinue and conversion. The key lessons from this matter are straightforward. First, cryptocurrency is property and can be possessed in the eyes of the law. Second, a court will look closely at who actually controls the private keys. If a person has those keys and no one else can move the cryptocurrency without that person’s cooperation, that person is in possession. Third, to establish detinue, the respondent had to show that the appellant held the Bitcoin in a manner inconsistent with the respondent’s rightful claim and refused to return it after demands were made. Fourth, to demonstrate conversion, the respondent had to prove that the appellant’s actions were so inconsistent with the respondent’s ownership that it amounted to a denial of that ownership. In both these torts, actual possession by the appellant was crucial, and the court had little trouble concluding that he held the digital property under his sole control. The judgment also touched on the appellant’s claim for a fee. The appellant insisted that a portion of the respondent’s Bitcoin constituted his fee, but the court determined that the appellant never secured express agreement that he could retain the cryptocurrency in that manner. Although it was recognized that the appellant was entitled to some compensation for his services, the judge refused to accept that the appellant could simply keep part of the digital currency as that fee. The judge took note of an original suggestion that any fee might be based on a “percentage over base,” meaning a fee on top of the ten thousand dollars. Since the respondent had wanted ten thousand dollars’ worth of Bitcoin, the court found it reasonable that an appropriate fee should be reflected in normal currency rather than in withheld cryptocurrency. The appellant’s unilateral decision to keep some of the Bitcoin was inconsistent with the respondent’s ownership rights, leading directly to liability. Because the appellant maintained control over the private keys, the court found that he possessed the Bitcoin and was responsible for returning it upon demand. By refusing to do so, the appellant exposed himself to damages. The court observed that the demand and refusal elements had been established on several occasions. When the respondent requested the immediate transfer of the entire amount of Bitcoin, the appellant delivered only a portion. When further demands were made, the appellant again refused to hand over the remainder. These facts all supported the finding that the appellant both detained the currency unjustly (detinue) and dealt with it in a way inconsistent with the respondent’s rights (conversion). The ruling demonstrates how digital assets, though intangible, are not beyond the reach of ordinary legal principles. The central premise continues to be that actual control plus the intention to possess qualifies as possession, no matter whether the subject property is a physical object or an electronic asset safeguarded by cryptography. The holder of the private keys enjoys the same kind of power that someone holding a physical item would have: it can be kept, transferred, or refused to others. Accordingly, courts can use familiar rules of property and tort to resolve disputes over cryptocurrency. This matter reaffirms that individuals handling cryptocurrency for others should do so with clear agreements in place, especially regarding fees and possession. Failing to clarify whether any commission will be in cryptocurrency or in ordinary currency often sets the stage for these disputes. Above all, the court’s approach confirms that the law does not require tangibility for an asset to be owned and possessed, so long as those hallmarks of control and intention are in place.

Katy Perry Has No Savior in Space: A Disastrous Gap in the Space Law Framework

  You probably saw it all over the news last week. Six brave women launched into space aboard Blue Origin’s self-flying rocket, NS-31, becoming America’s first all-female space crew in more than 60 years. Katy Perry’s rendition of “What a Wonderful World” echoed through the spacecraft. Gayle King reflected on society whilst floating in zero gravity. And Jeff Bezos arguably topped the gift-giving threshold by giving Lauren Sanchez the gift of a trip to space. But amidst all the glitz and the glam, one extremely important piece of news was missed. On Friday, 18 April, Transportation Secretary Sean Duffy stated on X: “The U.S. commercial space industry is an inspiring project which showcases American ingenuity and exceptionalism. But the last FAA guidelines under the Commercial Space Astronaut Wings Program were clear: Crewmembers who travel into space must have “demonstrated activities during flight that were essential to public safety, or contributed to human space flight safety.” The crew who flew to space this week on an automated flight by Blue Origin were brave and glam, but you cannot identify as an astronaut. They do not meet the FAA astronaut criteria.” (emphasis added) Yet it is precisely that missing piece of news – the bureaucratic line between “astronaut” and “passenger” – that should make every space-tourism enthusiast sit bolt upright. Under the Federal Aviation Administration’s (“FAA”) now retired Commercial Space Astronaut Wings, a would‑be spacefarer had to do more than cross the 50‑mile line. They had to perform “activities during flight that were essential to public safety, or contributed to human space‑flight safety” before the coveted wings—and the formal title—could be pinned to their lapel. Those criteria were tightened in July 2021 and, by the end of 2023, the entire wings program was shuttered; today the agency merely lists qualifying individuals on a website, preserving the same “essential activity” test in spirit if not in jewelry. Blue Origin’s New Shepard capsule is almost entirely automated. The crew floated, they filmed, they fell back to Earth—safe, sound, and, in the FAA’s eyes, still civilians. That hair‑split has consequences far beyond bragging rights. At the international level, the 1967 Outer Space Treaty anoints “astronauts” as the “envoys of mankind,” and its 1968 Rescue Agreement obliges every State Party to “render all possible assistance” to any such envoy who lands in distress on its territory—or even splashes down on the high seas.  Those treaty drafters were thinking of government test pilots in pressure suits, not pop icons in custom Dior flight suits. Because the treaties never bothered to define the word they canonized, national regulators now hold the definitional gavel. If Washington declines to call Perry and company “astronauts,” Peru, Poland, or Palau are under no treaty duty to fish them out of the jungle or the drink. Imagine, then, that NS‑31 had suffered a guidance glitch and come down in Venezuelan waters. Under the Rescue Agreement, Caracas must “immediately take all possible steps” to retrieve and repatriate the astronauts. But if the six women are legally mere “spaceflight participants,” Venezuela would face no such black‑letter obligation; any rescue would be an act of goodwill, diplomacy, or maybe TikTok optics—but not treaty law. Blue Origin’s insurance actuaries can quantify many risks, yet they cannot force a coastal state to launch a search‑and‑rescue flotilla for people who, officially, are just very high‑altitude tourists. The gap widens when one looks homeward. Title 51 of the U.S. Code requires commercial operators to obtain the informed consent of every “space flight participant” and to certify that the vehicle meets minimum safety standards, but it imposes no federal duty on anyone—NASA, the Coast Guard, or the Air Force—to mount a transoceanic recovery if the capsule drifts outside American jurisdiction. The statutory silence is deafening. Why does it matter? Because suborbital jaunts are no longer curiosity acts. Blue Origin alone has flown fifty‑eight private individuals above the Kármán Line since 2021, and Virgin Galactic is booking seats monthly. The odds of an off‑nominal splashdown, however small, compound with every launch. If a mishap strands a celebrity crew on foreign soil, the ensuing diplomatic scramble will expose the ambiguity in real time—and, cynically, in real headlines. There are fixes. Congress could graft a mandatory‑assistance clause onto 51 U.S.C. § 50905, promising U.S. rescue assets to any licensed commercial flight and demanding reciprocal treatment abroad. The Artemis Accords could adopt a side letter clarifying that “astronaut” status attaches to any human who crosses into space under an Article VI “authorization and continuing supervision.” Or the United States could push a protocol through the U.N. Committee on the Peaceful Uses of Outer Space to extend Rescue‑Agreement duties to “spaceflight participants,” closing the loophole before it swallows a casualty. Until then, the legal safety net stops where the FAA’s definition stops. Katy Perry may have sung Louis Armstrong on the edge of the void, but if the capsule had tumbled into a geopolitical gray zone, the world’s binding duty to save the NS-31 crew would have been—like weightlessness itself—alarmingly thin air.

A New Gateway to Challenge UAE FTA Decisions Through Enforcement: Analysis of Judgment No. 1322 of 2024 (Supreme Court – Administrative)

Introduction In a significant development for taxpayers disputing Federal Tax Authority (FTA) decisions, the Federal Supreme Court issued Judgment No. 1322 of 2024 (Administrative) on January 8, 2025. While the law provides a structured procedure to challenge FTA rulings—such as filing for reconsideration, objecting to the Tax Disputes Resolution Committee (TDRC), and appealing before the competent federal courts—this judgment clarifies that taxpayers may also initiate a challenge in the context of enforcement proceedings. As a result, the door is open for taxpayers to dispute the subject matter of FTA decisions through a substantive enforcement dispute. Below, we discuss the background and key points of the judgment, citing verbatim translations of critical excerpts from the original ruling where relevant. 1. Background of the Case The dispute arose when a taxpayer (the Appellant) was subjected to an FTA enforcement action to collect allegedly unpaid Value Added Tax (VAT) and administrative penalties. The taxpayer claimed that the underlying debts did not, in fact, belong to its account. Faced with a decision from the FTA Director General—which, by operation of law, had the status of an “executory instrument” or “enforceable title”—the taxpayer contested its validity within the enforcement stage before the enforcement judge. Quote from the Judgment (translated): “If the person subject to tax fails to settle the tax due within the statutory time limits, the Federal Tax Authority notifies the person to pay; then the Director General issues a decision obligating the person to pay the tax due, and such Director General’s decision shall be regarded as an executory instrument for the purposes of enforcement by the enforcement judge.”(Judgment, ¶2 citing Article 40 of Federal Decree-Law No. 28 of 2022 on Tax Procedures) 2. Established Path for Challenging FTA Decisions Ordinarily, taxpayers disputing FTA assessments or decisions must follow a prescribed sequence: Reconsideration with the FTA; Objection before the Tax Disputes Resolution Committee (TDRC); Appeals to the competent federal courts (the Federal Court of First Instance, then the Court of Appeal, and ultimately the Supreme Court). The statutory regime aims to ensure that all administrative avenues are exhausted before judicial review on the merits. However, the new judgment acknowledges a parallel route when the dispute is raised during enforcement. 3. Substantive Versus Provisional Enforcement Disputes A central issue in this judgment was whether the taxpayer’s challenge during enforcement was merely a “provisional enforcement dispute” (seeking a temporary measure without touching the underlying obligation) or a “substantive enforcement dispute” (contesting the validity of the debt itself). Quote from the Judgment (translated): “The intended temporary disputes in enforcement—over which the enforcement judge has exclusive urgent jurisdiction—are those in which a party seeks a provisional remedy that does not touch the substance of the right. However, a substantive dispute is one in which the objective is to resolve the underlying right and the nullity of the enforcement.”(Judgment, ¶4) The Court firmly held that if the taxpayer is disputing “the essence of the alleged tax debt,” the matter is a substantive enforcement dispute, which cannot be dismissed merely as a provisional request. 4. Court’s Reasoning: Re-Characterizing the Dispute The Supreme Court reproached the lower courts for classifying the taxpayer’s objection as a mere provisional enforcement dispute. Instead, the Court stressed that judges must look beyond the labels used by the parties and consider the real nature of the claim. Quote from the Judgment (translated): “It is established that the court of the merits is obliged to bestow the correct designation upon the action and to apply the correct legal characterization to it, unrestricted by the terms used by the litigants.”(Judgment, ¶3) Because the taxpayer was directly challenging the existence and correctness of the underlying tax debt (alleging clerical errors, unrelated import transactions, and mismatched amounts), the claim was undeniably substantive in nature. 5. Enforcement Orders as “Executory Instruments” but Not Final Judgments The key legal nuance is that a decision from the FTA Director General—which the law treats as an enforceable title—remains an administrative decision, not a final judicial determination. This distinction allows the taxpayer to contest the debt’s validity in an enforcement proceeding. Quote from the Judgment (translated): “Since the executory instrument in question is not a judgment but an administrative decision endowed by the legislator with the force of an enforceable title, it remains open for the debtor to raise a substantive enforcement dispute regarding the genuineness of the debt. An administrative decision does not enjoy the same conclusive presumption as a judicial ruling, and thus it may be rebutted.”(Judgment, ¶6) Thus, the taxpayer may demonstrate the inaccuracy or invalidity of the sums claimed, even after enforcement begins, so long as the challenge truly concerns the heart of the debt. 6. Court’s Criticism of the Lower Judgments The Supreme Court found that the lower courts erred in refusing to entertain the taxpayer’s objections about wrongfully attributed import transactions and contradictory figures. Simply stating that Article 40 of the Tax Procedures Law designates the Director General’s decision as an enforceable title did not absolve the lower courts from examining the substance of the taxpayer’s defense. Quote from the Judgment (translated): “The contested judgment ignored what the appellant insisted upon—namely that its dispute is a substantive enforcement dispute aimed at demonstrating the non-liability for the claimed amounts—and ruled in favor of dismissing the enforcement objection under the pretext that the Director General’s decision has the status of an executory instrument. Such reasoning violates the law and deprives the appellant of the right to defend itself.”(Judgment, ¶7) The Supreme Court thus overturned (or “quashed”) the prior ruling and remanded the case for further examination. 7. Practical Implications: A New Gateway for Taxpayers This judgment underscores that taxpayers are not strictly confined to the official reconsideration or TDRC route when challenging disputed tax liabilities. Even if the FTA has already issued an enforceable decision, the taxpayer can still raise a substantive dispute at the enforcement stage, provided the taxpayer can present factual or legal grounds indicating the debt is incorrect. Substantive Enforcement Dispute: Taxpayers may argue they owe

UAE Supreme Court 212/2023: Empowering Taxpayers when Evidence is with the FTA

In a recent ruling (UAE Federal Supreme Court 212/2023, Administrative Division), the court addressed a critical issue for taxpayers who find themselves in disputes with the Federal Tax Authority (FTA) but lack access to essential documents. In essence, the court recognized that, while the standard rule is that the burden of proof lies with the claimant, there are instances where this burden can shift onto the administrative body if that body alone holds the evidence needed to decide the case. In English, the respective part of the judgment translates to: “It is established that the burden of proof lies upon the claimant, and that the administrative judiciary’s departure from this principle in certain situations and placing the burden of proof upon the administration occurs only when the documents necessary for ruling on the case are exclusively in the administration’s possession… Therefore, if a taxpayer challenges the legality of the contested decision on the grounds that it was based on an unsound premise, and the administrative authority fails to respond or produce evidence refuting this claim, the court may rule on the basis of a presumption that the taxpayer’s claim is correct in light of the administration’s negative stance.” This ruling carries important implications for taxpayers engaged in disputes with the FTA, especially when the documents or evidence that might prove their position are under the sole control of the authority. Ordinarily, an individual or a company that brings a challenge before the court bears the responsibility to prove their case. This general principle ensures that those seeking to overturn or modify an existing administrative decision must present compelling evidence demonstrating why the decision is flawed. However, as the court acknowledges, the rigid application of this principle can be unfair to the taxpayer in situations where the evidence they need is not publicly available or is kept exclusively by the FTA. By recognizing that the burden of proof can shift to the FTA, the Supreme Court judgment introduces an equitable balance. If a taxpayer alleges that a tax assessment or penalty was improperly calculated or imposed on an incorrect legal basis, they would typically need to present proof of those errors. Yet if the FTA alone holds the relevant records—perhaps internal calculations, documents exchanged with other agencies, or internal correspondence that could shed light on the assessment—the taxpayer is at a disadvantage. The court has effectively stated that in such circumstances, the FTA must either supply the evidence or accept the risk that the court will presume the taxpayer’s position to be correct. This mechanism prevents the authority from withholding documents that could clarify factual or legal questions. It also incentivizes administrative bodies to participate actively in litigation, rather than remaining silent and relying on the presumption that the taxpayer has the sole duty to prove every aspect of their case. When the FTA fails to submit the necessary documents or offers no substantive rebuttal to the taxpayer’s claims, the court may interpret that silence as an indication that the taxpayer’s assertions are true. For taxpayers, this ruling underscores the importance of highlighting to the court precisely what documents they believe the FTA possesses and why those documents matter. It is not enough merely to state that the taxpayer disagrees with the FTA’s calculations. The taxpayer must show that the vital pieces of evidence lie in the authority’s domain, making it impossible to provide them on their own. Once that hurdle is cleared, if the FTA does not meet its obligation to disclose or rebut, the taxpayer can benefit from the presumption that their allegations are correct. In conclusion, Federal Supreme Court decision 212/2023 provides a fairer framework for disputes involving tax assessments and penalties. It ensures that if the FTA alone holds decisive evidence, it cannot deprive taxpayers of the opportunity to prove their case by refusing to produce the necessary records. This development helps maintain a balance in tax litigation and affirms the judiciary’s commitment to equitable treatment when critical evidence is solely in the hands of the administration.

Trumpian Duties, Global Disputes: Arbitration Insights for Today’s Tariff Landscape

  Transactional parties facing the newly announced tariffs by President Trump on imports from Canada, Mexico, and China must navigate a web of legal, commercial, and logistical issues. The tariffs, set to go into effect on February 4, 2025, impose an additional 25% ad valorem duty on goods from Canada and Mexico and 10% on products from China. They apply to all merchandise imported for consumption in the United States except that certain Canadian energy resources face a lower 10% tariff. These actions come amid broad hints of further escalation against multiple countries and sectors although on February 3, 2025 it was announced that the Mexico and Canada related tariffs would be paused for one month. General counsels and corporate executives often assume that their existing free trade agreements or established supply contracts will protect them, only to discover unexpected liabilities. In parallel, the immediate shift in customs policies brings to mind recent arbitral decisions that highlight how a party’s contract, its designated Incoterms, and underlying commercial assumptions can determine who ultimately bears the cost or faces liability for failing to deliver goods at the specified price. Products Covered and Source Market. The White House has indicated that all articles, whether industrial, agricultural, or manufactured, coming from Canada and Mexico will face a 25% duty. Canada’s “energy or energy resources,” including natural gas, oil, coal, uranium, and defined critical minerals, will incur a 10% tariff. Imports from China are subjected to a 10% duty on all articles that originate in China and are classified under ISO Country Code CN. This broad net spares only limited personal, charitable, and certain travel-related shipments. E-commerce packages are also affected, as Section 321 customs de minimis entry is suspended, subjecting low-value shipments to the same duties. Miller Bros v. Recom Insights. The logic and reasoning from Miller Bros v. Recom (Miller Bros, a Division of Wampole-Miller, Inc. v. Recom Corp., Including its Parents, Successors, Affiliates and Assigns, AAA Case No. 01-14-0002-0048) underscore how tariff risk can abruptly become the centerpiece of a commercial conflict. In that case, Miller Bros insisted on a supply agreement with a fixed price “inclusive of any and all applicable taxes, duties, current or future applicable tariff fees.” When the U.S. Department of Commerce announced new anti-dumping and countervailing duties on Taiwanese solar modules, the seller, Recom, tried to shift the burden of these duties to Miller Bros. That attempt triggered a contractual breach finding by the arbitral panel. The award recounts that “Recom’s actions constituted a default and breach under the Supply Agreement, and that Recom’s default forced Miller Bros. to procure the solar panels from an alternate source, incurring substantial damages, including the loss of a deposit, higher prices for the new panels, higher costs for installation, and a break-up fee.” This chain of events highlights the primacy of contractual language. Had the Miller Bros–Recom contract been less explicit in designating who bears tariff liability, the outcome might have been different. The tribunal observed that new tariffs on Taiwanese solar products “were entirely foreseeable” and that contractual references to force majeure did not excuse non-performance where the tariff risk had been well-known in the industry. Key Point: Foreseeability. The Miller Bros v. Recom decision emphasized that, when particular duties or trade remedy actions are foreseen or widely publicized, a party cannot readily rely on an unforeseen contingency argument. The award stated: “The evidence adduced with respect to these issues clearly established that Recom was aware of the likely imposition of new tariffs on Taiwanese solar products. The Supply Agreement’s force majeure clause only applies to events that are ‘unforeseeable.’ Recom’s knowledge of the impending tariffs therefore renders the Supply Agreement’s force majeure clause inapplicable.” World Steel Trade v. Rikko Steel Logic. Another instructive arbitral precedent arises from World Steel Trade v. Rikko Steel (World Steel Trade SA v. SC Rikko Steel Srl, ICC Case No. 24921/GR) The parties concluded a contract requiring steel rebars to be delivered under the CFR Incoterm (2010). When the buyer faced an unexpected 25% import duty in the European Union, it refused to pay the contract price. The tribunal clarified that under CFR, the seller’s responsibility “ceases upon delivery of the goods to the vessel.” As the arbitrator put it: “The Seller’s responsibility in connection with the goods shall cease upon delivery of the goods to the vessel. After delivery the risk of loss or damage to the goods…are transferred from the Seller to the Buyer.” That meant the buyer, not the seller, was responsible for taxes and import duties once the goods were onboard. The tribunal also distinguished between the payment documentation required for performance and additional proofs that the buyer later demanded. Despite the buyer’s claims, the arbitrator found that no extra conditions were placed upon the seller under the contract. One excerpt reads: “I do not accept Rikko Steel’s argument that WST unduly waited until it resold the Goods to a third party…the Parties were still negotiating for the buyer to take the Goods, and it is only on 18 June 2019 that Rikko Steel unequivocally stated that it could not purchase them.” This underscores that if the buyer balks at paying newly imposed duties, it cannot simply suspend payment and demand new terms from the seller, absent a genuine contractual revision. Incoterms and Commercial Drafting. Drafting or revising supply agreements in the wake of these new Trump tariffs requires clarity about whether the sales terms reflect DDP, CFR, CIF, or other allocations of risk and cost. Under DDP (“Delivered Duty Paid”), the seller agrees to pay all duties, taxes, and charges to deliver the goods to the buyer’s location. If the contract designates something akin to CFR or FOB, the buyer usually must pay import duties. That difference, as shown in the steel dispute, can shift hundreds of thousands of dollars in unanticipated tariffs onto one party. The new tariff environment could also spawn renegotiation. Some suppliers may insert force majeure clauses or disclaimers that if trade remedies

UAE Supreme Court on Constitutionality of “Pay Now, Argue Later” System in Tax Disputes

Navigating the landscape of tax disputes in the United Arab Emirates presents unique challenges for taxpayers and legal practitioners alike. Central to this environment is the “pay now, argue later” system, a framework that mandates taxpayers to settle disputed taxes before contesting decisions through legal channels. This approach has sparked considerable debate regarding its fairness and constitutional validity. Drawing on our extensive experience at Wasel & Wasel in over 300 tax dispute procedures, we delve into the intricacies of this system and explore the recent judgment by the UAE Federal Supreme Court that upholds its constitutionality. The “pay now, argue later” system operates on a straightforward principle: when a taxpayer challenges a decision by the Federal Tax Authority (FTA), they must first pay the full amount of the disputed taxes during the second step of the dispute process before the competent tax dispute resolution committee. If the taxpayer fails at the committee stage, they may escalate to the federal primary court. At this stage, the requirement shifts slightly; taxpayers must pay half the value of the penalties in dispute to grant the primary court jurisdiction. This system ensures that tax revenues are collected promptly while providing a structured pathway for dispute resolution. We have observed firsthand the impact of this system on taxpayers. Clients frequently express reservations about the necessity of paying disputed taxes upfront. Concerns center around the financial burden imposed on individuals and businesses, particularly when the outcome of the dispute is uncertain. Taxpayers often question the equity of this requirement, fearing that it may disproportionately affect those with limited financial resources or those facing substantial penalties. The crux of the debate lies in whether this system aligns with the principles enshrined in the UAE Constitution, particularly regarding equality before the law and the right to access the judiciary without undue hindrances. These concerns were addressed in a landmark judgment by the UAE Federal Supreme Court in case number 928/2023 AD, which examined the constitutionality of the “pay now, argue later” approach. In its ruling, the Supreme Court emphasized the principle of equality before the law as a cornerstone of the UAE Constitution. The court stated: “The Constitution of the United Arab Emirates ensures the principle of equality before the law and guarantees its application to all citizens as the foundation of justice and freedom. It recognizes that the aim pursued is primarily the rights and freedoms of citizens in the face of discriminatory phenomena that undermine or restrict their practice. The emergence of discrimination is based on origin, gender, language, religion, or creed and is not limited exclusively. The Constitution also guarantees the right to litigation for all people.” This declaration underscores that the “pay now, argue later” system does not infringe upon the constitutional mandate of equality. Instead, it operates within the framework designed to balance the social function of taxation with the protection of property rights. The court recognized that while taxation is a legitimate exercise of state authority, it must be regulated in a manner that considers the social utility of taxes and the necessity of maintaining public services and infrastructure. Furthermore, the judgment addressed the right to access the judiciary, a fundamental right enshrined in the Constitution. The court affirmed: “It also guaranteed the empowerment of every litigant to access the judiciary easily without being burdened by financial obligations or procedural obstacles. This access means that every individual has the right to resort to the judiciary, whose doors are not closed to anyone seeking to benefit from them. The path to it is paved by law.” While acknowledging the importance of this right, the court also recognized the state’s legitimate interest in ensuring the efficient collection of taxes. By requiring taxpayers to pay disputed amounts before challenging decisions, the system aims to prevent the undue accumulation of tax liabilities and ensure the steady flow of revenue necessary for public services. The Supreme Court further elaborated on the legislative authority over taxation, highlighting that the legislative branch holds the primary responsibility for determining tax laws, including their application and assessment. The court stated: “The legislative authority is the one that holds the reins of public taxation, as it undertakes to regulate its conditions through laws issued by it, designed to determine its scope and assessment principles, specify its amount, and oblige its performance. It also establishes the rules for its calculation, analysis, and collection, as well as the procedures for its payment, the statute of limitations, and what appeals can be made against it, encompassing everything related to the tax and its collection framework.” This clarification asserts that the legislature is empowered to set the framework within which tax disputes are resolved, provided that these regulations do not infringe upon constitutional rights. In this context, the “pay now, argue later” system was deemed a lawful exercise of legislative authority, designed to uphold the Constitution’s mandates while facilitating effective tax administration. Moreover, the court underscored the importance of procedural fairness within the system. The judgment noted: “Cases of non-acceptance of submissions or appeals as stated above are merely legislative regulations. They fall within the discretionary authority of the body regarding methods of tax collection, submitting them to the established authority for collection, and appealing them before the judiciary. They do not infringe upon the principle of equality and equal opportunities granted by Articles (14) and (25) of the Constitution.” This indicates that while the system requires upfront payment, it also provides structured avenues for taxpayers to contest decisions, thereby ensuring that their legal rights are preserved. The requirement to pay half the penalties before escalating to the federal primary court serves as a compromise, balancing the need for revenue collection with the taxpayer’s ability to challenge assessments without bearing the full financial burden initially. Given that the requirement to pay taxes arises at the tax dispute resolution committee stage, it is imperative for taxpayers to engage expert tax dispute counsel early on during audits, voluntary disclosures, or reconsideration requests to address liabilities before they

Landmark Arbitration Victory: Dubai Court Affirms Recoverability of Legal Costs Under ICC Rules

In a monumental decision, the Dubai Court of Cassation has issued a groundbreaking judgment in Case No. 756/2024, reshaping the arbitration landscape in the country. This judgment confirms that arbitral tribunals operating under the ICC Rules have the authority to award legal fees to parties, even if not explicitly stated in the arbitration agreement. This marks a significant departure from previous rulings that limited such recoverability. At Wasel & Wasel, we had the honor of representing the successful party in this landmark case. We presented arguments emphasizing that Article 38(1) of the ICC Rules inherently empowers arbitral tribunals to award legal fees, as they form an integral part of the costs incurred by parties during arbitration. We referenced authoritative sources and interpretations by the ICC, which clarify that arbitration costs include not only the fees and expenses of the arbitrators and administrative expenses but also the legal fees and expenses of the parties. Reversing Previous Limitations Historically, the courts in Dubai held a narrow view on the recoverability of legal fees in arbitration. In prior cases over the years, the Dubai courts had determined that unless the arbitration agreement or the arbitration rules explicitly granted the tribunal the power to award legal fees, such costs could not be recovered. This interpretation posed challenges for parties seeking to fully recover their arbitration expenses. The Court’s Reasoning In this recent judgment, the court examined Article 38(1) of the ICC Rules, which states: “The costs of the arbitration shall include the fees and expenses of the arbitrators and the ICC administrative expenses fixed by the Court, in accordance with the scale in force at the time of the commencement of the arbitration, as well as the fees and expenses of any experts appointed by the arbitral tribunal and the reasonable legal and other costs incurred by the parties for the arbitration.” The court emphasized that when the wording of a legal provision is clear and unambiguous, it should be applied as written without resorting to interpretation that alters its meaning. The use of the word “include” indicates that the list of costs is not exhaustive, thereby encompassing legal fees incurred by the parties. The court further noted that the phrase “and other reasonable costs incurred by the parties for the arbitration” is broad and unrestricted, covering various costs without limitation. This interpretation aligns with common practices in international arbitration, recognizing that legal fees are a significant component of the costs parties incur. The court reasoned as follows [translated]: “And the legal costs, which include lawyers’ fees paid by the parties to the legal representatives who represent them in arbitration proceedings, are considered reasonable costs incurred by the parties in arbitration. Therefore, they are deemed arbitration expenses that are estimated and awarded by the arbitral tribunal according to the text of the first paragraph of Article 38 of the aforementioned rules. This is not altered by the argument that the absence of an explicit mention of legal representatives’ fees—as is explicitly stated in the first paragraph of Article 36 of the 2022 Rules of Arbitration of the Dubai International Arbitration Centre—would mean they are not considered arbitration expenses. This is because such an absence does not imply that the drafter of the ICC Rules intended to exclude the arbitral tribunal’s jurisdiction to award lawyers’ fees after including the phrase ‘and other reasonable expenses incurred by the parties in arbitration,’ which encompasses all reasonable costs incurred by the parties, including legal costs like lawyers’ fees. Furthermore, asserting otherwise contradicts the consistent practice of the ICC Rules, where Article 37(1) of its rules effective since 2012 includes the phrase ‘reasonable legal costs and other expenses incurred by the parties in arbitration.’ According to the ICC Guide, which provides commentary on these rules, the arbitral tribunal considers the following categories of recoverable costs: (a) fees and expenses of the parties’ lawyers. This same text appears in Article 38(1) of its rules effective since 2017. Moreover, international arbitration practices applying these rules have established that lawyers’ fees are included among the reasonable costs incurred by the parties in arbitration, which are estimated and awarded by the arbitral tribunal.” Implications for Arbitration in Dubai This judgment has practical implications for arbitration proceedings in Dubai. The court’s decision brings Dubai’s arbitration practices closer to international standards, which commonly allow for the recovery of legal fees as part of arbitration costs. This alignment enhances the jurisdiction’s appeal to parties seeking arbitration consistent with global practices. Parties can now approach arbitration in Dubai with increased confidence that they can recover reasonable legal fees, which may influence their decision to arbitrate disputes in this jurisdiction. This greater certainty reduces the financial risk associated with arbitration and ensures that parties are more likely to be fully compensated for their legal expenses if successful. Moreover, arbitral tribunals operating under the ICC Rules now have clear authority to award legal costs. This clarification contributes to more predictable and fair outcomes in arbitration proceedings, as tribunals can ensure that successful parties are not unduly burdened by their legal expenses. Our involvement in this case reflects our commitment to contributing to the development of arbitration law in the region. By advocating for a practical interpretation of the ICC Rules that recognizes the full scope of recoverable costs, we aim to support efficient and equitable dispute resolution processes. We believe that this decision will positively impact parties considering arbitration in Dubai, offering a clearer understanding of the potential costs and recoveries involved. Conclusion The Dubai Court of Cassation’s judgment in Case No. 756/2024 provides important clarification on the recoverability of legal fees under the ICC Rules. By affirming that legal fees are included in the costs of arbitration, the court has enhanced the predictability and fairness of arbitration proceedings in Dubai. At Wasel & Wasel, we are pleased to have led litigation to this outcome. Our focus on practical solutions and thorough legal analysis was instrumental in achieving a result that benefits not only our client but also

UAE Supreme Court on Taxability of Employee Housing

The recent judgment by the UAE Federal Supreme Court in Case No. 629 of 2024 marks a significant advancement in the interpretation of value-added tax (VAT) laws concerning employee benefits. This ruling provides critical guidance on how companies should handle VAT related to housing expenses provided to employees. In this case, a company sought to recover input VAT incurred on expenses for providing housing to its employees, accommodating job candidates, and offering hotel stays during marketing campaigns. The company argued that these expenses should be exempt from VAT and that it was entitled to reclaim the input VAT paid. The Federal Supreme Court delved into whether expenses such as water, gas, and electricity fall within the concept of a housing allowance. According to the court, these utilities “are outside the concept of housing allowance that is considered a component of the salary as an in-kind benefit granted to the employee by the employment contract and fall within services that must be reclaimed in respect of VAT.” The court emphasized that unless these expenses are explicitly included in the employment contract, they cannot be deducted from the tax base. Furthermore, the court highlighted the necessity of precise documentation in employment contracts. Article 10 of Cabinet Decision No. 1 of 2022 stipulates that “the employment contract must contain… the agreed wage, including benefits and allowances.” This means that any in-kind benefits, such as housing allowances or utility payments, must be clearly defined in the contract to be considered for VAT exemption. The court found that the lower court had failed to verify whether these expenses were included in the employment contracts. “The judgment under appeal did not properly examine whether these expenses were included in the employment contract… It has violated the law and must be reversed,” the court stated. This oversight led to the reversal of the lower court’s decision and a remand for further examination. This ruling underscores the importance for companies operating in the UAE to structure their employment contracts. By clearly outlining all benefits and allowances, companies can ensure compliance with VAT regulations and avoid unexpected tax liabilities. For businesses, this judgment serves as a crucial reminder of the intricate relationship between employment law and tax obligations. Companies must be vigilant in documenting all aspects of employee compensation to optimize their tax positions and comply with the law. At Wasel & Wasel, we understand the challenges that companies face in this area. With our experience in over 300 tax procedures collectively valued at over USD 1 billion, we are well-equipped to assist businesses in navigating these complexities. Our team is dedicated to providing clear, practical advice to ensure that our clients remain compliant while maximizing their operational efficiency. The Federal Supreme Court’s decision represents a pivotal moment in the interpretation of VAT laws related to employee benefits. It highlights the need for businesses to be proactive in reviewing and updating their employment contracts and tax strategies.

Supreme Court of British Columbia Overturns Arbitrator’s Decision Due to Procedural Unfairness

In the recent decision by the Supreme Court of British Columbia Niroei v Bushell, the court delved into the critical issue of procedural fairness in arbitration. The case, involving a dispute between a landlord (the petitioner) and tenants (the respondents), highlights the importance of adhering to principles of natural justice during arbitration proceedings. Background The petitioner rented out a property to the respondents under a rental agreement with a monthly rent of $3,000. On February 28, 2023, the petitioner issued a two-month notice to end tenancy, stating that the rental unit would be occupied by the petitioner’s son. However, on March 1, 2023, through text messages, the parties agreed to extend the move-out date to July 1, 2023, with an increased rent of $4,000 for May and June. Crucially, during these communications, it was conveyed that the petitioner herself would be moving into the property, not her son. After vacating the property, the respondents applied to the Residential Tenancy Branch (RTB) for a return of the security deposit and later sought compensation under section 51 of the Residential Tenancy Act (RTA) for the petitioner’s alleged failure to accomplish the stated purpose of the notice to end tenancy. An arbitrator at the RTB heard the dispute and issued a decision granting the respondents a monetary award. The petitioner sought a judicial review, arguing that the decision was patently unreasonable and that the arbitrator failed to act fairly. The Court’s Analysis on Procedural Fairness The court’s decision hinged on two main issues: Whether the arbitrator’s decision was patently unreasonable due to misapprehension or ignorance of evidence. Whether there were breaches of natural justice and procedural fairness during the arbitration proceedings. Patent Unreasonableness and Misapprehension of Evidence The court noted that under sections 5.1 and 84.1 of the RTA and section 58 of the Administrative Tribunals Act (ATA), the standard of review for findings of fact or law by the RTB is patent unreasonableness. A decision is patently unreasonable when it is “openly, evidently and clearly irrational.” The petitioner argued that the arbitrator ignored or misapprehended critical evidence—specifically, the text messages where the parties agreed that the petitioner would be moving into the property herself. The arbitrator had acknowledged these messages but concluded: “I am not convinced that the evidence supports this claim. There was no clear communication that the Two Month Notice was verbally amended or modified.” The court found this conclusion illogical, stating: “On the face of the evidence, which the arbitrator previously accepted established an amendment to the effective date of the Two Month Notice, the finding of no clear communication was not clearly available to the arbitrator on a rational or tenable line of analysis on the evidence.” Thus, the decision was deemed patently unreasonable because it failed to consider all material evidence relevant to the ultimate issue. Procedural Fairness and Natural Justice The court emphasized that procedural fairness requires that parties know the case against them and have an opportunity to respond. The petitioner raised concerns about procedural unfairness, particularly regarding the handling of late evidence and the arbitrator’s failure to identify key issues during the hearing. Late Evidence Submission The respondents submitted additional evidence past the RTB deadline, which the petitioner did not receive in time. The arbitrator allowed this late evidence without exploring why it was not available earlier and without advising the petitioner of her right to address any prejudice arising from its acceptance. The court highlighted the RTB’s Rules of Procedure: “Rule 3.17 expressly requires the arbitrator to give both parties an opportunity to be heard on the question of accepting late evidence.” By failing to comply with this rule, the arbitrator breached principles of procedural fairness. Failure to Identify Key Issues During the continuation of the hearing, the arbitrator did not clarify the main issues or invite submissions on whether extenuating circumstances existed that prevented the petitioner from accomplishing the stated purpose of the notice. The court observed: “In my view, it was incumbent upon the arbitrator to at least clarify for the parties the main issues he must decide on and the scope of the hearing.” Without this guidance, the petitioner could not meaningfully respond to critical aspects of the case, further breaching procedural fairness. Conclusion The court concluded: “The petitioner has established the Decision was patently unreasonable and that there were breaches of the rules of natural justice and procedural fairness in relation to the conduct of the hearing before the arbitrator.” As a result, the decision was set aside and remitted back to the RTB for reconsideration before a different arbitrator in a hearing de novo. Implications for Arbitration Proceedings This case underscores the essential role that procedural fairness plays in arbitration. Arbitrators must ensure that: All material evidence is considered: Ignoring or misapprehending key evidence can render a decision patently unreasonable. Parties are informed of the case against them: Failing to provide adequate notice or clarify key issues prevents parties from meaningfully participating in the proceedings. Rules of Procedure are followed: Adhering to established procedures, especially regarding the submission and acceptance of evidence, is crucial for maintaining fairness. Key Takeaways Procedural fairness is paramount: Arbitrators have a duty to conduct proceedings fairly, ensuring both parties can present their case fully. Clarity in communication is essential: Parties should document any amendments to agreements or notices clearly and in compliance with statutory requirements. Arbitrators must actively manage hearings: By identifying key issues and guiding the process, arbitrators help prevent misunderstandings and ensure justice is served. Final Thoughts The court’s decision serves as a significant reminder that procedural fairness is not a mere formality but a fundamental component of justice. Arbitrators must be vigilant in upholding these principles to maintain the integrity of the arbitration process. As this case demonstrates, failure to do so can result in decisions being overturned, prolonging disputes and undermining confidence in the system.

Supreme Court of NSW Enforces Adjudicator’s Money Order Amid Ongoing Arbitration

The recent decision in Martinus Rail Pty Ltd v Qube RE Services (No 2) Pty Ltd (No 2) [2024] NSWSC 1223 sheds light on the complex interplay between adjudication under the Building and Construction Industry Security of Payment Act 1999 (“SOPA”) and arbitration clauses in construction contracts. This case underscores the importance of meticulously drafted dispute resolution clauses and the strategic considerations parties must weigh when disputes arise in large-scale infrastructure projects. The dispute centered on two adjudications under SOPA arising from contracts between the head contractor, Qube RE Services, and the subcontractor, Martinus Rail Pty Ltd, for work on the Moorebank Intermodal Terminal Project in Western Sydney. The adjudications obligated Qube to pay Martinus a total of $71 million. While Martinus sought to enforce these payments, Qube aimed to set aside the adjudications or, alternatively, stay their enforcement pending the determination of the parties’ rights through arbitration. At the heart of the matter were significant delays in project completion. Martinus attributed these delays to Qube’s late and inadequate provision of designs and failure to grant timely site access. Qube, on the other hand, did not accept these explanations and eventually terminated the contracts, citing both cause and convenience. The validity of the termination for cause remains contested. The contracts contained elaborate dispute resolution clauses, mandating a multi-stage process that included negotiations, escalation to senior executives, and ultimately arbitration. Despite this, Martinus pursued adjudication under SOPA for payment claims, which resulted in favorable determinations totaling over $15 million in earlier proceedings and the substantial sums at issue in this case. Qube challenged the adjudications on several grounds, alleging jurisdictional errors by the adjudicator, particularly in his failure to consider key submissions and arguments. One pivotal issue was whether the adjudicator went beyond his jurisdiction by addressing matters not properly before him, effectively nullifying previous court decisions, such as the earlier judgment by Rees J in December 2023. Justice Parker, presiding over the case, found that jurisdictional error was established. He concluded that the adjudicator’s award went beyond the scope of the adjudication proceedings, as it included matters not raised in Martinus’s payment claims and did not adequately consider Qube’s submissions. This led to the partial setting aside of the adjudication determinations and associated judgments, specifically those components affected by the errors. An essential aspect of the judgment was the court’s consideration of whether to grant a stay of enforcement of the adjudicated amounts pending arbitration. Qube argued that if the payments were enforced and they ultimately succeeded in arbitration, Martinus might be unable to repay the sums, causing irreparable prejudice. The court examined precedents such as Grosvenor Constructions v Musico and Veolia Water Solutions v Kruger Engineering, which acknowledge that while the SOPA regime is designed to be “pay now, argue later,” there are circumstances where a stay is appropriate to prevent injustice. However, Justice Parker refused the stay application, emphasizing that granting a stay would undermine the legislative intent of SOPA to ensure prompt payment to contractors, thereby supporting their cash flow. The court noted that Martinus was trading profitably and that there was insufficient evidence to suggest a significant risk of insolvency that would prevent repayment if required. The decision reflects a cautious approach, balancing the need to uphold the statutory scheme against the potential for prejudice to the paying party. This case illustrates the nuanced challenges that parties in construction contracts may face, particularly concerning dispute resolution mechanisms and financial considerations during litigation. The elaborate dispute resolution clauses in the contracts, which culminated in arbitration, highlight the necessity for clearly defined mechanisms to resolve disputes. Parties must be acutely aware of how these contractual provisions interact with statutory remedies like SOPA adjudication. Understanding this interplay is crucial, as it can significantly impact the strategies employed when a dispute arises. Moreover, the case underscores the strategic use of adjudication and arbitration. While adjudication under SOPA offers a quicker route to payment, especially for contractors seeking to maintain cash flow, arbitration provides a comprehensive forum for resolving more complex disputes, including those involving substantial claims and counterclaims. Parties need to carefully consider which avenue is more appropriate for their situation, weighing factors such as the urgency of payment, the complexity of the dispute, and the potential for prolonged litigation. The judgment also brings to light the jurisdictional limits of adjudicators. Adjudicators must operate strictly within the confines of the matters properly before them. In this instance, the adjudicator’s failure to consider key submissions and his inclusion of matters not raised in the payment claims led to a finding of jurisdictional error. This serves as a reminder that both parties and adjudicators must ensure procedural compliance to avoid determinations being set aside. Financial considerations, particularly the risk of insolvency, play a significant role in such disputes. When seeking a stay of enforcement, the applying party must provide compelling evidence of the other party’s inability to repay, going beyond mere speculation about financial difficulties. The court’s refusal to grant a stay in this case demonstrates the high threshold required to override the statutory intent of SOPA, which aims to protect contractors’ cash flow and ensure prompt payment.

Overhaul of Space Export Controls Announced by US Commerce Department

  In October 2024 the the Commerce Department’s Bureau of Industry and Security (BIS) proposed amendments to the Export Administration Regulations (EAR) aimed at updating and streamlining controls on spacecraft and related items. Simultaneously, the Department of State is proposing revisions to the International Traffic in Arms Regulations (ITAR) concerning U.S. Munitions List (USML) Categories IV and XV. These developments are poised to reshape the regulatory landscape for commercial space activities, defense contractors, and international collaborations. At Wasel & Wasel, we understand the complexities these regulatory shifts introduce. Our global presence and expertise in international disputes and geopolicy position us to provide strategic guidance to entities navigating this new environment. Understanding the Regulatory Announcements The BIS’s proposed rule, titled “Export Administration Regulations: Revisions to Space-Related Export Controls, Including Addition of License Exception Commercial Space Activities (CSA),” introduces several critical changes: Alignment with ITAR Revisions: The proposed EAR amendments aim to harmonize with the Department of State’s suggested changes to the ITAR. This alignment is crucial for companies that must comply with both sets of regulations, reducing the risk of inadvertent non-compliance. Introduction of License Exception CSA: A significant addition is the new License Exception for certain Commercial Space Activities (CSA) under § 740.26. This exception is designed to facilitate exports, reexports, and transfers (in-country) of specific items for official space agency programs and space tourism and research activities. Revisions to ECCNs: The proposed changes affect several Export Control Classification Numbers (ECCNs), particularly: ECCN 9A515: Revisions include expanding control parameters to cover additional spacecraft and components, removing unnecessary language for clarity, and explicitly excluding certain items like planetary rovers and in-space habitats. Addition of ECCN 9C515: A new ECCN controlling materials, coatings, and treatments designed to reduce in-orbit signatures (e.g., radar, optical, ultraviolet, and infrared) of spacecraft. Amendments to ECCNs 9D515 and 9E515: These control software and technology related to the newly added items in ECCN 9A515, ensuring comprehensive regulatory coverage. Practical Implications for Businesses The proposed revisions carry several practical implications: Easier International Collaboration: By streamlining and clarifying regulations, the changes aim to make it easier for U.S. companies to collaborate with international partners. For instance, the new License Exception CSA could reduce licensing burdens for companies participating in programs like NASA’s Lunar Gateway. Regulatory Clarity and Compliance: The alignment of EAR and ITAR controls reduces compliance complexities. Companies can more confidently navigate export controls without fearing regulatory overlap or conflict. Enhanced Competitiveness: By updating control parameters and removing outdated restrictions, U.S. companies may find themselves on a more level playing field with international competitors. Impact on Licensing Requirements: BIS estimates an increase of 90 license applications annually due to items moving from the USML to the CCL and a decrease of 100 applications because of the new License Exception CSA. Companies need to reassess their licensing strategies in light of these changes. Detailed Analysis of Affected Items To fully grasp the impact, it is essential to understand the specific items affected by the Final Rule, Interim Final Rule, and Proposed Rule. Final Rule and Interim Final Rule Highlights Remote Sensing and Space-Based Logistics: Adjustments have been made to controls on items related to remote sensing and space logistics. This facilitates collaboration with allies like Australia, Canada, and the United Kingdom, expanding market opportunities. Spacecraft Components: Certain components previously under stringent controls may now have revised licensing requirements. This includes parts and technologies that are no longer considered critical to national security under the updated guidelines. Proposed Rule Specifics ECCN 9A515 Revisions: Expanded Control Parameters: The control parameters now include spacecraft performing remote proximity operations, life-sustaining functions, or debris removal. Companies in these sectors must assess how these changes affect their products. Exclusions Clarified: Items such as planetary rovers and in-space habitats are explicitly excluded from ECCN 9A515. This clarification helps companies correctly classify their items and determine the appropriate licensing requirements. Addition of ECCN 9C515: Control of Signature Reduction Materials: Materials, coatings, and treatments designed to reduce in-orbit signatures are now controlled under this new ECCN. Companies producing these materials need to adjust their compliance programs accordingly. Amendments to ECCNs 9D515 and 9E515: Software and Technology Controls: The amendments ensure that software and technology associated with the new items are adequately controlled. This includes Space Situational Awareness (SSA) software used for modeling and simulation. License Exception CSA Details: Eligible Programs: The exception applies to specific programs, including NASA’s Lunar Gateway, Mars Sample Return, Nancy Grace Roman Telescope, The Orion spacecraft, Commercial Low Earth Orbit Development program, and Habitable Worlds Observatory. Conditions for Space Tourism and Research: The exception allows exports of manned spacecraft and related components for suborbital flights for tourism or fundamental research, with stringent conditions to prevent misuse. Strategic Considerations for Businesses Companies must take proactive steps to adapt to these regulatory changes: Review Product Classifications: Re-examine your products to determine if their ECCN classifications have changed. Misclassification can lead to compliance violations and penalties. Update Compliance Programs: Revise internal export control compliance programs to reflect the new rules. This includes training staff on the changes and updating procedures. Assess Licensing Needs: Determine if the new License Exception CSA can be utilized for your activities. This may streamline processes and reduce the need for individual licenses. Monitor International Collaborations: With the emphasis on facilitating collaboration with allies, explore opportunities in countries like Australia, Canada, and the United Kingdom, where regulatory hurdles may be reduced. Stay Informed on ITAR Changes: Since the EAR revisions align with ITAR changes, ensure you are also up to date on the Department of State’s proposed amendments to avoid gaps in compliance. How Wasel & Wasel Can Assist Navigating these changes requires expertise and strategic insight. Wasel & Wasel offers: Our team is well-versed in international export controls and can provide detailed advice tailored to your specific circumstances. We assist in creating or updating compliance programs to ensure they meet the latest regulatory requirements. We conduct thorough assessments to identify potential compliance risks and develop strategies to mitigate them. In cases where regulatory

War Series: Recent Submarine Cable Attacks, the 1923 Cuba Submarine Arbitration, and Business Considerations

  The global digital infrastructure relies heavily on a vast network of submarine cables, which carry approximately 95% of international data traffic. These undersea cables are the lifelines of modern communications, finance, and commerce. However, escalating geopolitical tensions in regions such as the Red Sea, the Hormuz Strait, and the larger Indo-Pacific have exposed these critical infrastructures to increasing risks. Recent incidents have highlighted not only their vulnerability but also the complex legal challenges that private companies face when seeking remedies for disruptions. Recent Incidents Underscoring Vulnerabilities In March 2024, amid intensifying conflicts near Yemen, three submarine cables were damaged in the Red Sea. The causes—whether deliberate attacks or collateral damage from naval confrontations—remain unclear. The impact was immediate and significant. HGC Global Communications reported a 25 percent reduction in data traffic across the Red Sea, necessitating urgent rerouting to alternative networks. Major cables such as the Europe India Gateway (EIG) and the Asia-Africa-Europe 1 (AAE-1) network, which are crucial for connecting economies across continents, were affected. Similar events have occurred elsewhere. In 2023, Taiwan faced the severing of two fiber-optic cables linking it to the Matsu islands, leaving thousands of residents with minimal internet access for months. In the Arctic, Norway discovered in 2021 that 4.2 km of submarine cables had vanished, disrupting essential oceanographic monitoring and satellite communications. Despite investigations, conclusive evidence of intentional damage or attribution of responsibility remained elusive in both cases. These incidents underscore the profound vulnerability of submarine cables to geopolitical conflicts and raise pressing questions about the legal remedies available to affected private entities. Historical Legal Precedent: The Cuba Submarine Telegraph Company Case To navigate the legal complexities surrounding undersea cable disruptions, it is instructive to examine historical precedents, notably the Cuba Submarine Telegraph Company, Ltd. (Great Britain) v. United States arbitration of 1923. During the Spanish-American War of 1898, U.S. naval forces severed submarine telegraph cables operated by the Cuba Submarine Telegraph Company, a British entity. The action aimed to disrupt Spanish communications and was carried out within enemy territorial waters. The company sought compensation for the repair costs, arguing that their property had been unlawfully destroyed. The tribunal disallowed the claim, offering reasoning that remains pertinent today. It recognized the United States’ right to undertake necessary military measures, stating: “In these circumstances the right of the United States to take measures of admittedly legitimate defense against these means of enemy communication was fully justified.” The company’s operations were deeply intertwined with Spanish military interests. The concessions granted by Spain required the company to transmit official correspondence and prohibited any inspection of such communications. The tribunal observed: “The transmission of the official correspondence of the Spanish Government was obligatory and gratuitous, the managers and directors being appointed by that Government.” Concluding that there were no equitable grounds for awarding compensation, the tribunal emphasized: “Not only is there no ground of equity upon which an award should be made against the United States, but equity appears to us to be on the side of the United States in their refusal to pay the damages claimed.” This case establishes a pivotal principle: during armed conflicts, actions taken by a state as legitimate acts of war may override private property rights without an obligation to compensate affected entities, especially when those entities are engaged in activities that support enemy military operations. Navigating the Complex Liability Landscape In the context of modern submarine cable operations, determining who owes obligations of compensation when cables are disrupted due to conflicts requires a nuanced understanding of international law and the various legal regimes governing the seas. Submarine cables traverse multiple maritime zones, each with specific legal provisions under international law. The primary legal instruments include the 1884 Convention for the Protection of Submarine Telegraph Cables and the United Nations Convention on the Law of the Sea (UNCLOS) of 1982. UNCLOS delineates the rights and responsibilities of states in maritime zones such as territorial seas, exclusive economic zones (EEZs), continental shelves, and the high seas. In territorial seas, coastal states have sovereignty and extensive regulatory authority over activities, including submarine cable operations. Companies must comply with national laws, which may require permits and adherence to environmental regulations. In the EEZ and continental shelf, while coastal states have sovereign rights over natural resources, UNCLOS affirms that all states have the freedom to lay and maintain submarine cables, provided they respect the rights and duties of the coastal state. However, when disruptions occur due to conflicts, especially in areas beyond national jurisdiction—the high seas—the question of liability becomes more intricate. The exclusive jurisdiction of flag states over their vessels on the high seas complicates enforcement measures against entities suspected of intentional damage to submarine cables. UNCLOS Article 97 restricts the arrest or detention of ships to the authorities of the flag state, particularly concerning incidents of navigation involving penal or disciplinary responsibility. The Enrica Lexie arbitration provides valuable insight. The tribunal held that “incident of navigation” refers to events related to the movement or maneuvering of a ship causing serious damage or harm. Intentional acts causing damage, such as deliberately cutting undersea cables, may not be protected under the provisions limiting enforcement to flag states. This opens the possibility, albeit limited, for other states to take action against offending vessels, but practical challenges persist. Practical Steps for Companies to Seek Recourse Faced with these complexities, private companies need to explore all available avenues to protect their interests and seek remedies when undersea cables are disrupted due to conflicts. One critical approach is to review international investment treaties. These treaties often contain provisions that protect investments against expropriation and unfair treatment, and they provide mechanisms for dispute resolution between investors and states. Companies should assess whether their investments in submarine cables qualify for protection under such treaties and whether the treaties cover the territories where disruptions have occurred. In assessing the applicability of investment treaty protections, companies must determine whether the treaty applies to the maritime zones where the damage occurred. Some

Landmark Ruling by Federal Court of Australia on Crypto Margin Extensions

In the recent case of Australian Securities and Investments Commission v Bit Trade Pty Ltd [2024] FCA 953, the Federal Court delivered a pivotal judgment that resonates deeply within the cryptocurrency industry. The court scrutinized the nature of Bit Trade’s “Margin Extension” product, ultimately finding that it constitutes a credit facility under Australian law. This finding has significant implications for crypto exchanges operating in Australia, particularly regarding regulatory compliance. Bit Trade, trading as Kraken in Australia, offers a platform where customers can purchase and sell digital assets, including cryptocurrencies. One of their offerings is the “Margin Extension” product, which allows customers to receive extensions of margin—in the form of digital assets or legal tender—to make spot purchases and sales of digital assets on the Kraken Exchange. The crux of the case revolved around whether the Margin Extension product is a financial product requiring a target market determination (TMD) under Part 7.8A of the Corporations Act 2001 (Cth). The Australian Securities and Investments Commission (ASIC) alleged that Bit Trade contravened sections 994B(1) and (2) of the Act by issuing this product to retail clients without first making a TMD. Bit Trade contended that the product was exempt under regulation 7.8A.20 of the Corporations Regulations, arguing that it did not involve a “deferred debt” as required by subparagraph (a) of regulation 2B(3) of the ASIC Regulations. They asserted that obligations arising from the Margin Extension did not constitute a debt because they might not involve an obligation to pay money. However, the court disagreed. Justice Nicholas meticulously analyzed the Terms of Service (TOS) under which the Margin Extension product was offered. He highlighted that the provision of a Margin Extension in national currency, such as Australian or US dollars, indeed gives rise to a “deferred debt”. From the judgment: “The provision of a Margin Extension in national currency (including in Australian or US dollars) gives rise to a ‘deferred debt’ which is incurred by the customer when they are provided with the Margin Extension and which becomes payable upon the customer ceasing to be eligible to receive the Margin Extension.“ This finding was pivotal. It established that the Margin Extension is a credit facility involving credit of a kind referred to in subparagraph (a) of regulation 2B(3) of the ASIC Regulations. Consequently, the exception under regulation 7.8A.20 did not apply. Justice Nicholas further elaborated: “By issuing the Product to retail clients without having first made a target market determination for the Product, Bit Trade contravened s 994B(1) of the Corporations Act when read with s 994B(2).“ The court’s reasoning hinged on the interpretation of “debt” within the regulatory framework. Bit Trade argued that “debt” implies an obligation to pay money and that cryptocurrency is not money. Therefore, obligations to return cryptocurrency do not create a debt. However, the court noted that the Margin Extension could be provided in national currency, and obligations arising from such transactions do constitute a debt. Justice Nicholas emphasized: “An obligation to pay an amount of cryptocurrency of some type is not an obligation to pay a sum of money and therefore cannot be a debt… However, in circumstances where a Margin Extension is provided by Bit Trade in a national currency… this amounts to ‘a conditional but unavoidable obligation to pay a sum of money at a future time.’“ The judgment underscores the importance of understanding how financial regulations apply to products offered in the crypto space, especially when traditional financial concepts like “debt” intersect with digital assets. The court’s interpretation aligns with the view that when a product involves an obligation to repay in national currency, it falls within the ambit of a credit facility under the regulations. For crypto exchanges and service providers, this case serves as a cautionary tale. Offering products that involve financial accommodations in national currency without adhering to regulatory requirements can lead to significant legal repercussions. The need for a target market determination is not merely a procedural formality but a critical compliance requirement designed to protect consumers. The court’s decision also reflects a broader trend of regulators and courts applying existing financial laws to the evolving crypto industry. While cryptocurrencies themselves may not be considered money in the traditional sense, products and services involving them can still be subject to financial regulations when they intersect with national currencies or create obligations akin to traditional financial instruments. In conclusion, the Federal Court’s judgment in ASIC v Bit Trade reinforces the necessity for crypto businesses to diligently assess their products against the regulatory landscape. The provision of margin extensions in national currency creates a deferred debt, categorizing the product as a credit facility requiring compliance with specific provisions of the Corporations Act. As the crypto industry continues to mature, adherence to regulatory obligations becomes ever more critical. Exchanges must ensure that they are not only innovative in their offerings but also compliant with the laws that govern financial products. This case highlights that the intersection of crypto and traditional finance is not a legal vacuum; existing laws can and will be applied to new technologies and products. The judgment serves as a reminder that while cryptocurrencies may challenge traditional notions of money and finance, the legal frameworks in place are adaptable. Businesses operating in this space must stay informed and proactive in their compliance efforts to navigate the complex regulatory environment successfully. The decision reaffirms the principle that innovative financial products are not beyond the reach of existing legal and regulatory frameworks. Companies must ensure that their offerings are compliant, thereby safeguarding both their operations and their customers.

Ontario Appeals Court on Arbitration Act Restricting Appeals of Arbitrator Appointment

In a recent decision by the Ontario Court of Appeal—Toronto Standard Condominium Corporation No. 2299 v. Distillery SE Development Corp., 2024 ONCA 712—the court tackled the thorny issue of appealing court-appointed arbitrators. This case serves as a stark reminder of the limitations imposed by arbitration legislation on court intervention and the appealability of certain orders. Background of the Dispute The parties, Toronto Standard Condominium Corporation No. 2299 (“Condo Corp.”) and Distillery SE Development Corp. (“Distillery”), were embroiled in a dispute arising from their Shared Facilities Agreement (“SFA”). The SFA contained a dispute resolution process that culminated in binding arbitration. Notably, it allowed the parties to agree on a single arbitrator or, failing agreement, to each appoint an arbitrator who would then select a single arbitrator. In 2018, after unsuccessful negotiations and mediation, the Condo Corp. served a notice of arbitration and both parties agreed that the Honourable Colin Campbell, K.C. would serve as arbitrator. However, the arbitration did not proceed at that time. Fast forward to 2022, the Condo Corp. served a fresh notice of arbitration, leading to disagreements over the scope of the arbitration and the identity of the arbitrator. While Distillery insisted on the prior agreement to appoint Mr. Campbell, the Condo Corp. hesitated, proposing a different arbitrator before eventually expressing willingness to proceed with Mr. Campbell under certain conditions. The Application to the Court The Condo Corp. brought an application seeking, among other things, an order appointing Mr. Campbell as arbitrator and confirming that all issues raised in the 2022 notice were within his jurisdiction. Distillery opposed, arguing that the agreement to appoint Mr. Campbell had been repudiated and that the new issues required fresh negotiation and mediation as per the SFA. Justice Julia Shin Doi of the Superior Court of Justice found that the agreement to appoint Mr. Campbell remained valid and that any disputes over the scope of the arbitration should be determined by Mr. Campbell himself. She dismissed Distillery’s motion to quash the 2022 notice. The Appeal and the Central Issue Distillery appealed the decision, essentially on two grounds: first, that the application judge erred in not finding the agreement to appoint Mr. Campbell repudiated; and second, that even if the agreement stood, the judge erred in not limiting his appointment to the issues from the 2018 notice. However, the crux of the matter before the Court of Appeal was whether an appeal from a court-ordered appointment of an arbitrator is permissible under the Arbitration Act, 1991, S.O. 1991, c. 17. Specifically, does Section 10(2) of the Act, which states, “There is no appeal from the court’s appointment of the arbitral tribunal,” preclude such an appeal? The Court of Appeal’s Analysis Justice Zarnett, writing for the court, concluded that the order appointing Mr. Campbell was indeed made under Section 10(1) of the Act, and therefore, no appeal lies by reason of Section 10(2). Addressing Distillery’s arguments, the court noted that even though the Condo Corp. did not explicitly cite Section 10(1) in its application, the authority to appoint an arbitrator under the Act is clear. The court emphasized that Section 6 of the Act prohibits court intervention in matters governed by the Act, except as provided within it. Justice Zarnett interpreted “a person with power to appoint the arbitral tribunal” in Section 10(1)(b) as including situations where parties jointly have the power to appoint but fail to agree or one party refuses to follow through. He stated: “The phrase ‘person with power to appoint an arbitrator’ is not limited to a person with the sole or exclusive authority to make the appointment. It clearly extends to a person whose power resides in the requirement for their agreement to an appointment.” This interpretation aligns with the purpose of the Act, which seeks to facilitate arbitration and limit court intervention. Allowing an appeal in this context would undermine these objectives. Implications of the Decision This decision underscores the importance of understanding the limitations imposed by arbitration legislation on appeals. Parties should be aware that when a court appoints an arbitrator under Section 10(1) of the Act, there is no right of appeal. Attempts to circumvent this by arguing the court acted outside its jurisdiction are unlikely to succeed if the appointment falls squarely within the Act’s provisions. Furthermore, the court reinforced that issues concerning the scope of the arbitration and the arbitrator’s jurisdiction are matters for the arbitrator to decide, not the courts. Justice Zarnett highlighted: “An appointment order will always relate to a dispute to be arbitrated. In giving effect to the principle in s. 17 of the Act, which contemplates the arbitrator first ruling on his own jurisdiction… the application judge did not step outside the authority to make an appointment under the Act.” Key Takeaways Section 10(2) of the Arbitration Act precludes appeals from court appointments of arbitrators made under Section 10(1). Parties jointly possessing the power to appoint an arbitrator fall under “a person with power to appoint” in Section 10(1)(b). Court intervention is limited under the Act, and attempts to use general jurisdiction to appeal such appointments are inconsistent with the Act’s intent. Disputes over the arbitrator’s jurisdiction and the scope of arbitration are to be determined by the arbitrator, not the courts. Conclusion The Toronto Standard Condominium Corporation No. 2299 v. Distillery SE Development Corp. decision serves as a critical reminder of the limitations on appealing court-appointed arbitrators under arbitration legislation. Parties entering arbitration agreements must recognize that the courts have a limited role and that certain orders, once made, are final and not subject to appeal. Understanding these nuances is essential to navigating the arbitration process effectively.

War Series: Investment Protection Treaties in War for Investors in the Middle East (GÜRİŞ v. Syria)

  The recent arbitration award in the case of GÜRİŞ and others v. Syria (ICC, Final Award, 31 August 2020) offers a timely reminder of the complexities businesses face when operating in conflict zones. As tensions rise in parts of the Middle East, understanding the obligations of host states under investment treaties becomes ever more crucial. In this case, Turkish investors found themselves embroiled in a dispute after their investments in Syria suffered losses due to the ongoing conflict. The investors turned to the Syria-Turkey Bilateral Investment Treaty (BIT) of 2004, seeking compensation for their losses. Key Takeaways from the Arbitration One of the central issues was whether the Syrian government had breached its obligations under the BIT, particularly concerning the “full protection at all times” standard and the provisions related to losses due to war or civil disturbances. The tribunal highlighted that the existence of an armed conflict does not automatically suspend a state’s obligations under international treaties. Referring to the 2011 International Law Commission (ILC) Articles on the Effect of Armed Conflict on Treaties, the tribunal noted that treaties continue to operate unless specific provisions state otherwise. The War-Losses Clause and Its Implications A significant point of contention was Article IV(3) of the Syria-Turkey BIT, known as the “war-losses” clause. This provision ensures that investors are accorded treatment no less favorable than that given to the host state’s own investors or those of any third country concerning measures adopted in relation to losses suffered due to war or similar events. The tribunal determined that this clause did not exclude the application of other protections under the BIT. Instead, it provided an additional layer of security for investors during times of conflict. This interpretation aligns with previous arbitral decisions, reinforcing that war-losses clauses are additive, not exclusionary. Most-Favored-Nation Treatment Extends Protections The investors also invoked the Most-Favored-Nation (MFN) clause in the BIT, seeking to benefit from more favorable provisions in Syria’s investment treaty with Italy. The tribunal agreed that the MFN clause allowed the investors to access these enhanced protections, particularly the obligation to offer adequate compensation for losses, as stipulated in the Syria-Italy BIT. This decision underscores the importance of MFN clauses in investment treaties, enabling investors to benefit from the best available standards of protection, even during armed conflicts. Force Majeure and Necessity Defenses Rejected Syria attempted to defend its position by invoking force majeure and necessity, arguing that the conflict excused any breaches of its treaty obligations. However, the tribunal rejected these defenses, emphasizing that such exceptions are not applicable when the obligation in question is to provide compensation for losses already incurred. The tribunal noted that the obligation to offer compensation is a financial one and that war or armed conflict does not make it materially impossible to fulfill this duty. By undertaking to compensate for losses due to war or similar events, the state cannot later claim that the very occurrence of these events absolves it of its obligations. Implications for Middle Eastern Businesses For businesses operating in the Middle East, the GÜRİŞ v. Syria award serves as a crucial precedent. It highlights that: Investment treaties remain in force during conflicts, and host states are still bound by their obligations. War-losses clauses provide additional protections but do not negate other treaty rights. MFN clauses can be powerful tools for investors to access the most favorable treatment available. States cannot easily evade their compensation obligations by citing conflict-related defenses. As regional tensions escalate, companies must be vigilant in understanding their rights under international law. Investment treaties can offer significant protections, but navigating them requires expertise. Moving Forward: Strategic Considerations Businesses should: Review existing investment treaties relevant to their operations to understand the full spectrum of protections available. Consider the inclusion of robust dispute resolution mechanisms in contracts, ensuring access to international arbitration if disputes arise. Stay informed about geopolitical developments that may impact their investments and adjust strategies accordingly. Conclusion The GÜRİŞ v. Syria case reinforces the notion that even in the face of war, investment protections endure. Host states have clear obligations, and investors have avenues to seek redress when those obligations are not met. In these uncertain times, it’s more important than ever for businesses to be proactive in safeguarding their interests. Understanding the nuances of investment treaties and the protections they offer can make all the difference. For those seeking guidance on navigating these complex legal landscapes, expertise in international arbitration and investment law is invaluable. As the Middle East continues to evolve, staying ahead of the curve is not just advantageous—it’s essential.

Flying Fish 1, Mid-East War, Northern Sea Route, and Lessons from the Arctic Sunrise Arbitration

  The world of maritime trade is no stranger to change, but recent events have stirred the waters in unprecedented ways. The Flying Fish 1, a 4,890 TEU container ship, has made headlines as the largest vessel of its kind to traverse the Arctic waters, charting a course from Europe to China. This remarkable journey not only showcases the vessel’s capabilities but also signals a significant shift in global shipping routes—a shift that could have profound implications for the industry. The Arctic Passage: A New Frontier Setting sail from St. Petersburg on September 3, the Flying Fish 1 embarked on a voyage that many would have deemed improbable just a decade ago. By September 10, it entered the Northern Sea Route (NSR) near Novaya Zemlya. In a historic moment, it crossed paths with another Chinese container ship, marking the first-ever encounter between two large container vessels in the Arctic—just 850 nautical miles from the North Pole. Notably, there was no sea ice in sight, a testament to the dramatic changes in Arctic ice conditions over the past 20 years. Maintaining a steady speed of 16 knots, the Flying Fish 1 navigated the treacherous waters of the Laptev and East Siberian seas with remarkable ease, deftly avoiding the late-summer ice near Wrangel Island. By September 17, it had exited the Russian Arctic, passing through the Bering Strait near Alaska without the need for icebreaker assistance—only six days after entering Russian waters. When it reaches Shanghai, the journey from the Baltic Sea will total approximately 8,000 nautical miles, slashing around 4,000 nautical miles off the traditional Suez Canal route. A Response to Middle East Instability The timing of this voyage is no coincidence. The instability in the Red Sea and broader Middle East has made the traditional routes through the Suez Canal increasingly precarious. Heightened tensions and the threat of disruptions have forced many shipping companies to divert their vessels around South Africa’s Cape of Good Hope, adding another 4,000 miles to the usual journey to Asia. This detour not only extends transit times but also escalates fuel costs and environmental impact. The Arctic route, on the other hand, presents a compelling alternative. It’s not just shorter by 30% to 40%, but it also bypasses the politically volatile regions altogether. Furthermore, the absence of pirate attacks in these northern waters enhances the safety and reliability of shipments—a crucial consideration for global trade. The Northern Sea Route: Challenges and Opportunities While the NSR offers significant advantages, it’s not without its challenges. Currently, shipping services between Europe and Asia via the Arctic are confined to a 3-4 month summer window. However, as Arctic ice continues to recede earlier and return later, this window is expected to widen. The success of the Flying Fish 1 underscores the growing feasibility of this route. It’s not just ice-class vessels that are making the journey; an increasing number of non-ice-class ships, including aframaxes and container ships, have secured transit licenses from Russia, venturing into Arctic waters for the first time. Traffic analysis by Norway’s Center for High North Logistics indicates that 2024 is on course to surpass last year’s record cargo volumes along the NSR. The surge in interest is palpable, driven by both environmental changes and geopolitical pressures. Companies are recognizing the potential for reduced transit times, cost savings, and the strategic advantage of avoiding hotspots of conflict and piracy. Lessons from the Arctic Sunrise Arbitration The expanding use of the NSR brings into focus the legal and regulatory complexities of Arctic navigation. The Arctic Sunrise Arbitration between the Netherlands and Russia serves as a poignant reminder of the delicate balance between national sovereignty and international maritime law. In that case, Russia detained the Dutch-flagged vessel Arctic Sunrise and its crew following a protest against oil drilling activities. The Permanent Court of Arbitration ultimately ruled that Russia had violated the United Nations Convention on the Law of the Sea (UNCLOS). This landmark decision highlights the importance of understanding the rights of flag states and the limitations of coastal state enforcement in Exclusive Economic Zones (EEZs). As more vessels, particularly from nations without Arctic coastlines, begin to traverse these waters, the potential for legal disputes increases. It’s imperative for shipping companies to navigate not just the physical challenges of the Arctic but also the legal frameworks that govern these routes. Strategic Navigation in Uncertain Times For the maritime industry, the convergence of geopolitical tensions and environmental change necessitates a strategic reassessment. The success of the Flying Fish 1 is a clear indication that the Arctic route is no longer a theoretical alternative but a practical one. However, companies must exercise due diligence, ensuring compliance with international laws and understanding the regulatory environment of the Arctic nations, particularly Russia. At Wasel & Wasel, we recognize the complexities that our clients face in this evolving landscape. Navigating the Arctic waters requires not just advanced vessels and technology but also astute legal guidance to mitigate risks and capitalize on new opportunities. The shifting tides of global shipping demand a proactive approach, blending operational excellence with strategic legal counsel. The Future of Global Shipping The journey of the Flying Fish 1 may well be a harbinger of things to come. As climate change continues to reshape our world, the Arctic is emerging as a pivotal corridor for international trade. The potential benefits are substantial—reduced distances, lower fuel consumption, decreased emissions, and avoidance of geopolitical flashpoints. However, embracing this new frontier requires collaboration between industry stakeholders, governments, and legal experts. It’s about striking the right balance between innovation and regulation, opportunity and responsibility. Conclusion The maritime industry stands at a crossroads. The traditional routes, while familiar, are fraught with increasing risks and uncertainties. The Arctic offers a promising alternative, but one that comes with its own set of challenges. The voyage of the Flying Fish 1 symbolizes both the possibilities and the complexities of this new era. As we steer into uncharted waters, it’s essential to be equipped not just with the

War Series: Sports (Basketball) Contracts and War as Force Majeure in Arbitration

  The case Jarrell Isaiah Brantley v. Basketball Club Unics (BAT 1813/22) was an international sports arbitration introduced on April 19, 2022 and has since been concluded. The dispute was adjudicated under the Basketball Arbitral Tribunal (BAT), using the BAT Arbitration Rules 2022, with the seat of arbitration in Geneva. The claimant, Jarrell Isaiah Brantley, a professional basketball player from the United States, brought the case against Basketball Club Unics, based in Russia, following a contractual disagreement arising during the 2021-2022 season amid the geopolitical tensions caused by Russia’s invasion of Ukraine. The arbitration proceedings examined issues related to the player’s departure from the team and whether the war constituted a force majeure event excusing his performance under the contract. In Jarrell Isaiah Brantley v. BC Unics, we confront a fascinating convergence of sports arbitration and the broader impact of war on the sporting industry. This case revolves around Brantley, an American professional basketball player, and the Russian club BC Unics. The crux of the dispute lies in whether Brantley was justified in terminating his contract due to Russia’s invasion of Ukraine, and if such a force majeure event can relieve athletes of their contractual obligations. Brantley, contracted to BC Unics for the 2021-2022 season, found himself in an escalating geopolitical crisis. The Russian invasion of Ukraine on February 24, 2022, led to a swift series of sanctions, airspace closures, and public advisories urging U.S. citizens to leave Russia. Against this backdrop, Brantley, concerned for his safety and that of his family, left Russia, despite Unics’ insistence that the situation was “normal.” One of the key legal issues here is the interpretation of the force majeure clause in the player contract. Typically, a force majeure clause excuses non-performance when unforeseen and uncontrollable events render contract fulfillment impossible. The contract in question defined force majeure to include events such as war or hostilities. Given the nature of the Russian military actions, Brantley’s departure appears justified on its face. After all, no one could predict how the conflict would evolve. However, the club argued that since the conflict was not on Russian soil and Brantley’s personal safety was not immediately jeopardized, he breached the contract by leaving. They claimed that his real reason for leaving was dissatisfaction with his playing time—an old grievance that predated the war. This sets up a classic clash between contractual obligations and the broader context of human safety and ethics. The Basketball Arbitral Tribunal (BAT) ultimately sided with Brantley. It ruled that the war constituted a force majeure event, excusing him from fulfilling the remainder of his contractual duties. This decision underscores the significant effects that global conflicts can have on professional sports, a sector often seen as detached from such worldly concerns. One of the broader implications of this ruling is the message it sends to international athletes: in times of war or global crisis, personal safety supersedes contractual commitments. This case establishes a precedent where athletes can lawfully exit contracts if they are directly affected by large-scale events like war. With more international sports leagues becoming hubs for global talent, especially in geopolitically tense regions, this decision will undoubtedly echo far and wide. From a sports management perspective, it’s clear that force majeure clauses in contracts need careful drafting. What constitutes a force majeure event must be explicitly defined. Can a player claim force majeure if their home country issues a travel advisory? What if sanctions disrupt payment systems, effectively cutting off their income? Clubs must now grapple with these questions as geopolitical risks are no longer abstract concerns but real threats to business continuity. The economic impact of war on sports is another layer of this case. By suspending Russian teams from the EuroLeague, the ripple effect cascaded down to individual players like Brantley, who found themselves in untenable situations. The decision to pause EuroLeague games involving Russian clubs not only denied these athletes the opportunity to compete on a European stage, but it also raised questions about whether clubs should be held accountable for compensating players in such crises. If you’re a player, does your salary freeze the moment the games stop? Or are you still entitled to your full pay? For BC Unics, the ruling was a bitter pill. The club argued that Brantley breached his contract by leaving without permission, but the BAT recognized that Brantley acted reasonably under the circumstances. War is unpredictable, and it is unreasonable to expect an athlete to prioritize a game over the safety of their family. This judgment also shines a light on the business of sports during war. For Russian clubs, this war has not only led to the loss of top-tier players like Brantley but has also placed them in a precarious financial position. Sponsorship deals, ticket sales, and broadcast revenues are all likely to take a hit when foreign talent opts to leave, and international tournaments pull the plug on Russian participation. In conclusion, Jarrell Isaiah Brantley v. BC Unics demonstrates the profound impact that geopolitical events can have on the sports industry. Beyond the field, pitch, or court, athletes must weigh their obligations against the safety of themselves and their families. In the end, force majeure clauses may offer some respite, but the evolving world of international sports arbitration will need to continue addressing the balance between athletic contracts and global instability. War is not just a tragedy for nations—it disrupts everything, including the games we play.

Bitcoin Loans Upheld by the British Columbia Supreme Court

The recent judgment in Nguyen v. Tambosso (2024 BCSC 1551) is significant for its recognition of loans made in cryptocurrency, specifically Bitcoin, under standard legal principles of contract law. The Supreme Court of British Columbia unequivocally held that loans denominated in Bitcoin are enforceable and treated in the same manner as loans involving traditional forms of currency or property. This decision underscores the legal recognition of cryptocurrency in contractual arrangements. The core issue of the case was whether a loan agreement involving Bitcoin could be enforced in court. The plaintiff, Nguyen, had loaned 22 Bitcoins to the defendant, Tambosso, under two agreements. The loan was to be repaid within 48 hours, and in the event of a successful transaction, Tambosso promised to pay additional compensation in Bitcoin. When the loan was not repaid as agreed, Nguyen sought to recover the value of the 22 Bitcoins. The court explicitly recognized that Bitcoin can be the subject of a legally binding loan agreement. Madam Justice Fitzpatrick emphasized that, despite Bitcoin’s technical complexity, the principles of contract law still apply. As she noted, “This case involves a modern twist, in that the ‘something’ said to have been loaned and which was to be repaid was cryptocurrency, namely, Bitcoin.” This statement confirmed the court’s view that cryptocurrency is not beyond the scope of enforceable legal agreements. Tambosso’s defense centered on arguments that no binding contract had been formed and that the failure of the speculative Bypass Procedure absolved him of the obligation to return the Bitcoin. The court rejected both arguments. On the issue of contract formation, Tambosso claimed that minor changes to the contract were not signed by Nguyen, which he argued should invalidate the agreement. The court dismissed this, stating, “The two deletions in the First Contract only refer to minor matters and do not alter the substance of it.” More importantly, the court held that Tambosso was obligated to repay the 22 Bitcoins, regardless of the outcome of the Bypass Procedure. The contracts clearly placed the risk of failure on Tambosso, and the court emphasized that “There is no merit in Mr. Tambosso’s suggestion that repayment to Mr. Nguyen of any Bitcoin was subject to the Bypass Procedure being successful.” By agreeing to the contract, Tambosso assumed the risk that the Bypass Procedure could fail, but his obligation to repay the loaned 22 Bitcoins remained intact. The judgment is critical for its clear and unambiguous recognition of cryptocurrency loans as valid and enforceable under the law. The court treated Bitcoin as a form of property or currency, applying standard contractual principles to the dispute. It concluded that Bitcoin, despite its fluctuating value and decentralized nature, does not fall outside the scope of enforceable legal obligations. In fact, the court calculated the value of the 22 Bitcoins as of the date of the breach, determining the total damages at over $1.24 million CAD, reflecting the price of Bitcoin at the time. This case serves as a pivotal moment in acknowledging cryptocurrency within the legal framework of contracts. It confirms that loans made in Bitcoin are subject to the same legal scrutiny and obligations as any other loan.

When Iran Sued NASA: A Lesson in Earnest Money and Space Launch Transactions

Few cases stand out as starkly as the Telecommunication Company of Iran (TCI) v. NASA. The case, heard by the Iran-US Claims Tribunal (IUSCT) in 1984 dealt with the often misunderstood concept of “earnest money” within the context of space launch negotiations. The case highlights the critical importance of understanding contractual obligations and the risks inherent in international space agreements. The Case in a Nutshell On January 15, 1982, the Telecommunication Company of Iran filed a claim against the National Aeronautics and Space Administration (NASA), seeking the return of $100,000 paid as “earnest money” during negotiations for launching two Zohreh satellites. These satellites were intended to bolster Iran’s domestic communications infrastructure. However, the negotiations fell apart, and no final agreement was reached. When TCI asked for their money back, NASA refused, leading to the arbitration proceedings that followed. Understanding Earnest Money in Space Transactions Earnest money is a concept with roots in commercial practice, often used to show a party’s seriousness in negotiations. In the context of this case, the $100,000 paid by TCI was intended as a non-refundable deposit that would either be applied to the first payment of the launch services or retained by NASA if the deal did not come to fruition. This was clearly stated in NASA’s Management Instruction (NMI) 8610.8, which governed the terms of such transactions. TCI’s position was straightforward: they believed that since no agreement was finalized, the earnest money should be returned. However, NASA argued that the payment was meant to cover the costs incurred during the negotiation process, whether or not an agreement was reached. The Tribunal accepted the position of NASA, finding that the terms of NMI 8610.8 were clear and unambiguous, and TCI had accepted these terms when they sent the payment. The Tribunal’s Reasoning The Tribunal’s reasoning in dismissing TCI’s claim was grounded in the principle that earnest money serves a vital function in such negotiations. When a party like NASA invests substantial time and resources into discussions with a potential customer, it is not unreasonable to require compensation if those discussions do not lead to a contract. The Tribunal emphasized that this practice is not uncommon in commercial transactions, particularly those involving significant investments of time and expertise. The Tribunal found that the provisions of NMI 8610.8 were “clear and unambiguous” and that TCI understood and accepted these terms. The $100,000 payment was not a mere placeholder; it was a firm commitment by TCI, indicating their intention to move forward with the project. Even though the negotiations eventually fell through, this did not change the nature of the payment or NASA’s right to retain it. Master List and Index to NASA Directives NASA’s Management Instruction (NMI) 8610.8 is part of a broader set of directives that guide the agency’s operations. The Master List and Index to NASA Directives provides an exhaustive catalog of all NASA management directives in force as of August 1, 1982. This includes major subject headings showing number, effective date, title, responsible office, and distribution code. The directives are comprehensive, covering everything from delegations of authority to management handbooks and safety standards. Understanding these directives is crucial for any entity engaging in transactions with NASA. They offer a roadmap of the agency’s internal processes and expectations, ensuring that parties entering into negotiations are fully informed of their obligations. This comprehensive indexing underscores NASA’s commitment to transparency and operational consistency, essential elements when dealing with complex projects like satellite launches. Considerations for Dispute Resolution in Space-Related Transactions Notwithstanding that this arbitration was under the specifically designed IUSCT (Iran-US Claims Tribunal), the Telecommunication Company of Iran v. NASA case provides valuable insights into how parties involved in space-related transactions should formulate dispute resolution options. Arbitration offers a neutral and structured forum for resolving disputes that arise from these highly technical and often international agreements. When drafting contracts for space-related transactions, parties should carefully consider the forum for dispute resolution. Arbitration can be advantageous due to its flexibility, confidentiality, and the ability to select arbitrators with specific expertise in space law and related fields. Moreover, the enforceability of arbitration awards across borders under treaties like the New York Convention provides an added layer of certainty in international dealings.

Supreme Court of Western Australia on the Limits of Expert Determination vs. Arbitration

The judgment in Silverstream SEZC v Titan Minerals Ltd from the Supreme Court of Western Australia shines a light on a vital and often misunderstood aspect of dispute resolution—the interaction between expert determination and arbitration. The case pivots around the refusal of a stay of proceedings sought by Titan Minerals Ltd (“Titan”), based on a clause in a set of royalty agreements that mandated disputes related to the calculation of royalties be referred to expert determination. What emerges from the court’s reasoning is a nuanced understanding of the differences between these two forms of alternative dispute resolution (ADR) and the conditions under which courts should intervene. At the heart of the dispute, Silverstream SEZC (“Silverstream”) accused Titan of breaching several royalty agreements by failing to maintain mining properties in good standing, thus forfeiting the entitlements that generated the royalties. Titan responded by tendering alternative royalties and sought to stay the court proceedings, arguing that the dispute over the valuation of these substituted royalties should be determined by an expert, as stipulated in the agreements. However, Justice Solomon, presiding over the case, disagreed and dismissed the application for a stay, offering a rich commentary on the broader relationship between expert determination and arbitration. Expert determination is a consensual process where parties agree to have an independent expert resolve specific technical issues. This process is typically informal, speedy, and effective for disputes requiring specialized knowledge, such as those involving technical valuations. However, unlike arbitration, which is governed by a legislative framework—such as the Commercial Arbitration Act 2012 (WA) in this case—expert determination does not automatically trigger a stay of proceedings. This is because expert determination, by its nature, is intended to resolve specific, often narrow technical issues, while arbitration can address the entirety of a dispute. Justice Solomon made a critical distinction between the scope of disputes appropriate for expert determination versus those suitable for arbitration. He underscored that while arbitration is a comprehensive dispute resolution mechanism, designed to deal with all facets of a conflict, expert determination is more limited in scope, typically confined to particular technical or factual issues. The court emphasized that even if a dispute concerning the valuation of royalties might be subject to expert determination, this did not preclude the court from addressing other issues, such as breaches of contract and the appropriate remedies for such breaches. The court’s refusal to grant the stay was rooted in its interpretation of the royalty agreements, specifically Clause 9, which mandated expert determination for disputes regarding the calculation of gross revenue or royalties. Justice Solomon noted that the current dispute was not genuinely about the calculation or valuation of the royalties—at least not yet—but rather about whether Titan had breached its obligations under the agreements by failing to maintain the mining properties in good standing. Since this issue did not fall within the scope of Clause 9, it was not appropriate to stay the proceedings in favor of expert determination. Justice Solomon also considered the broader principles governing the exercise of discretion in staying proceedings. He observed that courts generally respect the parties’ agreements to resolve disputes in a specified manner, but only when the dispute actually falls within the scope of the agreed process. Where a dispute does not lend itself to expert determination or where the dispute encompasses issues beyond the expertise of the appointed expert, a court should be cautious in granting a stay. This aligns with the principle that parties should be held to their bargains only when the agreed process is suitable and just for resolving the dispute. A key takeaway from the judgment is the emphasis on the specificity of the issues being referred to expert determination. The court acknowledged that expert determination is designed to resolve technical questions—for instance, the fair market value of royalties derived from mining operations—but it is not equipped to handle broader legal questions, such as whether a party has breached its contractual obligations. As Justice Solomon noted, staying proceedings in such a scenario could result in duplication of effort and potentially multiplicity of proceedings, which runs contrary to the principles of efficient dispute resolution. The judgment also illustrates the importance of evidence and procedural fairness in the context of expert determination. Silverstream had sought substantiation for the valuation of the replacement royalties tendered by Titan, which Titan had not provided. The court found that without such substantiation, it was premature to characterize the dispute as one solely about valuation and, consequently, premature to refer the matter to expert determination. In a broader comparative perspective, this judgment serves as a reminder that while both expert determination and arbitration are valuable tools in the arsenal of ADR, they serve distinct purposes. Arbitration is a more formal and expansive process, suitable for resolving entire disputes, while expert determination is a more limited mechanism, typically employed for resolving specific technical issues. Courts, therefore, play a crucial role in determining the appropriate scope and application of these processes, ensuring that disputes are resolved in a manner that is both fair and efficient. The Silverstream decision reinforces the idea that not all disputes are apt for expert determination, particularly when the issues at hand extend beyond mere technical calculations and touch upon broader legal rights and obligations. In such cases, the courts retain a vital oversight function, ensuring that parties are held to their agreements only when it is just and appropriate to do so.

The Regulatory Void: Why Space Flight Suppliers Face Heightened Risks

As the commercial space flight industry continues to expand, the nature of liability within this domain presents challenges that are distinctly different from those faced in more established industries. While certain principles, such as the need for robust contracts and clear indemnification clauses, are universal, the specific hazards, regulatory requirements, and the sheer novelty of space operations introduce a level of complexity that demands a closer examination. The Distinct Nature of Space Flight Liabilities Space flight is not merely an extension of aviation; it is a radically different environment with its own set of risks and unknowns. Unlike traditional industries where the liabilities are well-defined and governed by decades of regulatory precedents, the space flight industry operates at the cutting edge of technology and human endeavor. This inherently experimental nature of space travel means that the risks are not only higher but also less predictable. One of the most significant differences lies in the absence of a mature regulatory framework. Unlike the aviation industry, where safety standards and liability norms are well-established, the space flight industry is still developing its regulatory backbone. The FAA’s regulations for commercial space flight, while comprehensive, are designed to evolve as the industry matures. This creates a fluid environment where liability standards can shift rapidly, depending on technological advancements and legislative changes. Informed Consent and the Assumption of Risk One of the cornerstones of liability management in the space flight industry is the concept of informed consent. Space flight participants, unlike passengers on a commercial airline, must explicitly acknowledge the high-risk nature of their journey. This goes beyond the typical waivers found in other industries; participants must understand that they are embarking on a venture where the government itself has not certified the safety of the vehicles involved. This recognition of risk is not just a legal formality but a fundamental aspect of managing liability in space operations. For third-party suppliers, this means that the traditional safeguards—such as product liability insurance—might not offer the same level of protection as they would in other industries. Suppliers must account for the fact that their components will be used in an environment where failure rates, even if minimal, can have catastrophic consequences. The standard of care required in the space industry is therefore significantly higher, and the consequences of a breach are more severe. Regulatory Requirements and the Chain of Liability Another unique aspect of the space flight industry is the way regulatory requirements interact with the supply chain. In most industries, liability tends to be concentrated at the end of the supply chain—typically with the manufacturer or service provider directly interacting with consumers. However, in the space flight industry, the regulatory obligations extend throughout the supply chain. This means that even subcontractors and component suppliers can be directly impacted by regulatory actions. For instance, FAA regulations may require that specific safety standards be met not just by the space flight operator but by all entities involved in the construction and operation of the spacecraft. This creates a situation where third-party suppliers could be held liable for regulatory non-compliance, even if their products are only a small part of the overall system. The interconnectedness of space flight operations means that liability is often shared, and a failure in one component can lead to legal repercussions across the entire supply chain. The International Dimension of Space Liability The space flight industry is inherently international, with operators, suppliers, and customers often spread across multiple jurisdictions. This global nature introduces additional layers of complexity to liability management. Different countries have varying regulatory standards, and there is no unified international framework for space flight liability akin to what exists in maritime or aviation law. For third-party suppliers, this means navigating a patchwork of national regulations, each with its own approach to liability and indemnification. Jurisdictional conflicts can arise, particularly in cases where an incident leads to legal actions in multiple countries. Suppliers must therefore ensure that their contracts account for these international dimensions, incorporating choice of law and jurisdiction clauses that clearly define where and how disputes will be resolved. Insurance and Risk Transfer in Space Operations Traditional insurance models also struggle to adapt to the unique risks of space flight. The high cost of space missions, combined with the potential for catastrophic losses, makes insuring these operations a challenge. While insurance products are available, they often come with high premiums and significant exclusions, particularly concerning third-party liabilities. Suppliers must be aware that the insurance coverage for space flight operations may not fully protect them from liability. This necessitates a more proactive approach to risk management, where suppliers not only rely on insurance but also on comprehensive contractual protections. This might include obtaining additional coverage, negotiating higher limits on existing policies, or requiring the space flight operator to bear a greater share of the risk. Conclusion: A New Paradigm in Liability Management The space flight industry is pushing the boundaries of what is possible, but with this comes a need for a new approach to liability management. For third-party suppliers, the traditional models of risk transfer and liability protection may not be sufficient. Instead, they must engage with the unique challenges of space flight—ranging from the evolving regulatory landscape to the international nature of operations—and develop strategies that are as innovative and forward-thinking as the industry itself. As space flight becomes more commonplace, the lessons learned today will shape the liability frameworks of tomorrow. Third-party suppliers have a critical role to play in this evolution, and by understanding and adapting to the unique liabilities of the space flight industry, they can help ensure not only their own protection but also the safety and success of future space missions.

British Columbia Supreme Court on Court Applications Rendering Arbitration Agreements Inoperable

In the recent case Montaigne Group Ltd. v. St. Alcuin College for the Liberal Arts Society, 2024 BCSC 1465, the Supreme Court of British Columbia examined the interaction between court applications and the enforceability of arbitration agreements. The court’s findings provide significant insights into how actions taken in court can potentially render an arbitration agreement inoperative. Context and Overview The case centered around a Joint Venture Agreement (JVA) between Montaigne Group Ltd. (Montaigne) and St. Alcuin College for the Liberal Arts Society (St. Alcuin). The JVA included a dispute resolution clause that emphasized self-settlement, mediation, and ultimately arbitration as mechanisms for resolving disputes between the parties. When disputes arose, Montaigne initiated litigation, which led to a legal examination of whether the arbitration clause in the JVA remained enforceable. St. Alcuin applied to stay the court proceedings, arguing that the matter should be resolved through arbitration as stipulated in the JVA. Montaigne opposed the stay, contending that St. Alcuin had waived its right to arbitration by taking substantive steps in the litigation process. Court’s Analysis The court’s analysis was focused on whether St. Alcuin’s actions constituted a waiver of its right to arbitrate, thereby rendering the arbitration agreement inoperative under the Arbitration Act. Section 7(2) of the Act mandates that a court must stay proceedings unless the arbitration agreement is found to be void, inoperative, or incapable of being performed. The central issue was whether St. Alcuin’s motion to strike Montaigne’s amended notice of civil claim amounted to a “step in the proceedings,” which would preclude a mandatory stay under section 7(1) of the Act. The court noted that while St. Alcuin had initially filed its notice of application to stay the proceedings before taking any other steps, the subsequent decision to bring a motion to strike was significant. The court found that the motion to strike sought substantive relief from the court and addressed the core issues of the dispute. This action, according to the court, demonstrated an implicit affirmation of the court’s jurisdiction over the matter, which was inconsistent with the intent to arbitrate. The court concluded that by bringing the motion to strike, St. Alcuin had taken a substantive step in the proceedings that precluded it from later seeking to enforce the arbitration agreement. Key Legal Principles The court referenced the Supreme Court of Canada’s decision in Peace River Hydro Partners v. Petrowest Corp., which established a framework for determining when court proceedings should be stayed in favor of arbitration. The framework includes technical prerequisites that must be met, such as whether an arbitration agreement exists and whether the court proceedings concern a matter agreed to be submitted to arbitration. The fourth prerequisite is particularly relevant in this case: whether the party seeking a stay has taken any steps in the court proceedings. The court also drew comparisons with the Ontario Court of Appeal’s decision in RH20 North America Inc. v. Bergmann, where the defendant’s participation in a motion to strike was found to constitute a waiver of the arbitration agreement. The Ontario court held that by seeking to strike out substantive claims, the defendant had elected to have the dispute resolved by the court, thereby rendering the arbitration agreement inoperative. In applying these principles, the court determined that St. Alcuin’s motion to strike constituted a substantive step in the litigation process. This action was found to be inconsistent with the arbitration agreement, leading to the conclusion that the agreement was rendered inoperative. Impact on Arbitration Agreements The court’s findings highlight the importance of adherence to the dispute resolution mechanisms outlined in contracts. When a party takes a step in the court proceedings that seeks substantive relief, such as a motion to strike, this can be viewed as a waiver of the right to arbitrate. This case reinforces the principle that arbitration agreements must be respected, and parties should be cautious in how they engage with the court system when an arbitration agreement is in place. Conclusion In Montaigne Group Ltd. v. St. Alcuin College for the Liberal Arts Society, the Supreme Court of British Columbia provided clear guidance on the interplay between court applications and arbitration agreements. The court concluded that St. Alcuin’s decision to pursue a motion to strike amounted to a step in the proceedings that rendered the arbitration agreement inoperative. This decision underscores the need for parties to carefully consider their actions in court when an arbitration agreement governs their dispute.

Australian High Court on Functus Officio and De Novo Review of Arbitration Awards

The High Court of Australia’s ruling in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd [2024] HCA 28 marks a significant development in the jurisprudence surrounding the finality of arbitral awards and the extent to which courts can intervene in arbitral proceedings. This decision centers on whether an arbitral tribunal, after issuing an interim award, could revisit issues that were argued to be conclusively settled by that interim award. The Court’s ruling provides important guidance on the application of the functus officio doctrine and the standard of judicial review for setting aside arbitral awards under the Commercial Arbitration Act 2012 (WA). Background The dispute between CBI Constructors Pty Ltd (“CKJV”) and Chevron Australia Pty Ltd arose from a contract related to the Gorgon Project, a major offshore oil and gas development. CKJV, under the contract, supplied staff for the project, and a dispute emerged over the reimbursement of staff costs. CKJV argued that Chevron underpaid, while Chevron counterclaimed that it had overpaid. The arbitration was conducted under the UNCITRAL Arbitration Rules and was bifurcated into separate hearings on liability and quantum. The arbitral tribunal issued an interim award in December 2018 (the “First Interim Award”), addressing all liability issues. The tribunal concluded that CKJV was entitled only to actual costs, rejecting CKJV’s claim for higher contractual rates. Following this, CKJV sought to advance a new argument—the “Contract Criteria Case”—which pertained to how the “actual costs” should be calculated. Chevron objected, arguing that the tribunal was functus officio and thus lacked the authority to address any further liability issues. Despite these objections, the tribunal issued a second interim award (the “Second Interim Award”), allowing CKJV’s new argument to proceed. Chevron then applied to the Supreme Court of Western Australia to set aside the Second Interim Award, arguing it exceeded the tribunal’s jurisdiction. The Supreme Court and the Court of Appeal agreed with Chevron, finding that the tribunal was functus officio and had overstepped its jurisdiction by revisiting liability issues settled by the First Interim Award. CKJV appealed to the High Court of Australia. The High Court’s Decision The High Court was tasked with determining two central issues: Whether the tribunal was functus officio after issuing the First Interim Award, thus precluding it from addressing the Contract Criteria Case in the Second Interim Award. Whether the Supreme Court of Western Australia applied the correct standard of review in setting aside the Second Interim Award. Functus Officio and the Scope of Tribunal Authority The High Court’s analysis began with the principle of functus officio—the idea that once a tribunal has issued a final decision on a matter, it cannot revisit that decision. However, the Court found that this principle did not apply in the manner the lower courts had concluded. The Court stated, “The end result is that the search for a justification for a conclusion by a court that the First Interim Award rendered the arbitral tribunal functus officio with respect to the matters the subject of that award fails.” This meant that the tribunal retained jurisdiction to issue the Second Interim Award. The Court emphasized that the First Interim Award, while final on the issues it addressed, did not cover all aspects of the dispute. Specifically, it did not conclusively resolve how the “actual costs” should be calculated, leaving room for further determination. As such, the tribunal was within its rights to address the Contract Criteria Case in the Second Interim Award. The Court highlighted that “an award can be ‘final’ in a number of ways or senses,” and in this instance, the First Interim Award was final only concerning the issues it explicitly resolved. The tribunal’s decision to entertain the Contract Criteria Case in the Second Interim Award did not overstep its jurisdiction. Judicial Review and the Standard of Intervention On the second issue, the High Court scrutinized the standard of review applied by the Supreme Court. CKJV had argued that the courts should defer to the tribunal’s interpretation of its own jurisdiction. However, the High Court found that the courts were entitled to conduct a de novo review when jurisdictional questions arose. The Court affirmed that “the correctness standard has been adopted” in such cases, meaning the courts should independently assess whether the tribunal exceeded its jurisdiction. However, the High Court ultimately determined that the tribunal had not exceeded its jurisdiction in issuing the Second Interim Award. As a result, the Court concluded that the Supreme Court had erred in setting aside the award, as there was no basis for concluding that the tribunal acted beyond the scope of the arbitration agreement. Implications for Arbitration Practice The High Court’s decision in CBI Constructors Pty Ltd v Chevron Australia Pty Ltd reinforces the finality of arbitral awards while also acknowledging the flexibility of tribunals to manage the arbitration process, including issuing multiple awards on different aspects of a dispute. The ruling clarifies that tribunals are not functus officio in relation to issues that remain unresolved, even after an interim award has been made. This case also underscores the limited scope of judicial intervention in arbitration. Courts are empowered to review arbitral awards, but only within strict confines. The High Court’s emphasis on the de novo standard for reviewing jurisdictional issues reaffirms that while courts have a role in overseeing arbitration, their intervention is appropriately circumscribed to ensure that the arbitration process remains efficient and final, consistent with the parties’ agreement. In summary, the decision serves as a reminder that while arbitration provides a final and binding resolution to disputes, the tribunal’s authority is not extinguished by interim decisions unless those decisions fully resolve the issues in question. This ruling will likely influence the conduct of future arbitrations, particularly in how parties and tribunals structure interim awards and approach unresolved issues.

War Series: Civil War and Force Majeure in Global Construction

  The arbitration between Ermir İnşaat Sanayi ve Ticaret A.Ş. and Biwater Construction Ltd., adjudicated by a sole arbitrator under the ICC Arbitration Rules, offers several critical lessons for construction companies operating in regions vulnerable to civil unrest. This case, which revolved around a construction project in Libya that was interrupted by the First Libyan Civil War, underscores the complexities and risks associated with working in conflict zones. Lesson 1: Force Majeure in the Context of Civil War One of the key lessons from this arbitration is the interpretation of force majeure clauses when civil war interrupts a construction project. The sole arbitrator, Tobias H. Zuberbühler, meticulously examined whether the Respondent, Biwater Construction Ltd., could have reasonably been expected to resume the project after the cessation of the First Libyan Civil War. The arbitrator determined that the “ongoing force majeure situation” justified the Respondent’s decision not to resume the project, highlighting that “Libya was and has been a dangerous country since 2011” (para. 155). This case illustrates that civil war, as a force majeure event, can extend beyond the immediate conflict period. The arbitrator accepted that the dangers in Libya persisted long after active hostilities ceased, making it unreasonable to expect project resumption. The lesson here is clear: construction companies must recognize that the effects of civil wars are prolonged and can render contract performance impossible for extended periods. Lesson 2: The Interplay Between Security and Financial Risks Another significant takeaway from this arbitration is the intricate relationship between security risks and financial considerations in post-conflict environments. The sole arbitrator acknowledged that Biwater’s decision not to resume the project was influenced by both “substantial security concerns” and the financial risks associated with non-payment by the Libyan client, HIB (para. 154). This dual consideration emphasizes that in conflict zones, security and financial stability are deeply intertwined. Companies must therefore conduct thorough risk assessments that consider both factors equally. This lesson is particularly relevant for projects in regions where the local government or clients may be financially unstable or unable to fulfill payment obligations, as seen in Libya during the post-war period. Lesson 3: The Limits of Claims for Lost Profits The denial of Ermir İnşaat’s claim for lost profits is another crucial lesson from this case. The Claimant sought compensation under Clause 3.7 of the Agreement and Article 378 of the Swiss Code of Obligations (CO), arguing that Biwater’s failure to resume the project led to lost profits. The arbitrator, however, rejected this claim, stating that the “ongoing force majeure situation” made it impossible for the Respondent to resume the project and that Biwater was not at fault (para. 280). This lesson underscores the difficulty of substantiating claims for lost profits in situations where force majeure is involved. When a civil war or similar event disrupts a project, proving that one party is at fault for non-performance becomes challenging. Construction companies must be cautious when drafting contracts to ensure that lost profit claims are clearly defined and that force majeure events are appropriately addressed. Lesson 4: The Importance of Clear Settlement Agreements The arbitration also highlights the importance of drafting clear and comprehensive settlement agreements in the aftermath of a conflict. The December 2015 Agreement between the parties was intended to resolve certain outstanding issues, but the arbitration revealed that ambiguities in the agreement led to further disputes. For instance, the arbitration had to interpret various clauses of the December 2015 Agreement, particularly those related to payments and legal disputes in Turkey (para. 88-90). This lesson teaches that settlement agreements must be carefully negotiated and drafted to prevent future litigation. Ambiguities can lead to prolonged disputes and additional arbitration, as seen in this case. Lesson 5: Documentation and Evidence in Conflict Zones Finally, this arbitration underscores the challenges of gathering documentation and evidence in conflict zones. The arbitrator acknowledged that the Claimant faced difficulties in providing documentation for its site clearance costs due to the chaotic circumstances of evacuating personnel from Libya. The arbitrator allowed for a relaxation of the substantiation requirements, recognizing that “under these circumstances, the requirement of substantiation can be alleviated” (para. 263). This lesson is particularly important for companies operating in similar environments today. It emphasizes the need for flexible evidentiary standards in arbitration when the usual documentation is not available due to war or other emergencies. Companies should ensure that their contracts allow for such flexibility, anticipating the possibility that certain records may be lost or unobtainable in the event of a conflict. Conclusion The Ermir İnşaat Sanayi ve Ticaret A.Ş. v. Biwater Construction Ltd. arbitration provides essential lessons for construction companies and arbitrators alike. It highlights the extended impact of civil wars on construction projects, the intertwined nature of security and financial risks, the challenges of substantiating claims for lost profits, the importance of clear settlement agreements, and the need for flexible evidentiary standards in conflict zones. These lessons are particularly relevant in today’s global construction industry, where projects frequently intersect with geopolitical instability. As this case demonstrates, the aftermath of civil wars continues to shape the legal landscape, requiring companies and arbitrators to navigate these challenges with foresight and adaptability.

War Series: Defining ‘War’ in Arbitration Awards and NATO Operations (Kosovo)

  The arbitration award referenced in the UK Court of Appeal judgment [2002] EWCA 1878 delves deeply into the meaning of ‘war’ as interpreted by arbitration tribunals and its implications for contractual obligations. This award, rendered by a distinguished panel of arbitrators, underscores the nuanced approach that arbitration tribunals take in defining what constitutes a ‘war’ under commercial contracts, particularly in the context of NATO operations. The arbitration at the heart of this judgment concerned the New York Produce Exchange (NYPE) form of charter, specifically the invocation of a War Cancellation Clause by charterers. The clause allowed for the cancellation of the charter in the event of the outbreak of war involving the nation under whose flag the vessel sailed. The dispute arose when Germany, as a member of NATO, participated in military operations in Kosovo and Yugoslavia in 1999. The charterers sought to cancel their obligations under the charter, claiming that Germany’s involvement in the conflict constituted ‘war’ as envisaged by the clause. The core issue before the arbitration tribunal was whether the military operations in Kosovo, involving NATO and Germany, could be considered a ‘war’ within the meaning of the War Cancellation Clause. The tribunal’s majority found that the operations in Kosovo did not constitute ‘war’ as contemplated by the contract. This decision was based on a common-sense interpretation of the term ‘war,’ which the majority arbitrators held should be understood as a conflict between nation-states, not merely military activities or hostilities that fall short of war. The tribunal majority reasoned that while the conflict in Kosovo was indeed intense and involved significant military engagement, it did not rise to the level of ‘war’ as defined by the contract. This interpretation aligns with the approach taken by the courts in earlier cases, such as KKKK v Belships Co (1939), where Branson J emphasized that the term ‘war’ must be construed based on the reasonable expectations of businesspersons, taking into account the nature of the conflict and the specific contractual context. The majority’s view was further supported by the distinction between ‘war’ and ‘warlike activities or hostilities short of war’ as explicitly drawn in the NYPE charter form. The dissenting view by Sir Christopher Staughton, however, highlights the inherent ambiguity in the term ‘war’ and the potential for differing interpretations. Sir Christopher argued that a reasonable businessman would have considered the Kosovo conflict to be a ‘war,’ given the scale and intensity of the operations and Germany’s involvement. This dissent raises critical questions about the flexibility and adaptability of contractual terms in light of evolving international conflict scenarios. The relationship between the judgment and the arbitration award is significant in that the Court of Appeal ultimately upheld the arbitration tribunal’s decision, despite recognizing the serious legal questions it raised. The court acknowledged that the arbitrators had applied a common-sense approach to the interpretation of the War Cancellation Clause, consistent with established legal principles. However, the court also noted the practical implications of the decision, particularly the emphasis on the timing of the cancellation notice, which played a crucial role in the outcome. The broader implications of this award for NATO operations today are profound. The tribunal’s decision reflects a conservative approach to defining ‘war’ in the context of contractual obligations, one that emphasizes the traditional understanding of war as a conflict between nation-states. This interpretation has significant consequences for parties to contracts involving NATO member states, as it suggests that not all military engagements, even those involving substantial force and participation by multiple nations, will be considered ‘war’ for the purposes of war cancellation clauses. In the current geopolitical climate, where NATO operations are increasingly characterized by coalition-based engagements and multilateral military actions that may not involve formal declarations of war, the need for clarity in contractual language has never been more pressing. Parties drafting contracts that include war cancellation clauses must carefully consider the scope and definition of ‘war,’ ensuring that the terms are explicit and aligned with the parties’ intentions. The tribunal’s decision in this case also underscores the importance of timeliness in exercising cancellation rights. The charterers’ failure to provide timely notice of cancellation was ultimately fatal to their claim, highlighting the need for parties to act swiftly and decisively when invoking such clauses. In conclusion, the arbitration award referenced in [2002] EWCA 1878 offers valuable insights into the interpretation of ‘war’ in commercial contracts, particularly in the context of NATO operations. The decision reflects a cautious approach, favoring a traditional understanding of war that may not always align with the realities of modern military engagements. For parties involved in contracts with NATO member states, the key takeaway is the importance of clear, precise language and the need for prompt action when invoking war-related contractual provisions. This award serves as a reminder that while the nature of conflict may evolve, the principles of contract interpretation remain rooted in the reasonable expectations of the parties and the common-sense application of contractual terms.

Dubai Courts on Criminality of Unlicensed Virtual Asset Operations

  In a recent decision by the Dubai Court of Appeal, Judgment No. 829 of 2023, the court identified the criminal conviction of a former employee who was found guilty of both embezzling funds and engaging in virtual asset service activities without obtaining the necessary license from the relevant regulatory authorities. This case serves as a critical reminder of the legal obligations that come with handling virtual assets and the severe consequences of failing to adhere to them. The court’s findings were rooted in the criminal judgment from an earlier case, Criminal Case No. 16363 of 2021, where it was established that: “the defendant was convicted of embezzling funds belonging to one of the plaintiff’s clients, [redacted], in addition to being convicted of engaging in virtual asset service provider activities without obtaining the necessary license from the relevant regulatory authorities.” The connection between the defendant’s embezzlement and his unlicensed activities in the virtual asset space cannot be understated. The court recognized that by operating without a license, the defendant not only breached regulatory requirements but also facilitated his illicit activities. Deductively, engaging in unregulated virtual asset services provided the defendant with opportunities to handle and misappropriate client funds, which ultimately led to his conviction. In Dubai, the regulation of virtual asset service providers is overseen by the Virtual Assets Regulatory Authority (VARA) for mainland activities and the Dubai International Financial Centre regulates operations in its respective jurisdiction which mandates that any entity offering services in Dubai related to virtual assets must obtain the appropriate licenses. These regulations are designed to protect investors, maintain the integrity of the financial system, and ensure that all transactions involving virtual assets are conducted transparently and lawfully. The defendant’s failure to obtain the necessary license from VARA or otherwise was not a minor oversight; it was a fundamental breach of the regulatory framework that governs virtual assets in Dubai. Operating without a license meant that the defendant’s activities were outside the purview of regulatory oversight, allowing him to engage in transactions that were both unmonitored and unregulated. This lack of oversight was seemingly connected to the crime of embezzlement of funds, as there were no regulatory checks in place to detect or prevent the misuse of client assets. The court’s decision underscores the serious consequences of engaging in virtual asset service activities without proper licensing. It highlights that unlicensed activity in this sector is not just a regulatory breach—it can also be a gateway to criminal behavior, such as the embezzlement of funds. The connection between unregulated virtual asset services and the illicit obtainment of funds in this case serves as a clear warning to others in the industry. In summary, the Dubai Court of Appeal’s ruling in Judgment No. 829 of 2023 / Criminal Case No. 16363 of 2021 strongly affirms the importance of regulatory compliance in the virtual asset sector. The case demonstrates that operating without a license is not only illegal but also potentially criminal, especially when it leads to misappropriation of client funds. As the virtual asset market continues to grow, the need for stringent regulatory oversight and compliance becomes ever more critical. This judgment serves as a reminder that the consequences of ignoring these regulations can be severe, leading to criminal convictions and significant legal repercussions

Dubai Courts Confirm Employment Salaries are Payable in Cryptocurrency

  In a significant evolution of the UAE judiciary’s approach to cryptocurrency, the Dubai Court of First Instance has made a landmark ruling in 2024, effectively recognizing the payment of salaries in cryptocurrency under employment contracts. This decision, rendered in case number 1739 of 2024 (Labour), represents a notable departure from a previous judgment by the same court in 2023, where a similar claim involving cryptocurrency was denied due to the employee’s failure to provide a precise valuation of the digital currency. Case Background and Summary The case arose when the plaintiff employee filed a lawsuit claiming unpaid wages, wrongful termination compensation, and other related employment benefits. The plaintiff’s employment contract stipulated a monthly salary in fiat currency and an additional 5,250 EcoWatt tokens, a form of cryptocurrency. The dispute centered on the defendant’s failure to pay the EcoWatt token portion of the salary for six months and the allegedly wrongful termination of the plaintiff’s employment. The court’s disposition is particularly noteworthy for its recognition and enforcement of cryptocurrency as a valid form of remuneration, despite the traditional payment norms that typically involve fiat currencies. The 2023 Judgment: A Cautious Approach In the 2023 case (Judgment No. 6947 of 2023), the court was faced with an employment dispute where part of the employee’s remuneration was supposed to be paid in EcoWatt tokens. The court acknowledged the inclusion of these tokens in the employment contract but ultimately refused to award the amount in EcoWatt tokens. The refusal was based on the employee’s failure to provide a clear method of calculating the value of the cryptocurrency in terms of its equivalent in fiat currency. The court’s reasoning reflected a more traditional view, requiring precise and tangible evidence of financial obligations, especially when dealing with unconventional forms of payment like digital currencies. The court’s ruling in 2023 emphasized: “It is established according to the Court of Cassation that determining the employment relationship, its start, duration, and the resulting effects falls under the authority of the trial court (Appeal No. 85 of 2005 Labour). Accordingly, it is evident to the court from the case documents and evidence that the employment relationship between the claimant and the respondent is governed by the fixed-term employment contract previously mentioned. Regarding the determination of the start date of the claimant’s employment and the monthly salary, the court relies on what the claimant stated, with the start date being [redacted], and the gross and basic salary being [redacted] AED, with the end of service date being [redacted] (according to the termination letter). As the claimant did not provide evidence of the value of the digital currency (EcoWatt tokens), the court disregards it, since the respondent did not provide opposing evidence or any defense, and therefore, the court concludes that the duration of the claimant’s service was [redacted] and that the gross and basic salary was [redacted] AED, and the court rules in the case accordingly.” This statement from the 2023 judgment reflected a cautious and traditional approach, where the court required concrete evidence of the digital currency’s value before it could enforce such a claim. The 2024 Judgment: Embracing Cryptocurrency In a remarkable turn, the Dubai Court demonstrated a more progressive stance in the 2024 judgment, where it again addressed an employment dispute involving remuneration in EcoWatt tokens. This time, the court ruled in favor of the employee, not only recognizing the validity of payment in cryptocurrency but also ordering the payment to be made in EcoWatt tokens rather than converting it into fiat currency. The court’s decision in 2024 was based on the principle that wages are a right of the employee for the work agreed upon. The court noted: “Regarding the request for the monthly salary for [redacted] days of [redacted], it is established according to Article 912 of the Civil Transactions Law that wages are a right of the worker against the employer in return for the agreed work, and the provisions of Article 22 of Federal Decree-Law No. (33) of 2021 on the Regulation of Labour Relations and Article 16 of the Cabinet Resolution No. 1 of 2022 concerning the Executive Regulations of this Decree-Law provide that the employer is obligated to determine the amount and type of wage in the employment contract, and if not, the court shall determine it. The employer must pay the wages to the workers on the due dates, either through the Wage Protection System (WPS) or any other approved systems, and it is the employer who is tasked with proving the payment of wages to the workers and providing evidence of that. As the respondent did not provide evidence of payment of the claimant’s salary for the claimed period, and since the documents were void of such evidence, the court orders the respondent to pay the claimant [redacted] AED in addition to [redacted] EcoWatt tokens. Regarding the claimant’s request for [redacted] AED for the delayed salaries over [redacted] months in EcoWatt tokens according to the contract, as the respondent did not provide evidence of payment of the due amount to the claimant for the claimed months in EcoWatt tokens, the court orders the respondent to pay the claimant the value of her wages in EcoWatt tokens amounting to [redacted] EcoWatt tokens.” This ruling marks a significant shift in the court’s approach, demonstrating a greater acceptance of cryptocurrency as a valid and enforceable means of remuneration. It underscores the importance of upholding contractual agreements as long as they are clear, agreed upon by both parties, and not in conflict with public policy or law. Legal Foundations and Implications The court’s reliance on Article 912 of the UAE Civil Transactions Law and the Federal Decree-Law No. (33) of 2021 in both the 2023 and 2024 judgments highlights the consistent application of legal principles regarding the determination and payment of wages. However, the interpretation of these provisions evolved between the two judgments, reflecting the broader acceptance and integration of digital currencies in the UAE’s legal and economic framework. Conclusion The Dubai

Taxpayer Victory: Abu Dhabi Court Allows Recovery of VAT from Non-Compliant Suppliers

  In a recent judgment by the Abu Dhabi Cassation Court, the UAE judiciary has delivered a crucial ruling that has significant implications for taxpayers across the country, particularly concerning the longstanding controversies surrounding Value Added Tax (VAT) refunds. This decision, encapsulated in Judgment No. 648/2024 issued on August 8, 2024, addresses the recurring issue where the UAE Federal Tax Authority (FTA) has historically rejected VAT refund requests due to non-compliant supplier invoices. This ruling now opens the door for taxpayers to seek remedies from their suppliers, potentially reclaiming amounts that could run into millions of USD. Background and Legal Context The case at hand involved a dispute where a construction company issued a check to a supplier as a guarantee for VAT related to a construction project. The dispute arose when the Federal Tax Authority (FTA) rejected the taxpayer’s request for a VAT refund, citing the failure to provide the required documentation, specifically the VAT invoices issued by the supplier. Historically, the FTA has been stringent in its requirements for VAT refunds, particularly where input tax is concerned. Under Article 55 of the UAE VAT Law (Federal Decree-Law No. 8 of 2017), businesses are entitled to recover input tax (VAT paid on goods and services) provided they hold a valid tax invoice. However, non-compliance with the invoicing requirements as stipulated in Article 59 of the Executive Regulations has often led to the FTA rejecting refund requests, leaving taxpayers with significant unrecovered VAT amounts. In this case, the taxpayer had submitted a refund request to the FTA but was unable to provide compliant invoices within the prescribed time frame. As a result, the FTA denied the refund, which led the taxpayer to initiate legal proceedings to recover the amount from the supplier. The Court’s Disposition The Abu Dhabi Cassation Court’s ruling is pivotal in that it clarifies the legal recourse available to taxpayers when faced with such VAT refund rejections. The court upheld the principle that if a supplier issues a non-compliant tax invoice, and as a result, the taxpayer’s refund claim is rejected by the FTA, the taxpayer is entitled to reclaim the corresponding amount from the supplier. This decision reinforces the taxpayer’s right to not be left bearing the financial burden due to the supplier’s failure to comply with tax invoicing regulations. Key Aspects of the Judgment The court’s reasoning centered around the obligations of the supplier under the UAE VAT Law. The judgment emphasized that the issuance of a compliant tax invoice is a statutory requirement, and failure to comply can result in significant financial implications for the purchaser (taxpayer). The court noted that in this particular case, the supplier had failed to provide the necessary VAT invoices within the stipulated timeframe, directly leading to the FTA’s rejection of the refund request. Consequently, the court held that the taxpayer was entitled to recover the amount from the supplier. Moreover, the court underscored that the principle of equity demands that the financial burden resulting from non-compliance should not rest on the taxpayer. Instead, the supplier, who failed to fulfill their statutory obligations, should bear the consequences. This ruling marks a significant shift in how tax disputes, particularly those involving VAT refunds, are likely to be handled in the UAE going forward. It sets a clear precedent that suppliers can be held financially accountable for the consequences of their non-compliance, potentially deterring future lapses in fulfilling VAT-related obligations. Implications for Taxpayers and Suppliers For taxpayers, this judgment provides a much-needed remedy in situations where VAT refunds are denied due to non-compliant invoicing by suppliers. The ruling empowers taxpayers to seek redress directly from their suppliers, ensuring that they are not financially penalized for issues beyond their control. For suppliers, this decision serves as a stark reminder of the importance of complying with VAT invoicing requirements. The ruling effectively places the onus on suppliers to ensure that their invoices meet the standards set by the FTA. Failure to do so could result in substantial financial liabilities, as they may be required to compensate their clients for any lost VAT refunds. Conclusion The Abu Dhabi Cassation Court’s judgment in Case No. 648/2024 is a landmark ruling in tax law within the UAE. It reinforces the critical importance of compliance with VAT regulations and provides a clear legal avenue for taxpayers to recover amounts denied by the FTA due to non-compliant supplier invoices. Taxpayers and suppliers alike would do well to take heed of this judgment and its far-reaching implications.

Dubai Primary Court 1024/2024: Evidence Requirements and Director Accountability in Cryptocurrency Claims

  Introduction As the UAE courts increasingly face cases involving cryptocurrency transactions, it becomes essential to understand the legal complexities and the critical need for robust evidence. The Dubai Primary Court’s recent judgment in case number 1024 of 2024, issued on 21 May 2024, underscores this necessity. This article examines the importance of presenting acceptable evidence in cryptocurrency claims and highlights the personal guilt of directors and officers in cryptocurrency investment scenarios. Case Facts The claimant filed a lawsuit against the defendant, seeking compensation for a failed cryptocurrency investment. The claim demanded the defendant to pay USD 90,000,000 or its equivalent in AED 330,300,000, plus legal interest of 12% from the due date of 23 January 2023, until full payment, along with court fees and attorney fees. According to the lawsuit, the defendant persuaded the claimant to invest in bitcoin, promising extravagant returns if the bitcoin was transferred to the defendant’s wallet on the Binance platform. The claimant complied, making multiple transfers, and initially received weekly reports from the defendant. However, the defendant ceased providing these reports and refused to return the claimant’s cryptocurrency. A criminal case, numbered 12309/2023, resulted in a six-month prison sentence and a USD 10,000,000 fine for the defendant, along with deportation. This judgment was final, as confirmed by the Public Prosecution on 07 May 2024. The Importance of Evidence in Cryptocurrency Claims In cryptocurrency claims, presenting robust and acceptable evidence is crucial due to the opaque nature of cryptocurrency transactions. The court emphasized that the claimant must prove their claims with clear and convincing evidence, particularly given the digital and often non-transparent nature of cryptocurrencies. The claimant’s failure to provide sufficient evidence for the claimed profits and lost potential earnings led to the dismissal of those claims. The claimant sought several forms of compensation: USD 10,000,000 as determined by the criminal judgment. USD 25,000,000 for profits allegedly earned by the defendant from 359 bitcoins. USD 35,000,000 for lost potential profits. USD 20,000,000 for material and moral damages. Additionally, on 22 April 2024, the claimant’s legal representative submitted an amended list of demands, highlighting that the value of bitcoin had increased since the initial transfers. The amended claims included: USD 53,661,779 for the principal amount and profits. USD 108,661,779 for the return of 809 bitcoins or their equivalent in USD, including lost profits and compensation for material and moral damages, with legal interest of 12% from 23 January 2023 until full payment. The court ruled in favor of the claimant for only USD 10,000,000 as previously determined in the criminal case and dismissed the additional claims due to insufficient evidence. The judgment states: “The claimant is required to prove their claims, and the court is not obligated to guide the parties on the necessities of their defense. The only evidence presented by the claimant for the profits and lost earnings was a screenshot from Google showing the bitcoin exchange rate, which the court deemed unreliable. The claimant did not submit expert or financial reports to substantiate their claims.” “The claimant failed to provide sufficient evidence for the claimed profits and lost potential earnings.” Consequently, the court dismissed the additional claims due to insufficient evidence. Personal Culpability of Directors and Officers The court’s decision also highlights the potential personal culpability of directors and officers in cryptocurrency investment scenarios. The defendant’s personal control over the claimant’s cryptocurrency investments led to their criminal conviction and civil liability. The court found that the Binance wallet used for the transactions was in the name of the director/officer, which directly implicated him in the misconduct. This case serves as a cautionary tale for cryptocurrency investment providers, illustrating how personal control of cryptocurrency by directors and officers can lead to significant legal consequences, including criminal convictions and substantial fines. The judgment specifies: “The criminal judgment, which convicted the defendant, established the foundational facts of the case, specifically that the claimant was the victim, and the defendant was the perpetrator. This binding judgment made it clear that the defendant’s actions were wrongful, thereby fulfilling the requirements for tortious liability: fault, damage, and causal relationship.” “The court held that the criminal judgment, which convicted the defendant, established the foundational facts of the case, specifically that the claimant was the victim, and the defendant was the perpetrator.” Takeaways The Dubai Primary Court’s judgment in case 1024 of 2024 underscores the critical importance of presenting robust evidence in cryptocurrency claims. Given the opaque nature of cryptocurrency transactions, claimants must ensure their evidence meets the stringent standards of proof required by the courts to secure a favorable judgment. Additionally, the case highlights the potential personal culpability of directors and officers in cryptocurrency investment scenarios, serving as a precedent for future cryptocurrency litigation in the UAE.

War Series: When Geopolitics Meets Arbitration in the UTI vs. Iran Case

  In the arbitration case United Technologies International, Inc. v. Islamic Republic of Iran, the Tribunal faced a complex dispute arising from the Iranian Revolution and subsequent geopolitical upheavals. At the heart of the matter were helicopter components that Iran Helicopter Support and Renewal Company (IHSRC) had shipped to United Technologies International, Inc. (UTI) for repairs. The core issue was the proper return and payment for these components, with UTI seeking compensation for services rendered and storage costs, while IHSRC demanded the return of all components or their value. UTI’s Position and Claim UTI, represented by its unincorporated division Sikorsky, argued that they fulfilled their contractual obligations by repairing and overhauling the components at their Connecticut facility. These repairs were conducted under terms specifying delivery “F.o.b. Factory”. However, post-revolution, IHSRC’s request to alter the delivery terms to “C and F, Tehran” was declined by UTI, leading to a stalemate exacerbated by U.S. government orders that froze Iranian assets and prohibited the shipment of the components, classified under the U.S. Munitions List. UTI thus found itself in possession of 22 fully repaired and 11 partially repaired components, for which payment was not received. They sought $183,886.05 for these services, plus storage charges and interest. UTI asserted that due to the changing geopolitical landscape, including the U.S. embargo, they were rightfully retaining the components and sought Tribunal authorization to auction them or receive directions for continued storage and cost reimbursement. IHSRC’s Defense and Counterclaim IHSRC countered with a multifaceted defense, asserting that UTI was obligated to return the components under IHSRC’s terms, which specified “C and F Tehran, Iran”. They disputed the claim, arguing that UTI failed to deliver the components as agreed and contended that UTI’s non-performance couldn’t be excused by U.S. government actions. IHSRC’s counterclaim demanded either the return of all components sent for repair, valued at $5,500,000, plus $15,000,000 in damages for non-delivery and $68,410,713 in incidental damages. Request for Interim Measures UTI’s request for interim measures centered on auctioning the components or obtaining explicit instructions for their continued storage, highlighting the financial burden of storage costs and the risk of component obsolescence. They emphasized their artisan’s lien under Connecticut law, securing payment for their repair and storage services. UTI argued that the interim measures were essential to prevent further economic loss and asset deterioration. Tribunal’s Analysis and Decision The Tribunal’s decision hinged on several critical points. Firstly, under Article 26 of the Tribunal Rules, interim measures can be granted to prevent irreparable harm to the parties’ rights or property pending the final decision. This principle aligns with the International Court of Justice’s practice of preserving the rights under dispute. However, the Tribunal identified several obstacles: Ownership and Control: Although IHSRC owned the components, they were stored in UTI’s warehouses. The Tribunal noted that granting UTI’s request could preempt a final decision on the restitution of these goods to IHSRC, thus complicating any future awards. Specificity and Jurisdiction: There was ambiguity regarding the specific components held by UTI and those listed in IHSRC’s counterclaim. Furthermore, the issue of storage costs beyond January 19, 1981, and whether these were within the Tribunal’s jurisdiction, posed additional complications. Export Licensing: UTI did not address the responsibility for obtaining export licenses, which was crucial given the components’ classification under the U.S. Munitions List. Given these factors, the Tribunal concluded that granting the interim measures would effectively constitute a provisional judgment on UTI’s claims, which was inappropriate. Moreover, the Tribunal highlighted that the payment of storage costs, should it be warranted, was secured by the General Declaration’s Security Account, thus negating the need for immediate interim relief. Implications and Considerations This decision underscores the delicate balance tribunals must maintain between providing interim relief and preserving the integrity of the final judgment. The ruling demonstrates the importance of clear contractual terms, especially in international transactions affected by geopolitical events. It also highlights the complexities of enforcing contractual rights amid governmental restrictions and the importance of addressing jurisdictional scope clearly in arbitration proceedings. Key Takeaways Contractual Clarity: Parties must ensure contracts are explicit about terms, especially regarding delivery and liability in the event of geopolitical changes. Interim Measures: Tribunals have the authority to grant interim measures, but such requests must be compelling, clearly within jurisdiction, and not prejudicial to the final award. Geopolitical Impact: Businesses operating internationally must consider the implications of political instability and government regulations on their contractual obligations. This case serves as a poignant reminder of the intricacies involved in international arbitration and the critical role of clear legal frameworks and strategic foresight in managing cross-border disputes.

War Series: Arbitration and the Tax on War Profits

  On 15 June 1922, Gustave Ador rendered a significant arbitration award regarding the applicability of a tax on war profits, a decision that resonates through the corridors of international arbitration to this day. This case, arbitrated between the French and Spanish governments, addressed whether Spanish nationals residing in France were subject to the French law of 1 July 1916 on exceptional war profits or exempted by virtue of the Franco-Spanish convention of 7 January 1862. This award exemplifies the intricate interplay between domestic tax laws and bilateral treaties, a theme recurrent in modern-day international arbitration. The Compromis Arbitral: Foundations of the Dispute The arbitration agreement, or compromis arbitral, between France and Spain tasked the sole arbitrator, Ador, with resolving a critical issue: the applicability of the 1916 French tax law on Spanish nationals in France, against the backdrop of the 1862 treaty. The agreement underscored that Ador’s decision would be final and binding, highlighting the binding nature of arbitral awards in international disputes. Context and Historical Background The 1862 treaty between France and Spain was a diplomatic effort to establish mutual tax exemptions for their nationals residing in each other’s territories. This treaty aimed to shield foreign nationals from extraordinary taxes imposed during exceptional circumstances, such as war. Ador meticulously examined the treaty’s intent and the historical context, which played a pivotal role in his decision. Treaty Interpretation and Legal Principles Ador’s analysis revolved around the interpretation of Article 4 of the 1862 treaty, which sought to balance the principle of domicile with nationality-based exemptions. The treaty exempted foreign nationals from extraordinary contributions tied to their nationality, while subjecting them to ordinary taxes based on domicile. This distinction was crucial in determining the applicability of the 1916 tax law. The arbitrator dismissed the restrictive interpretation that the exemption was solely for civil war scenarios. He argued that the broad language of the treaty did not confine the exemption to such a narrow scope, instead covering any extraordinary contributions arising from exceptional circumstances, such as the global conflict of World War I. Nature of the 1916 Tax Law The French law of 1 July 1916 was enacted to address the extraordinary economic gains made during wartime, imposing a tax on exceptional war profits. Ador emphasized that this tax was not a standard commercial levy but a response to the extraordinary economic conditions created by the war. He underscored the law’s exceptional nature, aligning it with the treaty’s provisions exempting foreigners from such extraordinary taxes. Ador highlighted the transitory and exceptional character of the tax, noting that it targeted only the excess profits generated due to the war, distinguishing it from regular commercial taxes. This differentiation was pivotal in concluding that the tax law fell within the treaty’s exemption clause. Equity and Fairness Considerations The award also touched upon the equity arguments presented by France, which contended that it was unfair for Spanish nationals to benefit from the war without contributing to the extraordinary fiscal burdens. Ador acknowledged these concerns but emphasized that any perceived inequity should have been addressed by renegotiating or denouncing the 1862 treaty, a step France had not taken. He pointed out that the legislative debates in France, particularly the statements by French officials, reinforced the view that the extraordinary tax was linked to national solidarity and patriotism. This further bolstered the argument that the tax was inherently tied to French nationals, not foreign residents. Implications and Contemporary Relevance Ador’s award is a landmark in the realm of international arbitration, illustrating the delicate balance arbitrators must maintain between state sovereignty, treaty obligations, and equitable considerations. The principles elucidated in this award continue to influence contemporary arbitration, particularly in disputes involving taxation and international treaties. The award underscores the importance of clear treaty drafting and the need for states to periodically review and update their international agreements to reflect evolving circumstances. It also highlights the role of arbitrators in navigating the intersection of domestic laws and international obligations, ensuring that justice is served while respecting the sovereign rights of nations. In modern contexts, this case resonates in debates over taxation of multinational corporations, where treaties and domestic laws often collide. The principles of fairness, equity, and the intent of treaties remain central to resolving such disputes, making Ador’s reasoning as relevant today as it was a century ago. Conclusion Gustave Ador’s arbitration award on the tax on war profits is a testament to the enduring relevance of principled arbitration. It demonstrates the critical role of historical context, treaty interpretation, and equitable considerations in resolving complex international disputes. As we navigate contemporary challenges in international arbitration, the wisdom embedded in this award provides valuable guidance for balancing the interests of states and the principles of justice.

War Series: The 1923 Arbitration on War-Risk Premiums

  The case of War-Risk Insurance Premium Claims presented a unique challenge for the United States-Germany Mixed Commission. At its core, it revolved around whether premiums paid by American companies for war-risk insurance during World War I could be recovered from Germany. These premiums were for protection against potential war hazards that, ultimately, did not materialize into actual losses. The Commission’s analysis, delivered by Parker, Umpire, and concurred by both American and German Commissioners, hinges on the fundamental principles of proximate cause and liability in international law. Historical Context and Challenges At the outbreak of World War I, the United States was neutral, facing myriad uncertainties in maritime commerce. American nationals, whose businesses were entrenched in international shipping, had to navigate through a web of risks including contraband, blockades, mines, and belligerent activities. The war had disrupted normal trading routes, and the shifting sands of international law on contraband and blockades added layers of complexity. In response, the U.S. sought agreement from belligerent nations to adhere to the Declaration of London (1909), a set of laws governing naval warfare. Germany and her allies acquiesced, but the British and her allies only partially adopted these rules, introducing significant modifications. This led to a precarious situation for American shippers who found themselves vulnerable to seizures and detentions of their cargoes by the British, and to German declarations of war zones that endangered even neutral ships. Insurance as a Protective Measure Amidst these hazards, American companies turned to war-risk insurance to safeguard their shipments. Initially, American insurers struggled to provide coverage due to the unprecedented nature of the risks. However, the U.S. Congress quickly established the Bureau of War Risk Insurance within the Treasury Department, which began writing policies at more reasonable rates compared to private insurers. Despite this protection, the question arose: should these premiums be reimbursed by Germany as part of war reparations? The Commission’s role was to determine if these insurance costs constituted a loss directly attributable to German acts under the Treaty of Berlin. Examination of Claims The Commission examined three representative claims: United States Steel Products Company Costa Rica Union Mining Company South Porto Rico Sugar Company Each company had paid war-risk premiums to protect their shipments or facilities against potential war-related hazards. Notably, none of these companies experienced actual losses from the insured risks; the shipments arrived safely, and the facilities were unmolested. The Principle of Proximate Cause The central legal question was whether the premiums paid for war-risk insurance could be considered a loss proximately caused by German actions. The Treaty of Berlin required Germany to compensate for losses directly caused by its acts or those of its agents. However, the premiums in question were for potential risks that did not result in actual damage or loss of property. The Commission concluded that these premiums did not meet the criteria for compensation under the Treaty. They were precautionary expenses against hypothetical risks, not losses caused by specific acts of Germany. The concept of proximate cause necessitates a direct causal link between an act and the resultant loss, which was absent in these cases. The Broader Implications This decision underscores a critical aspect of international arbitration: the distinction between direct losses and indirect or consequential damages. War inherently introduces uncertainties and risks that cannot always be clearly traced to the actions of a single belligerent party. The Treaty of Berlin does not extend to cover every conceivable financial impact of the war on neutral parties. Conclusion In denying the claims for reimbursement of war-risk insurance premiums, the Commission reinforced the principle that liability under international law requires a demonstrable, direct causal connection between the act of a belligerent and the loss suffered by the claimant. This decision not only clarified the limits of war reparations but also provided a precedent for interpreting similar claims in future conflicts. The War-Risk Insurance Premium Claims case serves as a reminder of the complexities inherent in international disputes and the importance of adhering to established principles of proximate cause and direct liability. It highlights the necessity for nations and their nationals to navigate the legal and commercial uncertainties of war with prudence, recognizing that not all war-related costs are compensable under international treaties.

War Series: Exhaustion of Remedies in Lessons from the Finnish Shipowners’ War-Time Arbitration

  In the early 1930s, the arbitration case between Finnish shipowners and the British government over the use of certain Finnish vessels during World War I provides a rich field of study in international arbitration and the local remedies rule. This case, adjudicated in Stockholm, raises fundamental questions about the exhaustion of local remedies and the jurisdiction of international tribunals. The Context and Claims The case arose from the requisitioning of Finnish vessels by Russia during World War I, which were subsequently used by Britain. Finnish shipowners sought compensation, arguing that the British government had unlawfully used their property. The British countered that the shipowners had not exhausted all local remedies available in the UK, thus barring them from seeking international arbitration. The Local Remedies Rule At the heart of this dispute is the local remedies rule, which requires that claimants exhaust all available domestic legal avenues before turning to international arbitration. The British government insisted that the Finnish shipowners should have utilized the War Compensation Court and provisions under the Indemnity Act. They argued that these were adequate remedies that the shipowners had ignored. On the other hand, the Finnish government contended that pursuing these remedies would have been futile. They pointed out that the Arbitration Board had already determined that the ships were requisitioned by Russia. According to them, this ruling should be treated as res judicata, meaning the matter had already been adjudicated and should not be re-litigated in another forum. Arguments Presented During the hearings, both sides presented robust arguments. The British government acknowledged the finality of the Arbitration Board’s decision but maintained that the shipowners could have appealed. They suggested that an appeal could have clarified whether the requisition by Russia was valid, thereby opening the door for claims based on British interference. The Finnish government, however, argued that appealing would have been redundant and likely dismissed as frivolous. They cited principles of estoppel and res judicata to assert that re-litigating the same facts before another court would be unnecessary and legally unsound. Requisition vs. Interference A critical issue was whether the acts constituted a requisition by Russia or an interference by Britain. If the requisition by Russia was invalid, then the British use of the ships could be considered an interference, necessitating compensation under the Indemnity Act. The British government, however, maintained that their actions were legitimate, especially if the Russian requisition stood. The Arbitrator’s Decision The arbitrator ruled in favor of the Finnish shipowners, stating they had exhausted all reasonable local remedies. This decision was pivotal, affirming that seeking further recourse in the War Compensation Court would have been redundant and that the principle of res judicata applied. This ruling underscored that the local remedies rule does not obligate claimants to pursue futile or redundant legal actions. It emphasized the need for claimants to demonstrate the ineffectiveness or inadequacy of local remedies convincingly. Key Takeaways Exhaustion of Local Remedies: This case affirms the necessity for claimants to exhaust domestic remedies but also clarifies that redundant or futile remedies do not need to be pursued. It highlights the balance between thoroughness and practicality in legal redress. Principle of Res Judicata: The decision underscores the importance of res judicata in international arbitration, preventing the re-litigation of issues already decided by competent authorities. This principle ensures judicial efficiency and the finality of decisions. Complexities of Wartime Actions: The arbitration sheds light on the legal challenges associated with wartime requisitions and the responsibilities of states in such contexts. It highlights the need for clear legal standards to address the use of private property during conflicts. Role of International Arbitration: The case exemplifies the significance of international arbitration in resolving state disputes. It underscores the binding nature of arbitration agreements and the role of arbitral awards in providing definitive resolutions. Conclusion The arbitration between Finnish shipowners and the British government serves as a critical reference point in international law and arbitration. It demonstrates the application of the local remedies rule, the principle of res judicata, and the legal intricacies of property requisition during wartime. This case continues to offer valuable lessons for practitioners, illustrating the necessity of exhausting local remedies and the pivotal role of international arbitration in achieving just outcomes.

Stopping Tax Enforcement in the UAE: Recent Court Judgment Guidance

  The enforcement of tax payment orders issued by the Federal Tax Authority (FTA) in the UAE can often lead to court enforcement applications by the FTA to seize assets of delinquent taxpayers. The federal primary court in Abu Dhabi executes FTA applications to enforce tax debts. When a taxpayer challenges and stops tax enforcement the orders issued by the court are not necessarily judgments (with reasoning) but are merely court instructions to stay the execution. This article delves into a recent judgment that effectively halted and canceled the execution of an FTA tax payment order with detail underscoring the grounds and principles that guided the court’s reasoning. The judgment guides taxpayers facing tax enforcement or having tax debts or tax audits that may lead to enforcement. Context and Judicial Authority In tax enforcement cases, the execution judge is tasked with resolving disputes related to the validity and enforcement of the executive document (i.e., the instrument used for enforcement). As such, the judge can issue rulings and decisions on all temporary disputes related to enforcement, provided they are urgent. The executive document in tax enforcement is generally a decision issued by the Director-General of the FTA. Article 40/1/b of the Tax Procedures Law simplifies tax enforcement by deeming the Director-General’s decision on Tax Assessment and Administrative Penalties Assessment as an executory instrument. This means that formal judgments are not necessary for the enforcement of tax debts; the Director-General’s decision alone suffices. This provision allows the FTA to act swiftly to enforce the collection of taxes and/or tax penalties without requiring prior court judgments against the taxpayer that recognize the debt. Within approximately 2-4 weeks of the FTA applying to the federal primary court for execution, the FTA typically makes applications to seize the taxpayer’s assets, including vehicles, bank accounts, stocks and bonds, commercial and industrial licenses, and real estate. Furthermore, the FTA may request the federal courts to liaise with local courts, such as those in Dubai or Abu Dhabi, to support execution efforts with their local authorities (such as the Dubai Land Department). Case Background The taxpayer in this case objected to the enforcement based on the assertion that the executive document’s procedures were invalid since the Federal Tax Authority (FTA) could not evidence that the tax was due before it was registered for enforcement. Legislative Framework Tax laws are inherently public order statutes. The Tax Procedures Law, particularly Article 40, outlines the steps the FTA must take if a taxpayer fails to pay the due tax or penalties within the specified deadlines: The FTA must notify the taxpayer to pay the due tax and fines within 20 weekdays from the notification date. If the taxpayer fails to comply, the Director-General issues a decision obliging the taxpayer to pay the due tax and fines, notifying them within 5 weekdays from the decision’s date. The Director-General’s decision regarding tax assessment and penalties becomes an executive document for enforcement by the execution judge at the federal primary court in Abu Dhabi. Judicial Reasoning The court highlighted that the execution judge’s jurisdiction hinges on whether the executive document is valid and enforceable. The taxpayer’s objection was based on the argument that the FTA could not provide evidence that the tax amount was due. The court found that the FTA failed to substantiate the claim. The court’s analysis revealed that the tax enforcement registration was erroneous. There was no solid evidence presented by the FTA to demonstrate that the tax was due, which was a crucial requirement for the enforcement process. This gap in evidence indicated a defect in the enforcement procedure. The court reasoned as follows in staying the enforcement procedure: “It is also established that an objection to enforcement is a supplementary lawsuit that does not aim to change the content of the judgment and is not a means to appeal it. Rather, it is a complaint against its execution procedure and, therefore, cannot be based on claims of the judgment’s invalidity, nullity, or violation of the law except in cases where the judgment is inherently flawed, affecting its existence and essence. … The implication of this provision is that the legislator made the issuance of the Director-General’s decision by the authority contingent upon the failure to pay after notification. Based on the above review by the court and given that the objector disputes the same executive document subject to enforcement for the payment of the claimed amount, which is evident in the documents and uncontested by the opposing party, the request to cancel the enforcement procedures is justified. The documents show that the enforcement registration was made in error.” Conclusion The court concluded that the taxpayer’s request to cancel the enforcement procedures was justified. The evidence of the taxpayer substantiated that the enforcement application by the FTA was erroneously conducted due to the lack of evidence of the tax debt, thus halting and subsequently canceling the enforcement process. Evolving Judicial Approach A notable trend is the judiciary’s evolving approach to tax enforcement disputes. The federal primary court has shown greater diligence in reviewing challenges to tax enforcement cases, granting more relief in the enforcement of tax debts. Grounds for halting enforcement have included issues related to the finality of the demanded amount, defects in the executive document, and procedural errors in the application of the writ of execution. The number of tax enforcement cases has significantly increased, rising from about 80 in 2023 to 80 in just the first two months of 2024. This surge indicates an intensified focus by the FTA on ensuring tax compliance. Consequently, there is a growing need for taxpayers to have a deeper understanding of the enforcement process and the available solutions. Wasel & Wasel have been counsel on over 300 tax dispute procedures for collectively about USD 1 billion in tax disputes and have obtained precedent setting federal supreme court judgments and are actively engaged by taxpayers in challenging tax enforcement.

Dubai Landmark Judgment on the Requirement for Signature of a Dissenting Arbitrator

  The recent ruling in Case Number 11 of 2024 by the Dubai Court of Appeal, issued on 29 April 2024, sets a pivotal precedent regarding the requirement for the signature of a dissenting arbitrator. This judgment reinforces the principles outlined in the arbitration law, emphasizing the integrity and robustness of arbitration procedures even when not all arbitrators are in unanimous agreement. Background and Significance The crux of the appeal centered on the claim that the arbitration award was invalid because it was signed by only two of the three arbitrators, with the third arbitrator’s dissenting opinion neither included nor explained in the final document. The appellant argued that the absence of the dissenting opinion and the refusal to include it invalidated the arbitration award. However, the Court’s ruling provides crucial insights and clarifications about the arbitration process and the legal framework that supports it. The judgment leverages Article 54(6) of the new arbitration law, which allows for the correction of procedural errors based on the parties’ request, thereby reducing the grounds for nullifying an arbitration award. Key Legal Findings In its detailed judgment, the Court reiterated the principles enshrined in the arbitration law: Majority Rule in Arbitration: The judgment emphasized that as long as the arbitration award is issued by the majority of the arbitrators, it remains valid. The law specifically states: “The arbitration award is issued by a majority of the opinions if the arbitration panel is composed of more than one arbitrator. If the arbitrators’ opinions diverge such that a majority is not achieved, the president of the arbitration panel issues the award unless the parties agree otherwise.” Signature Requirement: The judgment clarified the requirements for the arbitrators’ signatures: “The arbitrators sign the award, and if any arbitrator refuses to sign, the reason for not signing must be mentioned. The award is valid if signed by the majority of the arbitrators.” Case Analysis In the specific case at hand, the arbitration panel consisted of three arbitrators. The award was signed by two arbitrators, Arbitrator A and Arbitrator B, while the third arbitrator, Arbitrator C, refused to sign due to his dissenting opinion. The appellant’s argument hinged on the claim that this dissent invalidated the award. However, the Court dismissed this claim, noting: “The failure to record the dissenting opinion of one arbitrator does not undermine the validity of the award signed by the majority. The arbitration award is valid as long as it adheres to the legal requirements and is signed by the majority of the arbitrators.” Furthermore, the Court underscored that the procedural framework established by the new arbitration law aims to prioritize the validity of procedural actions over potential grounds for nullification, as long as the fundamental objectives of the procedure are met. Practical Implications This ruling has significant implications for arbitration practices. It underscores that: The validity of arbitration awards hinges on the adherence to procedural rules and the majority rule principle. Dissenting opinions, while important, do not invalidate an award if not included, provided the majority of arbitrators have signed the award. The arbitration law is designed to ensure procedural robustness and minimize the potential for nullification based on technicalities. The judgment provides a clear message that arbitration awards should be respected and upheld if they comply with the procedural requirements, even in the presence of dissenting opinions. This promotes the efficiency and reliability of arbitration as a dispute resolution mechanism. Conclusion The Dubai Court of Appeal’s judgment in Case Number 11 of 2024 is a landmark decision that reinforces the principles of arbitration law, particularly concerning the requirement for the signature of dissenting arbitrators. By prioritizing procedural correctness and the majority rule, this ruling enhances the robustness of arbitration awards and minimizes unnecessary annulments based on technicalities. This precedent not only clarifies legal ambiguities but also strengthens the arbitration framework, ensuring that it remains a trusted and efficient method for resolving disputes. The judgment is a testament to the evolving nature of arbitration law and its alignment with international best practice.

Subpoenas in Arbitration in Australia: Recent Guidance by the Supreme Court of Victoria

In the recent decision of Carlisle Homes Pty Ltd v Schiavello Construction (Vic) Pty Ltd [2024] VSC 283, Justice Croft of the Supreme Court of Victoria has provided a critical judgment that underscores the principles governing the issuance of subpoenas in the context of commercial arbitration. This ruling, delivered on May 31, 2024, is a significant addition to the jurisprudence on arbitration and reinforces the court’s supportive role in arbitral proceedings. Background of the Case The dispute arose between Schiavello Construction (Vic) Pty Ltd (‘Schiavello’) and Carlisle Homes Pty Ltd (‘Carlisle’) over the management of fit-out works at a property in Mulgrave. Schiavello, the applicant in the arbitral proceedings, sought subpoenas to compel the production of documents from three third parties involved in the installation and testing of services at the property. Carlisle’s application for the issuance of these subpoenas was made under Section 27A of the Commercial Arbitration Act 2011 (Vic) (‘CAA’), which allows for court assistance in the arbitration process by issuing subpoenas for documents and examinations. Key Issues and Submissions Carlisle argued that the documents sought were crucial to resolving the core issues in the arbitration, specifically regarding the installation and commissioning of mechanical services and the achievement of practical completion under the relevant contract. The application was unopposed, and the Arbitrator, David Levin KC, had provided consent for Carlisle to seek the subpoenas, reflecting a harmonious approach to procedural cooperation. Legislative Framework Section 27A of the CAA and Rule 9.14 of the Supreme Court (Miscellaneous Civil Proceedings) Rules 2018 govern the issuance of subpoenas in arbitration. The legislation requires that the court be satisfied of the necessity and reasonableness of the subpoenas and mandates that the application must be accompanied by an affidavit and a draft subpoena. These provisions ensure that the court exercises its coercive powers judiciously, particularly when non-parties to the arbitration are involved. Court’s Reasoning and Principles Applied Justice Croft meticulously examined the application against the legislative requirements and existing case law. In his reasoning, he highlighted several pivotal principles: Deference to the Arbitral Tribunal: Justice Croft emphasized that the court should show deference to the arbitral tribunal’s judgment. This principle stems from the parties’ consent to arbitration and the tribunal’s proximity to the dispute’s factual matrix. The court should avoid ‘second-guessing’ the tribunal’s decisions unless there is a compelling reason to do so. Reasonableness of the Subpoena: The court must independently verify that the subpoena’s issuance is reasonable. This includes ensuring that the documents sought are relevant to the dispute and that the subpoena is for a legitimate forensic purpose. The court’s role is not to act as a ‘rubber stamp’ but to provide thoughtful judicial oversight to support the arbitral process. Minimizing Cost and Delay: Justice Croft underscored the importance of minimizing costs and delays in arbitration, which is a primary advantage of this form of dispute resolution. The court’s intervention should be swift and efficient, avoiding unnecessary procedural complexities that could burden the arbitration. Implications of the Decision The judgment in Carlisle Homes Pty Ltd v Schiavello Construction (Vic) Pty Ltd sets a precedent for the court’s approach to supporting arbitration through the issuance of subpoenas. It affirms that while the court must ensure compliance with statutory requirements, it should also facilitate the arbitration process by respecting the arbitral tribunal’s role and decisions. This decision is particularly noteworthy for its reinforcement of the principle that the court should not act as a mere formality in arbitration-related applications. Instead, it should provide substantive judicial support that enhances the arbitration’s efficacy and integrity. Conclusion The ruling in Carlisle Homes Pty Ltd v Schiavello Construction (Vic) Pty Ltd [2024] VSC 283 is a significant contribution to commercial arbitration law. It highlights the delicate balance the court must maintain between exercising its coercive powers judiciously and supporting the arbitral process efficiently. This decision will undoubtedly guide future applications for subpoenas in arbitration, ensuring that they are handled with the necessary judicial scrutiny while fostering an arbitration-friendly legal environment. For practitioners and parties involved in arbitration, this judgment provides a clear framework for understanding the court’s role in the arbitration process and underscores the importance of procedural cooperation and judicial deference to arbitral tribunals. As commercial arbitration continues to evolve, such landmark decisions will play a crucial role in shaping a robust and supportive legal infrastructure for dispute resolution.

Landmark Ontario Superior Court of Justice Ruling on Arbitration Agreements and Unforeseeable Ground Conditions in Construction (CCDC)

The recent decision in The Trustees of the Knox Presbyterian Church Manotick v. Oakwood Designers & Builders Inc. issued by the Ontario Superior Court of Justice on 10 June 2024 provides a compelling examination of arbitration agreements and the interpretation of construction contracts. Justice Corthorn’s ruling addressed critical issues related to dispute resolution methods, the potential joinder of Hydro One, and unforeseeable ground conditions in construction claims. This article highlights the key aspects of the judgment, focusing on the arbitration agreement within the CCDC contract and the construction portion related to unforeseeable ground conditions. The Arbitration Agreement The heart of the dispute between Knox Presbyterian Church and Oakwood Designers & Builders Inc. revolved around which dispute resolution method applied to their disagreements. The applicant argued that the CCDC14 Design-Build Stipulated Price Contract (CCDC Contract) governed the resolution process, which mandated negotiation, mediation, and arbitration as outlined in GC 8.1. Conversely, the respondent contended that the disputes should be resolved under Section 36 of the Oakwood General Construction Contract (Construction Contract), which required court adjudication. Justice Corthorn sided with the applicant, emphasizing that: “Resolution of the existing disputes between the parties falls within the scope of the CCDC Contract. The parties must therefore follow the dispute resolution process prescribed in GC 8.1 of the CCDC Contract.” This decision underscored the priority of the CCDC Contract’s broader terms over the more specific, day-to-day operational terms of the Construction Contract. The judge noted that the CCDC Contract, developed by the Canadian Construction Documents Committee, provided a comprehensive framework intended to cover general and broad disputes, including the unforeseen discovery of a buried Hydro One power line. Analysis of the CCDC Contract Justice Corthorn’s analysis of the CCDC Contract revealed that it was designed to handle significant project issues, such as unforeseen ground conditions, which were at the center of the dispute. The buried Hydro One power line discovered during excavation work was classified as a “concealed or unknown condition” under GC 6.4 of the CCDC Contract. This clause details the procedures for addressing unexpected conditions, including potential adjustments to the contract price. The judge noted: “The impact, or potential impact, of the discovery of a concealed or unknown condition on the Project site is specifically addressed in the CCDC Contract. The respondent relied on GC 6.4 to issue a notice of the resulting increase in the Contract Price.” This reliance on the CCDC Contract for issuing a notice of increased costs further solidified the contract’s applicability in resolving the disputes. Joinder of Hydro One The respondent’s attempt to include Hydro One as a necessary party to the arbitration was another critical aspect of the case. Oakwood Designers & Builders argued that since the Hydro One power line was a central issue, Hydro One should be involved in the arbitration process. However, the court ruled that this determination fell within the arbitrator’s jurisdiction. Justice Corthorn stated: “Whether Hydro One is a necessary party to the arbitration is a matter within the jurisdiction of the arbitrator. The request for a stay of the application should be dismissed.” This decision reinforced the competence-competence principle, which gives precedence to the arbitration process and the arbitrator’s authority to decide on their jurisdiction and related matters. Unforeseeable Ground Conditions in Construction Claims The construction portion of the judgment highlighted the challenges posed by unforeseeable ground conditions. The discovery of the buried Hydro One power line, which halted the project until its relocation and repair, exemplified such challenges. The respondent’s subsequent demand for a $180,000 increase in the contract price due to these unforeseen conditions brought to light the importance of having robust mechanisms in place to address such issues. GC 6.4 of the CCDC Contract, titled “Concealed or Unknown Conditions”, played a pivotal role in this context. It outlined the procedures for notifying the owner, investigating the conditions, and making necessary adjustments to the contract. Justice Corthorn’s ruling emphasized that: “GC 6.4 sets out the rights of the parties in the event of the discovery of concealed or unknown conditions at the Project site.” This clause ensures that both parties have clear guidelines to follow, which can help mitigate disputes arising from unforeseen ground conditions. Conclusion The judgment in The Trustees of the Knox Presbyterian Church Manotick v. Oakwood Designers & Builders Inc. is a landmark case that highlights the importance of clearly defined arbitration agreements and the proper interpretation of construction contracts. By affirming the applicability of the CCDC Contract and addressing the issues surrounding the joinder of Hydro One and unforeseeable ground conditions, Justice Corthorn’s decision provides valuable insights for future construction disputes. The ruling underscores the necessity of adhering to agreed-upon dispute resolution processes and the critical role of comprehensive contractual frameworks in managing complex construction projects.

Understanding Tax Group Liability: Key Lessons from Recent Dubai Court Cases

  In recent years, the intricacies of liability among members of tax groups have become increasingly relevant in commercial dealings. Several judgments from the Dubai Courts provide profound insights into this subject, highlighting the nuanced interpretations and applications of the law. This article delves into three pivotal cases, underscoring the complexities of liability within tax groups and their implications for commercial transactions. Dubai Primary Court Judgment No. 95 of 2021: Individual Liability Within a Tax Group This case revolves around a contractual dispute involving Company A (Free Zone) and another company within the same tax group. The court noted, “It is legally established that a contractor agreement is a contract whereby one party undertakes to perform a task or make something in return for compensation agreed upon by the other party” (Article 872 of the Civil Transactions Law). The judgment highlighted that the client is obligated to pay the compensation upon delivery of the agreed-upon work unless otherwise stipulated by agreement or custom (Article 885). In this case, the court emphasized the burden of proof, stating, “The claimant must prove their right, and the defendant must refute it” (Article 1 of the Evidence Law). The judgment further clarified that commercial account statements maintained by a trader in their commercial books hold evidentiary weight, placing the burden of disproving the entries on the defendant. This is particularly significant in the context of tax groups, where intercompany transactions and their documentation can be contentious. Despite their tax group affiliation, the court found that the second defendant was individually liable for the amount owed based on the specific contractual obligations and performance of services by the plaintiff. The court upheld the claim against the defendant, asserting, “The second defendant, a sister company within the same tax group, failed to fulfill its contractual obligations, resulting in a liability of AED 99,855.” Dubai Primary Court Judgment No. 2702 of 2020: Separate Legal Personalities in Tax Groups This case delves deeper into the concept of tax group liability. It involved Company B, part of the same tax group as Company C. The dispute centered on purchase orders issued by Company C, directing invoices to be made out to Company B. However, the court found no evidence that Company B had received or acknowledged the goods or issued any orders to the claimant. The judgment stated, “The relationship of the defendant to the contract in question is limited to the fact that the purchase orders directed the invoices to be issued in its name.” The court concluded that being part of the same tax group does not automatically transfer liability between companies. Each company retains its separate legal personality. Since Company B had an independent legal personality from the company issuing the purchase orders, it could not be held liable for the claim, underscoring the distinct legal identities within a tax group. Dubai Primary Court  Judgment No. 7794 of 2019: Unified Obligations Due to Intercompany Dependency This case addressed the broader implications of VAT laws on tax groups and examined the relationship between the companies within a tax group. The court explained, “Value Added Tax (VAT) is imposed on the import and supply of goods and services at each stage of production and distribution.” It further clarified that a tax group comprises two or more entities registered as a single taxable entity with the Federal Tax Authority, sharing economic, financial, and organizational ties. The court took a different position in this case because it looked into the intercompany dependency between the tax group members. The judgment elaborated on the intercompany relationships, noting, “The tax group is treated as a single taxable person for VAT purposes, and all members are jointly and severally liable for the group’s VAT obligations.” In this case, the court found that the companies within the tax group were not financially or organizationally separate, stating, “The tax group members are united in their obligations, and the group’s restructuring decisions and financial statements reflected their collective responsibility.” Consequently, the court held the tax group members jointly liable for the VAT liabilities. These judgments collectively underscore the critical importance of understanding the legal and financial relationships within tax groups in commercial dealings. They highlight that while tax group members may operate as separate legal entities, their collective obligations and responsibilities, especially concerning VAT, can blur these distinctions. This has significant implications for businesses operating within such structures, emphasizing the need for meticulous documentation and clear contractual terms to navigate the complexities of liability. Moreover, these cases illustrate the courts’ approach to interpreting contractual obligations and the evidentiary requirements in commercial disputes involving tax groups. The emphasis on the burden of proof, the evidentiary weight of commercial records, and the distinct legal personalities within tax groups provides a comprehensive framework for understanding liability in these contexts. In conclusion, the liability of tax group members in commercial dealings is a multifaceted issue that requires careful legal and financial consideration. The insights from the Dubai Court judgments provide valuable guidance for businesses and tax practitioners navigating these complexities. Understanding the interplay between contractual obligations, tax laws, and the collective responsibilities of tax group members is crucial for mitigating risks and ensuring compliance in commercial transactions.

Abu Dhabi Court’s Landmark Decision: No Tax Invoice, No Tax Claim

  The ruling No. 229 of 2024 by the Court of Cassation in Abu Dhabi on 04 April 2024 sets a new precedent regarding the necessity for taxpayers to provide tax invoices to claim tax debts from debtors. This judgment underscores the importance of adhering to formal documentation requirements in tax matters, ensuring that taxpayers have the appropriate records to support their claims. In this case, the court emphasized that understanding the facts of the case and evaluating the evidence, including expert reports, is within the jurisdiction of the trial court. The trial court has the authority to accept or reject expert reports wholly or partially, provided that its decision is based on reasonable grounds. The case involved a contract dispute where the contractor completed 86.50% of the contracted work. The appointed expert reviewed the work, identified deficiencies in workmanship, and deducted their value from the contractor’s dues. Additionally, the expert calculated the value of the extra work performed and settled the contractor’s entitlements based on the actual work completed. The court ruled that the contractor was entitled to AED 665,697 for the work executed, a sum supported by the expert report. One critical aspect of the ruling was the dismissal of the contractor’s claim for VAT reimbursement. The contractor presented an accounting document from the Federal Tax Authority’s system to support the VAT claim. However, the court found that this document was not a tax invoice, and there was no evidence of any tax invoice being submitted to the respondents for the amount claimed. According to the contract terms, the contractor needed to provide a valid tax invoice to be eligible for VAT reimbursement. The lack of proper tax invoices not only affects the ability to claim tax debts but also exposes taxpayers to potential penalties imposed by the Federal Tax Authority. The FTA has strict guidelines and regulations for VAT documentation, and failure to comply can result in significant fines and penalties. This ruling by the Abu Dhabi Court of Cassation prevents creditors from claiming taxes from debtors if they lack the appropriate tax invoices, expanding the plight of not issuing accurate tax invoices. This ruling reinforces the legal requirement for tax invoices to claim tax debts and ensures that such claims are substantiated by appropriate documentation. The court’s decision aligns with the principles of fairness and legal integrity, ensuring that claims are based on solid evidence rather than assumptions or incomplete documentation. Moreover, this judgment highlights the significance of maintaining accurate and comprehensive records in commercial transactions. For businesses, this serves as a reminder of the critical role of documentation in supporting their financial claims and legal rights. Ensuring that all transactions are properly documented with tax invoices not only complies with legal requirements but also protects businesses in potential disputes. In conclusion, the ruling No. 229 of 2024 by the Abu Dhabi Court of Cassation sets a clear precedent that taxpayers must provide tax invoices to claim tax debts from debtors. This decision underscores the importance of adhering to formal documentation requirements and maintaining accurate records to support financial claims. For businesses and tax professionals, this serves as a crucial reminder of the need to ensure that all financial transactions are properly documented and supported by appropriate evidence. The ruling also highlights the potential consequences of failing to issue accurate tax invoices, which can include penalties from the Federal Tax Authority and the inability to claim taxes from debtors. This ruling will likely influence future cases, reinforcing the necessity for strict compliance with tax documentation regulations.

DIFC Court of Appeal Affirms Enforceability of Foreign Interim Arbitral Awards (Neal v Nadir)

  First published on LexisNexis on 04 June 2024 at: https://www.lexisnexis.co.uk/legal/news/difc-court-of-appeal-affirms-enforceability-of-foreign-interim-arbitral-awards-neal-v-nadir Mini-summary In the case of Neal v Nadir [2024] DIFC A 001, the Dubai International Financial Centre (DIFC) Court of Appeal upheld the enforceability of foreign interim arbitral awards, reinforcing the DIFC’s commitment to arbitration and international legal standards. The court held that interim awards, which are not final, can still be recognized and enforced within the DIFC jurisdiction. This decision is significant for practitioners in international arbitration and commercial law, as it underscores the DIFC Courts’ supportive stance on arbitration and offers clarity on the enforceability of interim measures. What are the practical implications of this case? The practical implications of Neal v Nadir are far-reaching for practitioners in international arbitration and commercial law. By affirming the enforceability of foreign interim arbitral awards, the DIFC Court of Appeal enhances legal certainty and predictability for parties engaged in cross-border arbitration. This decision reassures international businesses that interim measures granted in arbitration proceedings abroad will be respected and enforced in the DIFC, thus bolstering the attractiveness of the DIFC as a hub for international dispute resolution. For arbitration practitioners, this ruling underscores the importance of obtaining interim measures in jurisdictions that are supportive of arbitration. The court stated, “Recognition or enforcement of an arbitral award, irrespective of the State or jurisdiction in which it was made, may be refused by the DIFC Court only on the grounds specified in that Article,” reinforcing the robustness of the enforcement regime. Furthermore, the court noted, “few would regard it as desirable that awards of this kind should not be enforceable,” highlighting the modern view on interim relief. Commercial lawyers will also find this decision relevant when advising clients on the risks and benefits of interim relief in arbitration. The ruling provides a clearer understanding of the enforceability of interim awards, which can be crucial in maintaining the status quo or preventing harm during the pendency of arbitration proceedings. Overall, the decision enhances the credibility and effectiveness of the DIFC as a venue for enforcing arbitral awards, both interim and final, making it a pivotal case for practitioners involved in international arbitration and commercial disputes. What was the background? The dispute in Neal v Nadir originated from a contractual agreement between the parties, which included an arbitration clause stipulating that any disputes would be resolved through arbitration. During the arbitration proceedings, an interim award was issued by the arbitral tribunal in favor of Neal, granting certain provisional measures to preserve assets and maintain the status quo until the final award was rendered. Nadir challenged the enforceability of this interim award in the DIFC Courts, arguing that interim awards should not be enforceable as they are not final and binding decisions. Neal, on the other hand, contended that the interim award was essential for protecting his interests during the arbitration and sought the DIFC Courts’ assistance in enforcing it. The primary issue before the DIFC Court of Appeal was whether a foreign interim arbitral award could be recognized and enforced in the DIFC jurisdiction. The court had to consider the relevant legal principles and international conventions applicable to the enforcement of arbitral awards, particularly focusing on the New York Convention and the DIFC Arbitration Law. What did the court decide? The DIFC Court of Appeal ruled in favor of Neal, affirming the enforceability of foreign interim arbitral awards within the DIFC jurisdiction. The court held that the interim award, despite not being a final adjudication of the dispute, met the criteria for recognition and enforcement under the DIFC Arbitration Law and the New York Convention. The court emphasized, “An interim measure is any temporary measure, whether in the form of an award or in another form, made by the Arbitral Tribunal at any time prior to the issuance of the award by which the dispute is to be finally decided.” The court emphasized that the purpose of interim measures in arbitration is to provide immediate relief and prevent irreparable harm, aligning with international arbitration principles. By recognizing and enforcing such awards, the DIFC Courts uphold the integrity and efficacy of the arbitral process. “The purpose of interim measures in arbitration is to provide immediate relief and prevent irreparable harm,” the court stated, highlighting the critical role of interim measures in arbitration proceedings. The decision was grounded in the interpretation of the DIFC Arbitration Law, which allows for the recognition and enforcement of interim measures issued by an arbitral tribunal. The court also referenced international jurisprudence and academic commentary supporting the enforceability of interim awards to bolster its decision. This ruling sets a precedent for the DIFC Courts and reinforces the jurisdiction’s reputation as an arbitration-friendly forum. It clarifies that interim awards, which play a critical role in arbitration proceedings, can be effectively enforced in the DIFC, providing greater assurance to parties seeking interim relief in international arbitration. Case details Court: Court of Appeal, Dubai International Financial Centre Courts Judge: Chief Justice Tun Zaki Azmi, Justice Sir Jeremy Cooke, and Justice Andrew Moran Date of judgment: 19/3/2024

Impact of the U.S. Supreme Court overturning of the Chevron Doctrine on Commercial Space Regulation

  In 1984, the Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. decision established the Chevron Doctrine, a cornerstone of administrative law in the United States. This doctrine directed courts to defer to federal agencies’ reasonable interpretations of ambiguous statutes. Its influence extended across various sectors, including emerging fields like commercial space, where regulatory frameworks were still evolving or absent. However, the regulatory landscape underwent a seismic shift on June 28, 2024, when the U.S. Supreme Court handed down a landmark decision in Loper Bright Enterprises et al v. Raimondo, Secretary of Commerce, et al, effectively overturning the Chevron Doctrine. This decision marked a departure from decades of judicial precedent, asserting that courts must independently evaluate whether agencies acted within their statutory authority. No longer bound by automatic deference to agency interpretations, courts now wield enhanced oversight over regulatory decisions. Justice Kagan, in dissent joined by Justices Sotomayor and Jackson, criticized this shift, arguing that it empowers courts excessively at the expense of agency expertise and Congress’s intent in delegating interpretive discretion. The Chevron Doctrine operated under a straightforward two-step framework: first, determining if Congress explicitly addressed the issue; if not, agencies’ interpretations of ambiguous statutes were upheld if deemed reasonable. For commercial space regulation, this decision holds profound implications. Agencies such as the Federal Communications Commission (FCC), Federal Aviation Administration (FAA), and National Oceanic and Atmospheric Administration (NOAA), responsible for overseeing satellite communications, space tourism, and environmental monitoring in space, face a new and more restrictive regulatory environment. Without the Chevron deference, agencies’ flexibility to adapt regulations to technological advancements and evolving industry practices is diminished. Courts now play a pivotal role in scrutinizing and potentially challenging agency decisions, which could lead to increased litigation and regulatory uncertainty. The removal of Chevron deference not only alters the dynamics of regulatory authority but also impacts judicial review. Courts will now take a more active role in interpreting statutes, ensuring closer alignment with legislative intent but potentially lacking the specialized knowledge and nuanced understanding of technical issues that agencies traditionally provided. The implications extend to regulatory certainty. While clearer legislative mandates might offer stability, the absence of Chevron deference introduces uncertainty. This uncertainty could deter investment in the commercial space sector, where rapid technological innovation and global competitiveness are paramount. Companies may hesitate to innovate or expand operations in an unpredictable regulatory climate where agency decisions are subject to judicial second-guessing. Real-world examples illustrate these challenges vividly. The FCC, for instance, faces heightened scrutiny over its regulation of satellite constellations and the burgeoning space tourism industry. Previously, the FCC enjoyed significant latitude in adapting regulations to accommodate technological advancements and new market entrants. Now, each regulatory decision is subject to judicial review, potentially slowing down approvals and stifling innovation critical for industry growth. This also has potential implications vis-à-vis the FCC’s assumed power to regulate space debris given the FCC’s “statutory authority” – as per the Communications Act of 1934 – is the regulation of interstate and international communications. Similarly, the FAA‘s oversight of commercial human spaceflight is now under increased judicial scrutiny. Safety standards and operational guidelines, which previously evolved in tandem with industry advancements, may now face delays or inconsistencies due to judicial interpretation of agency actions. Furthermore, mission authorization and supervision now face significant obstacles, hindering industry efforts to achieve streamlined processes for mission authorization. The lack of specific congressional action has the potential to further complicate the authorization and supervision by the executive branch of new commercial space ventures. Article 6 of the Outer Space Treaty requires State signatories to conduct continuing authorization and supervision of its national space activities, including commercial activities. In November 2023, the Commercial Space Act of 2023 was introduced in Congress and outlines a certification process for mission authorization under the ambit of the Department of Commerce. A few days later, the White House published a proposal to split mission authorization under the Department of Commerce and the Department of Transportation. Simultaneously, the National Aeronautics and Space Administration (NASA) has consistently emphasized the need for their agency to maintain mission authorization. Looking ahead, the post-Chevron era demands precise legislative guidance to navigate these complexities effectively. Congress must play a proactive role in providing clear and detailed statutes that empower regulatory agencies while ensuring accountability and alignment with national priorities. Harmonizing U.S. regulations with international standards, including obligations under treaties like the Outer Space Treaty, becomes more challenging without the deference framework that previously guided agency discretion. The evolving space regulatory landscape also underscores the need for adaptive governance structures that balance the expertise of regulatory agencies with the oversight of the judiciary. This balance is crucial to fostering an environment that supports innovation, safety, and responsible growth in the commercial space sector. In conclusion, the Supreme Court’s decision to overturn the Chevron Doctrine represents a watershed moment in U.S. administrative law and regulatory policy. As Wasel & Wasel continues to monitor these developments closely, we are committed to assisting clients in navigating the evolving space industry landscape. For guidance on understanding and navigating the complexities of U.S. space industry, please contact Abdulla Abu Wasel, Deputy Managing Partner at (awasel@waselandwasel.com).

Dubai Appeals Court Upholds Compensatory Damages for Cryptocurrency Embezzlement

Brief In Dubai Appeals Court appeal no. 27/2024, the appeals court upheld a decision awarding punitive damages in a case of cryptocurrency embezzlement. The case highlights the judiciary’s stance on financial crimes in the digital currency space, detailing the interaction between criminal and civil liabilities. Facts The plaintiff initiated a lawsuit claiming the defendant embezzled AED 200,000 intended for cryptocurrency transactions. The defendant had previously faced criminal proceedings for the same act, resulting in a fine. Despite this, the plaintiff sought compensation for the financial loss incurred. Procedures of Different Courts Criminal Court Proceedings: The defendant was tried in a criminal court for embezzling AED 200,000 from the plaintiff. The court found the defendant guilty, imposing a fine of AED 20,000 and ordering the defendant to pay the embezzled amount of AED 200,000 as restitution. Civil Court Proceedings: Subsequently, the plaintiff pursued civil litigation to recover the financial loss. The Court of First Instance ruled in favor of the plaintiff, ordering the defendant to pay AED 200,000 with a 5% annual interest from the date of demand until full payment. Additionally, the defendant was ordered to cover legal expenses and attorney fees. Appeal Court Proceedings: The defendant appealed the civil court’s decision, challenging it on several grounds, including double jeopardy, lack of jurisdiction, and insufficient evidence. The Dubai Appeals Court heard the appeal, examining the arguments presented by both parties. Arguments, Defenses, and Court Ruling Defendant’s Arguments: The defendant argued that the criminal court’s judgment, which included a directive to pay the embezzled amount, precluded further civil liability on the same grounds, invoking the principle of ne bis in idem (not being judged twice for the same act). The defendant also contested the civil court’s jurisdiction and argued that the plaintiff’s evidence was insufficient to warrant the claimed damages. Plaintiff’s Defense: The plaintiff maintained that the criminal penalty did not negate the right to civil compensation for the loss suffered. The plaintiff also highlighted the jurisdiction of civil courts to adjudicate financial disputes and presented the criminal court’s judgment as evidence of the defendant’s liability. Court Ruling: The Dubai Appeals Court rejected the defendant’s arguments and upheld the Civil Court of First Instance’s judgment. It clarified that the criminal court’s ruling imposed a penalty for the criminal act, while the civil court’s judgment aimed at compensating the plaintiff for the financial loss. The court found the civil lawsuit valid, emphasizing that the punitive damages awarded were distinct from the criminal fines and served to compensate the plaintiff adequately. Significance on Cryptocurrency Scams This ruling underscores the Dubai judiciary’s serious approach to financial crimes, particularly in the emerging field of cryptocurrencies. By distinguishing between criminal penalties and civil compensations, the court affirms that victims of cryptocurrency scams have a clear path to recovery beyond criminal proceedings. This case sets a precedent for handling similar disputes in the future, indicating that the legal system is equipped to address the complexities associated with digital currency fraud. It sends a strong message about the consequences of engaging in cryptocurrency embezzlement, reinforcing the importance of integrity in digital financial transactions.

Ontario Court of Appeal Clarifies the Bounds of ‘Constructive Fraud’ in Arbitration Awards

Brief The Ontario Court of Appeal’s decision in Campbell v. Toronto Standard Condominium Corporation No. 2600, 2024 ONCA 218 critically examines the conceptual boundaries of “fraud” within the ambit of the Arbitration Act, 1991. At the heart of this deliberation is whether “constructive fraud” falls under the legislative framework’s definition of “fraud,” particularly in sections 46(1)9 and 47(2), concerning the setting aside of arbitral awards and the exceptions to the appeal time limit, respectively. Facts The dispute traces back to the alleged breach by the respondents, Walter Campbell and Olakemi Sobomehin, of condominium rules against short-term rentals, culminating in an arbitration award in favor of Toronto Standard Condominium Corporation No. 2600 (the “Condo Corp.”), ordering costs of $30,641.72. The respondents sought to vacate the award, invoking “constructive fraud” due to the Condo Corp.’s expansion of arbitration issues beyond agreed terms. Arguments In the Superior Court (the prior level of litigation), the application judge approached the term “fraud” within the Arbitration Act, 1991, with a broader lens, concluding that it encompassed “constructive fraud.” The Condo Corp. challenged the Superior Court ‘s inclusion of “constructive fraud” within the statutory interpretation of “fraud” in the Act, arguing for a narrower, conventional understanding that excludes such an expansive interpretation. The respondents countered, urging a broader, equitable reading of “fraud” to encompass instances of “constructive fraud,” aimed at preserving fairness and justice within the arbitration process. The appellants, Condo Corp., posited that the statutory language of the Act does not support the inclusion of “constructive fraud” within the ambit of “fraud,” emphasizing the need for a strict construction that aligns with the Act’s objectives of efficiency and finality in arbitration. Court Interpretation The Ontario Court of Appeal anchored its reasoning in the statutory language and precedent, underscoring a principle of legal interpretation that the same words within a statute are presumed to have consistent meanings across its provisions. This presumption applies directly to the usage of “fraud” in sections 46(1)9 and 47(2) of the Act, implying a need for a consistent, narrow interpretation aligned with established legal definitions. The court observed that “fraud” possesses a well-established meaning in common law, typically requiring an element of dishonesty or intent to deceive. The Supreme Court has clarified that statutory terms with well-understood legal meanings should be interpreted in line with those meanings unless the legislature explicitly indicates a broader or different application. The Superior Court’s inclusion of “constructive fraud,” a concept markedly broader and not necessitating dishonesty for its establishment, into the definition of “fraud” was found to deviate from this principle. The court reasoned that if the legislature had intended for “fraud” within the Act to include “constructive fraud,” it would have explicitly done so. Moreover, the Court of Appeal considered the broader implications of interpreting “fraud” to include “constructive fraud” within the framework of arbitration disputes. It highlighted that such an interpretation would be incongruent with the overarching objectives of the Arbitration Act, 1991, namely efficiency and finality. The Act and relevant case law emphasize a narrow basis for court intervention in arbitration awards to prevent the arbitration process from becoming merely a precursor to prolonged judicial proceedings. Expanding the definition of “fraud” to include “constructive fraud” could potentially open the floodgates to strategic litigation efforts, undermining the arbitration process’s efficiency and finality. The court also pointed out that, in this particular case, the respondents attempted to utilize the broader interpretation of “fraud” to circumvent the strict 30-day time limit for contesting arbitration awards set by section 47(1) of the Act. This strategic move was criticized as it sought to exploit the judicial system to review the arbitrator’s decision under the guise of “constructive fraud.” The court deemed such actions as contrary to the spirit of arbitration, which relies on the finality and binding nature of arbitration awards, barring exceptional circumstances like actual fraud. In its decision, the Court of Appeal firmly rejected the Superior Courts’ interpretation that “constructive fraud” falls within the scope of “fraud” under the Arbitration Act, 1991. It concluded that such an interpretation not only lacks statutory and jurisprudential support but also poses significant risks to the arbitration framework’s intended efficiency and finality. The court thereby restored the original arbitral award, reinforcing the narrow path for legal recourse against arbitration decisions, strictly confined to instances of actual fraud as traditionally understood in legal practice. Significance The Campbell v. Toronto Standard Condominium Corporation No. 2600 judgment marks a pivotal moment in clarifying the distinction between “fraud” and “constructive fraud” within the Arbitration Act, 1991. By explicitly excluding “constructive fraud” from the ambit of “fraud,” the Ontario Court of Appeal fortifies the arbitration process’s efficiency and finality. This delineation not only restricts the avenues for challenging arbitral awards but also reinforces the paramountcy of adhering to the explicit terms of arbitration agreements. Consequently, this decision shapes future arbitration conduct, emphasizing the necessity for parties to precisely define their terms of engagement and for arbitrators to navigate disputes with a clear understanding of the boundaries set by statutory law.

NSW Supreme Court Enforces Arbitration Despite Waived Preconditions in Icon SI v. ANSTO

Brief In the pivotal case of Icon Si (Aust) Pty Ltd v Australian Nuclear Science and Technology Organisation [2024] NSWSC 324, the Supreme Court of New South Wales rendered a decision that emphatically underscores the judiciary’s commitment to enforcing arbitration clauses within commercial contracts. The case arose from a dispute concerning a construction contract for the SyMo Facility at Lucas Heights, leading to issues between contract amendment and dispute resolution clauses. Facts Icon Si (Aust) Pty Ltd (Icon) engaged in a contract with the Australian Nuclear Science and Technology Organisation (ANSTO) to construct the SyMo Facility for a substantial sum. The contract incorporated a clause specifying dispute resolution procedures, including expert determination followed by arbitration if necessary. Following disputes, the parties amended the contract, waiving the expert determination but not expressly affecting the arbitration clause. ANSTO sought to enforce the arbitration agreement following further disputes, while Icon resisted, leading to court proceedings. Arguments Icon argued against the arbitration, contending that the amendment deed, which waived expert determination, effectively made the arbitration clause inoperative since one of the prerequisites for arbitration (the completion or waiver of expert determination) could no longer be met. They interpreted the contract and amendment as leaving no path open to arbitration. Defenses In contrast, ANSTO maintained that the waiver of expert determination was not intended to negate the overarching agreement to resolve disputes through arbitration. They argued that the contract, read as a whole and in light of the amendment deed, still mandated arbitration for unresolved disputes, emphasizing the contract’s and the amendment deed’s language and commercial objectives. Court Interpretation The Court sided with ANSTO, holding that the arbitration clause remained operative and binding. It determined that the parties’ intention, viewed through the lens of the contract’s language and the commercial context, supported the continuation of the arbitration pathway for dispute resolution. The Court highlighted that the waiver of expert determination did not equate to a waiver of arbitration but simply removed one tier of the multi-tiered dispute resolution process. Thus, disputes were still subject to arbitration as per the contract’s terms. The Honourable Justice Ball highlighted this as follows: “As I have explained, before the Amendment Deed was executed, the parties had agreed ultimately to submit all their disputes to arbitration except to the extent that those disputes were finally resolved by expert determination. The intermediate step of expert determination was an option offered by the standard terms that formed part of their contract. Initially, the parties agreed to adopt that option through the mechanism provided in the standard terms of indicating in Annexure Part A that the option applied. When they subsequently agreed to “waive” that option, they must have intended to dispense with the option they had previously agreed to adopt. They could not have intended at the same time to dispense with their agreement ultimately to resolve all disputes by arbitration. That would involve a fundamental change to the dispute resolution mechanism they had agreed to adopt.” This interpretation leaned heavily on principles of commercial contract construction, focusing on the parties’ intentions and the contract’s commercial purpose. The Court also referred to statutory provisions under the Commercial Arbitration Act 2010 (NSW), affirming the act’s purpose to uphold arbitration agreements unless clearly null, void, inoperative, or incapable of being performed. Significance The Icon Si v. ANSTO decision marks a significant contribution to the body of jurisprudence surrounding arbitration in commercial disputes in Australia. Its core significance lies in the Court’s determination that an arbitration agreement stands resilient, even when its prerequisites are waived by the parties. This ruling directly addresses a nuanced area of dispute resolution law by clarifying that parties’ agreement to bypass certain pre-arbitration steps, such as expert determination, does not inherently invalidate or render the subsequent arbitration agreement inoperative.

Is the UAE having a Geopolitical Golden Goose Moment?

The UAE is booming at a time when many developed economies are having a very troubled patch. Residential property sales saw a 29% sales increase in ’23 with prices on average up 20%. Office demand exceeds supply – and the Dubai International Financial Centre saw a year-on-year rental rate increase of 22% last year – at a time when WeWork has gone bankrupt. In February ’24 UAE non-oil trade hit an all time high of $952 billion, with non-oil GDP growth of 7.7% in Q3 2023 alone. The non-oil sector now represents over 70% of GDP where in 2009 oil represented 77% of the UAE state budget. In conflictual times, the UAE has largely succeeded in being Geopolitically agnostic and remained the (golden) melting pot for all Nationalities and Religions, a principle it has always maintained, and which seems to be really “coming good” for it. There are now over 50 free zones offering tax breaks and a wide range of low-cost company and visa solutions. An overall corporation (but not personal) tax rate of 9% (with zero generous banding) with a VAT rate of 5% seems to be settling in smoothly, whilst at the same time hopefully satisfying the OECD that the UAE is not an “offshore jurisdiction”. The DIFC offers a largely English Law jurisdiction for businesses, and the newer Abu Dhabi Global Market has a direct English Law regime, following ongoing English precedent and offering English Judges, Barristers and Solicitors. So how does the UAE’s recent joining of the BRICS grouping stand in the Geopolitical mix? Despite the de-dollarization “threat”, US exports to the UAE reached $24.8 billion in ’23, a 19% increase from ’22, and making the UAE the US’ 4th largest trade surplus globally. The trade is mainly transport & logistics, computers & electronics. and manufacturing – supporting 145,000 US jobs. The ’22 UAE direct investment into the US stood at $ 38.1 billion. Increasingly the leading operators in US fintech, crypto, embedded finance, blockchain and AI are relocating to greater regulatory transparency in the UAE. Perhaps the financial relationship has become too important for 2 pragmatic trading Nations to easily throw to the wind. But de-dollarization, one of the US’s greatest fears, is moving forwards. Since the start of ’22 there has been an increased trade in Chinese Yuan and Indian Rupees by BRICS Nations. In March ’23 the China National Offshore Oil Corporation & Total Energies purchased 65,000 tonnes of UAE LNG in Yuan on the Shanghai Exchange. In August ’23 Indian Oil Corporation purchased 1m barrels of oil from Abu Dhabi National Oil Corporation using Rupees and last year the UAE sold 25 kg of gold to India in Rupees. The transactions to date have largely been test transactions, but the direction of travel seems to be inevitable. Whilst relations with the US are good, the UAE seems to stay firmly in the Geopolitical middle ground, preferring to remain a friend and business partner to all. Between 100,000 to 500,000 (statistics are quite oblique) Russians have moved to the UAE since the war, and many Ukrainians too. JP Morgan and Bank of America, along with many other financial and professional services firms, moved their Moscow staff to Dubai. At least 3,000 “Emirati’ companies are owned by Russians. The Palm and Marina have very substantial Russian presences. There is substantial Russia – Iran -UAE trade in gold and oil, including re-export to Asia, Africa and Latin America. In 2000 zero Russian oil was imported into Fujairah but by 2022 140, 000 barrels a day were imported, making 40% of all fuel being imported into Fujairah. From 1.3 million tonnes of gold arriving in the UAE from Russia in 2021 the figures rose to 96.4 tonnes in ’22. There are 600,000 Iranians in the UAE. The influx of Chinese is now very marked. Aside from the longstanding expat populations from the UK, France, South Africa etc. The UAE has built its business foundations on immigration and technology transfer before the expression came into popular usage. For this reason I think we will continue to see careful diplomacy to keep it as the melting pot that it is.

U.S. LNG Exports: A Catalyst for Geopolitical Shifts and Terminal Agreement Disputes

The U.S. LNG Export Boom: A New Energy Landscape The U.S. has become the largest exporter of liquefied natural gas (LNG), driven by significant infrastructure development and advances in natural gas extraction. This growth has led to debates about environmental sustainability, economic effects on communities, and how this aligns with U.S. climate goals. The CP2 LNG project, in particular, has faced criticism from environmental groups concerned about its fit with climate objectives. The unexpected rise in domestic shale gas production, due to technological and market developments, has shifted the U.S. from an expected LNG importer to a major exporter. This shift was initially met with concerns about potential increases in domestic gas prices affecting consumers and industries. However, studies by the U.S. Department of Energy from 2012 to 2018 suggested that LNG exports would have minimal impact on domestic prices under certain conditions. Indeed, despite the growth in LNG exports, domestic gas prices have remained stable, supported by increased production in areas like the Marcellus Shale and the Permian Basin. Yet, the projected doubling of LNG export capacity by 2028 prompts questions about future domestic gas prices and the impact on other industries. The significant use of U.S. natural gas for LNG exports could potentially affect prices and supply. Legal Challenges in the Shifting Energy Market The transition in the energy market raises important questions about contractual risks and the predictability of such major changes. The situation with the Pascagoula Facility in the Eni v. Gulf LNG arbitration (ICDR Case No. 01-16-0000-7065) originally designed for LNG import but underused due to the domestic gas surplus, highlights the legal and economic issues arising from the shale gas boom. The Eni v. Gulf LNG arbitration case underscores the need to consider foreseeability within the broader context of contractual risk allocation, reflecting the parties’ initial intentions and expectations. The shale gas boom has complicated contractual arrangements, particularly Terminal Use Agreements (TUAs), by altering traditional views on supply, demand, and pricing. This has implications not only in the U.S. but also in international energy markets, where U.S. LNG exports have contributed to global energy security and changed trade dynamics. Companies should be cognizant of supervening events (such as the shale gas revolution) that lead to frustration of the principal purpose of a TUA. Supervening Events and TUA Contract Frustration Defining the Supervening Event The “supervening event” that could potentially disrupt the main purpose of a TUA needs precise definition. Various interpretations include the disappearance of the U.S. import market or technological advancements that led to increased domestic shale gas production. The event is best understood as a combination of factors resulting in the market shifts known as the “shale gas revolution” and its impact on the contractual relationship. Nature of Changes and Legal Implications The distinction between “evolutionary” and “revolutionary” changes does not critically influence the identification of the supervening event. The legal doctrine of frustration is not confined to isolated, instantaneous events but also applies to developments that unfold over time with significant impacts. Both sudden events and gradual developments can usually be recognized as supervening events under the applicable law. Impact of the Shale Gas Revolution The shale gas revolution, brought about by several converging factors, has transformed the supply and demand dynamics of the U.S. natural gas market, rendering LNG importation economically unviable. This shift from a net importer to a net exporter of natural gas has fundamentally questioned the economic viability of importing LNG into the U.S. market, leading to the underutilization of infrastructures like the Pascagoula Facility. Substantial Frustration of the TUA The shale gas revolution’s impact on the contract was unprecedented, structural, and permanent, rendering the economic rationale of the TUA completely senseless. This situation could not have been reasonably anticipated by the parties at the contract’s inception, indicating a substantial frustration of the TUA’s principal purpose. Future Directions for Terminal Use Agreements The shale gas revolution necessitates a reevaluation of TUAs, challenging old assumptions about risk, supply, and demand. As environmental issues become increasingly important in energy discussions, TUAs need to incorporate sustainability and emissions reduction more prominently. This involves creating agreements that are economically viable and flexible, yet also environmentally responsible. The impact of the U.S. shale gas boom on TUAs highlights the global implications of domestic energy developments. It emphasizes the need for TUAs to be adaptable and innovative, capable of handling market volatility and the interconnected nature of global energy networks. This shift underscores the importance of evolving contractual frameworks to meet the challenges of today’s dynamic energy landscape. The profound impact of the shale gas revolution on the contractual landscape of the energy sector, particularly affecting TUAs, highlights the need for companies to be aware of supervening events that could lead to the frustration of a contract’s principal purpose. This necessitates a reevaluation of existing agreements and careful consideration of future contractual frameworks in the dynamic energy market.

High Court of Australia Considers Australian Hague Rules in International Shipping Arbitration

Introduction to the Dispute In the case of Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG [2024] HCA 4, the High Court of Australia delivered a judgment that underscores the robustness of arbitration agreements in international commercial contracts, even when faced with statutory provisions aimed at protecting domestic legal standards. The dispute centered around an arbitration clause in a bill of lading, which Carmichael Rail Network Pty Ltd (Carmichael) argued was rendered inoperative by Article 3(8) of the Australian Hague Rules, as incorporated into the Carriage of Goods by Sea Act 1991 (Cth) (COGSA). This provision voids any contractual clause that relieves or lessens a carrier’s liability for loss or damage to goods, except as provided in the Rules. The Core Issue The crux of the matter was whether the arbitration clause, mandating dispute resolution in London under English law, could potentially diminish the carrier’s liability contrary to the Australian Hague Rules. The Federal Court of Australia, upon considering an undertaking by BBC Chartering Carriers GmbH & Co KG (BBC) to adhere to the Australian Hague Rules as applied under Australian law in the arbitration, and a subsequent declaration to that effect, decided to stay the proceedings in favor of arbitration. High Court’s Rationale The High Court’s decision to dismiss the appeal reaffirms the principle that arbitration agreements should be upheld unless it is proven on a balance of probabilities that such agreements would invalidate the carrier’s liability in a manner not sanctioned by the relevant statutory rules. The Court clarified that speculative risks concerning the potential outcomes of arbitration do not suffice to render an arbitration clause void under Article 3(8). It emphasized that the standard of proof required is not mere speculation or the possibility of a clause lessening liability but must be established on the balance of probabilities. Implications of the Judgment This judgment has significant implications for the enforceability of arbitration clauses in international shipping contracts, particularly those involving Australian parties. It signals a strong preference for respecting the autonomy of commercial parties to decide their dispute resolution mechanisms, provided there is no concrete evidence that such mechanisms would contravene mandatory statutory protections. The decision also highlights the importance of undertakings and declarations in assuaging concerns about the potential for arbitration to circumvent local legal standards. Legal Analysis by the High Court In reaching its decision, the High Court considered the arguments with a focus on Article 3(8) of the Australian Hague Rules and its impact on the arbitration clause. The Court’s analysis was grounded in the legal principles governing sea carriage and international arbitration. Examination of Article 3(8) The Court first looked at the text of Article 3(8), aimed at preventing contractual terms that could reduce a carrier’s statutory liabilities. It highlighted that the Article’s language does not support speculative risks or hypothetical outcomes from arbitration. Instead, it demands clear evidence that the arbitration clause would likely lead to a reduction of the carrier’s liability against the Rules. Context and Purpose of the Australian Hague Rules The Court also examined the context and purpose of the Australian Hague Rules within international maritime law. It noted that these Rules strike a balance between carriers and shippers, offering a uniform legal framework for global sea transport. The Court stressed that interpreting Article 3(8) should maintain this balance and not disrupt the certainty the Rules aim to establish. The Role of Undertakings and Declarations Significantly, the Court considered the undertaking by BBC and the Federal Court’s declaration, which assured that the Australian Hague Rules, as applied under Australian law, would govern the arbitration. This commitment by BBC addressed concerns that arbitration might bypass the statutory protections of the Australian Hague Rules. Standard of Proof Under Article 3(8) Furthermore, the Court clarified the standard of proof under Article 3(8), stating that speculative risks are inadequate to invalidate an arbitration clause. The challenging party must prove, with reasonable certainty, that the clause would indeed lessen the carrier’s statutory liability. This approach reflects the Court’s intent to uphold arbitration agreements while safeguarding statutory rights. Overview of the Australian Hague Rules The Australian Hague Rules refer to a set of regulations that govern the international carriage of goods by sea, specifically as they are adopted and applied within Australian law. These rules are a modified version of the original Hague Rules, which were established by the International Convention for the Unification of Certain Rules of Law Relating to Bills of Lading, signed in Brussels in 1924. The modifications are often influenced by subsequent amendments, such as those from the Visby Amendments (1968) and the SDR Protocol (1979), leading to what is commonly referred to as the Hague-Visby Rules. Conclusion and Future Implications The High Court’s decision in Carmichael Rail Network Pty Ltd v BBC Chartering Carriers GmbH & Co KG demonstrates a careful approach to disputes involving international arbitration and maritime law. The Court emphasized the need for concrete evidence over speculative risks, the importance of maintaining the balance established by maritime conventions, and the effectiveness of undertakings and declarations in ensuring arbitration does not undermine statutory protections. This judgment provides clear guidance for future cases on the enforceability of arbitration clauses in international shipping contracts.

Crypto Disputes in Arbitration or Court? Impact of the Lochan v. Binance Judgment

Introduction to the Case In the case of Lochan v. Binance Holdings Limited, 2023 ONSC 6714, the Ontario Superior Court of Justice addressed a motion by Binance Holdings Limited to stay proceedings in favor of arbitration, as per the arbitration agreement digitally signed by the plaintiffs and potential class members. The plaintiffs, Christopher Lochan and Jeremy Leeder, initiated a proposed class action against Binance, alleging the sale of crypto derivatives products to Canadians without the necessary regulatory compliance, specifically the failure to file or deliver a prospectus as required by the Ontario Securities Act. The Court’s Deliberation Justice E.M. Morgan presided over the matter, hearing arguments that touched upon the enforceability of the arbitration agreement under the International Commercial Arbitration Act and the UNCITRAL Model Law on International Commercial Arbitration. Binance argued for the stay based on the general principle that courts should uphold the terms of commercial contracts, including arbitration clauses. The plaintiffs countered by asserting that the arbitration agreement was void and inoperative on the grounds of being contrary to public policy and unconscionable. Public Policy and Unconscionability Concerns Justice Morgan’s analysis focused on two main issues: whether the arbitration agreement was contrary to public policy and whether it was unconscionable. On public policy grounds, the court found that the arbitration agreement was unenforceable due to its potential to effectively immunize Binance from litigation by imposing prohibitive costs on claimants, particularly given the small average investment by Canadian crypto investors. The choice of Hong Kong as the arbitral forum, with no substantive connection to the parties or the dispute, was seen as particularly problematic. The Court’s Decision On the issue of unconscionability, the court again found the arbitration agreement unenforceable. The agreement was part of a standard form contract, with terms non-negotiable by the plaintiffs, and contained provisions that could impose significant financial burdens on claimants seeking to resolve disputes. The court highlighted the inequality of bargaining power and the lack of transparency regarding the arbitration process’s costs and logistics as factors contributing to the agreement’s unconscionability. Implications for the Crypto Industry Ultimately, Justice Morgan dismissed Binance’s motion for a stay of proceedings, allowing the class action to proceed in court. This decision underscores the judiciary’s willingness to scrutinize arbitration agreements in standard form contracts, particularly in the context of consumer protection and the accessibility of legal remedies for individuals against large corporations. Global Impact and Regulatory Considerations The judgment in Lochan v. Binance Holdings Limited has implications that extend beyond the borders of Ontario or even Canada, touching on the global landscape of litigation against cryptocurrency companies. The decision to not enforce the arbitration agreement on the grounds of it being contrary to public policy and unconscionable sets a precedent that could influence courts in other jurisdictions when faced with similar claims against cryptocurrency entities. The Tension Between Global Operations and Local Laws The ruling highlights the tension between the global nature of cryptocurrency operations and the local legal frameworks within which they must operate. Cryptocurrency companies, by their nature, transcend traditional geographic boundaries, often leading to complex legal questions about jurisdiction, regulatory compliance, and consumer protection. The Ontario Superior Court of Justice’s decision underscores the need for such companies to carefully consider the legal environments of the countries in which they operate, particularly regarding standard form contracts and arbitration clauses. Future Directions for Crypto Disputes This judgment may encourage courts in other jurisdictions to take a closer look at arbitration agreements that could potentially shield cryptocurrency companies from litigation by imposing onerous conditions on claimants. It signals to these companies the importance of ensuring that their contracts, especially arbitration clauses, are not only clear and transparent but also fair and equitable in the eyes of the law. Conclusion: Balancing Consumer Interests and Industry Innovation Furthermore, the decision may prompt regulatory bodies and legislators around the world to scrutinize the practices of cryptocurrency companies more closely, potentially leading to more stringent regulations and oversight to protect investors. This could result in a more standardized approach to the regulation of crypto assets and a clearer framework for resolving disputes between consumers and cryptocurrency companies. The Lochan v. Binance Holdings Limited judgment could have significant ramifications for the global cryptocurrency industry, potentially affecting how companies structure their user agreements and how disputes are resolved across jurisdictions. It serves as a reminder of the legal complexities and challenges that arise in the rapidly evolving world of digital assets and the need for a balanced approach that protects both the interests of consumers and the innovation that drives the cryptocurrency sector.

Biden’s Executive Order on Israel / West Bank Sanctions: Global Business Compliance Considerations

On February 1, 2024, President Joe Biden’s executive order introduced sanctions targeting individuals and entities that contribute to instability in the West Bank, notably through violence or threats against civilians. This directive, with its broad implications, mandates a closer examination of how businesses worldwide engage with Israel and the West Bank, especially given the region’s significant contributions to the global technology sector. The sanctions bring to the forefront the issue of indirect liability, a concept that extends a business’s accountability to its wider network of partnerships and supply chains. This complexity is particularly pronounced in today’s globalized economy, where the multifaceted layers of production and distribution can obscure the ultimate destination or use of products and services. As a result, businesses utilizing Israeli innovations, for instance, may inadvertently find themselves supporting sanctioned activities, highlighting the need for thorough due diligence. On February 1, 2024, the State Department invoked the executive order to impose sanctions on individuals for a range of disruptive conduct in the West Bank. This included leading violent riots, attacking civilians and activists, with actions such as arson and physical violence. The executive order, particularly under section 1(a)(i)(B)(2), casts a wide net, sanctioning those “responsible for or complicit in, or to have directly or indirectly engaged or attempted to engage in” these activities. Financial institutions and companies across sectors must now intensify their scrutiny of transactions and relationships connected to Israel and the West Bank to ensure compliance with the new sanctions. This increased vigilance could have far-reaching effects on international trade and investment, potentially deterring engagement with the region due to the heightened risks and compliance requirements. The executive order’s broad scope may also spark legal debates over its interpretation, particularly concerning actions that “threaten the peace, security, or stability” of the West Bank. This ambiguity adds a layer of complexity to international business operations, requiring careful navigation to avoid unintended consequences. Drawing from historical precedents, such as sanctions against Iran and Russia, the potential for these new measures to impact global business and economic landscapes is significant. The sanctions could disrupt supply chains, particularly in industries dependent on resources from the region, and complicate international trade relations. Moreover, the potential for reduced foreign investment could have a profound effect on the region’s economic development and necessitate a reevaluation of existing trade agreements and partnerships. In response, businesses must adopt a multifaceted strategy to mitigate risks and adapt to the evolving landscape. This includes: Enhanced Due Diligence: Corporations must strengthen their due diligence processes to identify and assess any direct or indirect connections to entities or activities that might be targeted under the new sanctions regime. This involves a comprehensive review of partners, suppliers, and customers within the region to ensure they are not involved in activities undermining stability in the West Bank. Reevaluation of Business Relationships and Investments: Companies may need to reevaluate their business relationships, investments, and operations in the region. This could involve restructuring agreements, divesting from certain ventures, or seeking alternative suppliers and partners that comply with the new regulations. Strengthening Compliance Infrastructure: Investing in robust compliance infrastructure is essential. This includes technology systems that can monitor transactions and relationships for potential sanctions violations and platforms that facilitate the reporting and management of compliance issues. Automation and artificial intelligence can play a significant role in enhancing the efficiency and effectiveness of these systems. Open Communication with Regulators: Establishing and maintaining open lines of communication with relevant regulatory bodies, such as the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the State Department, is vital. This ensures that corporations are up-to-date with any changes or updates to the sanctions list and understand the regulatory expectations. Contingency Planning: Developing contingency plans to address potential disruptions to operations or supply chains resulting from the sanctions is critical. This includes identifying alternative markets, suppliers, and logistics routes to ensure business continuity in the face of sanctions-related challenges. Contractual Compliance Review: A thorough examination of all contractual documents, both current and forthcoming, is imperative to ensure alignment with sanctions regulations to embed specific provisions that mandate adherence to sanctions laws. Such clauses are crucial as they afford the legal groundwork for altering or dissolving agreements in the event a business partner falls under the ambit of the sanctions. This proactive legal safeguarding is essential for maintaining operational integrity and legal compliance in the face of the evolving sanctions landscape. Stakeholder Engagement: Engaging with stakeholders, including investors, customers, and business partners, to communicate the steps being taken to comply with the executive order and manage risks is essential. Transparency in these efforts can help maintain trust and mitigate reputational risks associated with potential sanctions violations. By embracing a proactive and comprehensive approach to compliance and strategic planning, businesses can navigate the complexities introduced by the Israel / West Bank sanctions, safeguarding their operations and maintaining their strategic objectives in the face of these new challenges.

UAE Supreme Court Sets Precedent: Bans Compound Interest in Financial Transactions

  The UAE Federal Supreme Court’s ruling on the restrictions of compound interest represents a significant shift in the legal landscape governing financial transactions within the country. This judgment, detailed in case number 1254 of 2023 dated 10 January 2024, highlights the court’s firm stance on the prohibition of compound interest, drawing upon specific provisions within the Federal Decree-Law No. 23 of 2022 and the Federal Law No. 50 of 2022. Understanding the Legal Provisions Federal Decree-Law No. 23 of 2022 – Article 121/4: This article is a cornerstone in the court’s decision, explicitly prohibiting licensed financial institutions from charging any interest on frozen interests, commonly referred to as compound interest, on the facilities granted to customers. The decree mandates that such practices must adhere to the controls and rules stipulated in the control regulations issued by the Central Bank, emphasizing the protection of customers and ensuring fair financial practices. Federal Law No. 50 of 2022 – Article 88: Complementing the provisions of the Federal Decree-Law No. 23 of 2022, Article 88 of this law reinforces the prohibition of compound interest. It states, “The creditor may not claim compound interest – which is interest on compounded interests – or claim those interests as supplementary compensation.” This provision further solidifies the legal framework against the application of compound interest in financial transactions, ensuring that creditors adhere to a simple interest model. Implications of the Supreme Court’s Ruling The Supreme Court’s ruling, grounded in these explicit legal provisions, marks a pivotal move towards enhancing consumer protection in the financial sector. By prohibiting compound interest, the court aims to prevent the undue accumulation of debt on borrowers, promoting transparency and fairness in lending practices. For Financial Institutions: The ruling necessitates a significant shift in how interest is calculated and applied to loans and credit facilities. Financial institutions must now ensure their practices are aligned with the stipulated legal framework, moving away from compound interest calculations to a simple interest model as mandated by the Central Bank’s regulations. For Borrowers: This decision is a significant win for consumer rights, offering borrowers protection against the potential financial strain caused by compound interest. It ensures that loan and credit facility repayments are more manageable and predictable, reducing the risk of escalating debt burdens. The Broader Legal and Economic Context The prohibition of compound interest by the UAE Federal Supreme Court reflects a deliberate effort to strengthen the legal and regulatory framework surrounding financial transactions. It underscores a commitment to ensuring ethical lending practices, safeguarding consumer interests, and maintaining the integrity of the financial sector. In the broader economic landscape, this ruling may influence lending and credit practices, potentially leading to more conservative risk assessments by financial institutions. However, it also promotes a more sustainable and equitable financial environment, encouraging responsible lending and borrowing practices. Conclusion The UAE Federal Supreme Court’s decision to restrict compound interest, as articulated in Article 121/4 of the Federal Decree-Law No. 23 of 2022 and Article 88 of the Federal Law No. 50 of 2022, sets a new legal precedent in the financial sector. This landmark ruling not only enhances consumer protection but also aligns the UAE’s financial practices with global standards of fairness and transparency. As the implications of this ruling unfold, it is expected to have a lasting impact on the financial industry, promoting a more stable and equitable economic environment for both financial institutions and consumers alike.

Supreme Court rules on intra-GCC VAT liabilities

  In Federal Supreme Court case number 1066 of 2022, the primary focus was on the application of the Value Added Tax (VAT) within the context of the Gulf Cooperation Council (GCC) countries, specifically between the Kingdom of Saudi Arabia and the United Arab Emirates (UAE). The appellant, a Saudi Arabian entity, was involved in importing and introducing special equipment into the UAE for repair purposes, as well as purchasing goods from a local supplier within the UAE. The key issues revolved around the applicability of VAT on these transactions and the eligibility for VAT exemption under the Unified VAT Agreement for GCC countries. The appellant contended that Saudi Arabia, being a non-implementer of VAT, should exempt them from this tax. However, it was established that Saudi Arabia does apply VAT, as evidenced by Royal Decree No. M/113 dated 2/11/1438 H and its subsequent amendments. The court reasoned as follows: “It is established that the legislator has decided that the law is the source of the obligation for the taxpayer to pay tax. Article 2 of the Federal Decree-Law No. 8 of 2017 concerning the Value Added Tax stipulates that every supply of a good in exchange for monetary compensation is subject to tax. The appellant acknowledged in their lawsuit that they imported and introduced their equipment into the United Arab Emirates from the Kingdom of Saudi Arabia for the purpose of repair, and consequently, they were charged with Value Added Tax for repair services from a local supplier in the UAE and for their purchase of certain goods. Therefore, the provision of Article 75 of the same law, which allows the authority to exempt a taxpayer from this tax if they are from a GCC country that does not implement this tax, does not apply to them. This is because, according to the Unified VAT Agreement for GCC countries and the appellant’s acknowledgment in their appeal that Saudi Arabia implements the Value Added Tax law, which is evidenced by Saudi Royal Decree No. M/113 dated 2/11/1438 H and amended by Royal Decree M/52 dated 28/4/1441 H and Royal Order No. A/638 dated 5/10/1441 H. Moreover, the non-applicability of Article 67 of the Executive Regulations of this law, issued by Cabinet Resolution No. 52 of 2017, which requires for the exemption eligibility that the supply should not have a place of supply in the state or belong to a GCC country that does not implement the Value Added Tax. Consequently, the appellant does not meet the legal conditions for exemption, making their second reason for appeal, regarding not considering Saudi Arabia as a country that does not implement the Value Added Tax law, irrelevant.” The finding of the court can be analyzed in three considerations: Article 75 – Exemption for Non-implementing GCC Countries: The first aspect of the judgment concerns Article 75, which provides for the possibility of exempting taxpayers from VAT if they are from a GCC country that does not implement this tax. In this case, the court found that the provision of Article 75 does not apply to the appellant. This conclusion was based on the fact that the appellant’s activities fell within the scope of the UAE’s VAT law. Essentially, the exemption under Article 75 is designed for entities from GCC countries that do not have a VAT regime in place. Since Saudi Arabia, the country of the appellant, does implement VAT, the exemption was deemed inapplicable. Acknowledgment of VAT Implementation by Saudi Arabia: The court’s decision also took into account the Unified VAT Agreement for GCC countries and the appellant’s acknowledgment that Saudi Arabia implements VAT. This is corroborated by Saudi Royal Decree No. M/113 and its amendments. The acknowledgment is a crucial aspect of the judgment as it signifies the appellant’s acceptance of Saudi Arabia’s VAT regime, which in turn influences the applicability of VAT exemptions and liabilities under the UAE law. Article 67 and Non-Applicability of Exemptions: The final aspect involves the interpretation of Article 67 of the Executive Regulations of the law, issued by Cabinet Resolution No. 52 of 2017. This article sets conditions for VAT exemption eligibility, including that the supply should not have a place of supply in the state or belong to a GCC country that does not implement VAT. In this context, the court ruled that the conditions for exemption were not met by the appellant. This part of the judgment underscores the specificity and strict compliance expected under the VAT law regarding the eligibility for exemptions. In the context of sophisticated intra-GCC activities, companies, investors, and tax advisors should focus on advanced strategies like contractual and corporate structuring, and segmenting rights and liabilities. This involves designing contracts and corporate structures that are not only compliant with the VAT regulations of each GCC country but also flexible enough to adapt to changes in these laws. For instance, considering the court’s findings, businesses should meticulously evaluate where and how their services and goods are supplied within the GCC to determine VAT liabilities and exemptions accurately. Segmentation of rights and liabilities in contracts can be a key strategy. For example, in transactions involving countries like Saudi Arabia, which has implemented VAT, the contracts should clearly stipulate the parties’ responsibilities regarding VAT payments. This might include clauses specifying how VAT is to be handled in cross-border transactions. Moreover, corporate structuring should be such that it aligns with the most favorable VAT regimes within the GCC, considering exemptions and the place of supply rules. Adequately managing multi-jurisdictional tax disputes is a crucial aspect for companies operating within the GCC. Given the diverse VAT regimes and the nuanced legal interpretations, as evidenced by the recent court findings, businesses need to develop robust strategies for dispute resolution. This involves creating clear, comprehensive documentation and maintaining detailed records of transactions to substantiate their VAT positions. Additionally, they should establish protocols for timely and effective communication with tax authorities across different jurisdictions. By doing so, businesses can navigate the complexities of multi-jurisdictional tax landscapes and

UAE Supreme Court on Retroactive Tax Liability for Pre-2018 Building Projects

  In a significant judgment delivered on 18 October 2023 in petition nos. 1480 of 2022 and 1 of 2023, the UAE Federal Supreme Court addressed the complexities surrounding tax liabilities that arise from building projects initiated before the enactment of a new tax law. The court considered interpretations and implications of retroactive application of tax laws, particularly for the engineering and construction industry in contracts executed prior to 2018. At the heart of this ruling is the application of VAT (value added tax) on transactions that were executed before the implementation of the VAT law in 2018 but continued to yield tax liabilities post-enactment. The court’s decision is grounded in the principle that new legislation applies immediately to facts and circumstances arising after its effective date. The rationale is that new legislation is presumed to be an improvement over old laws and, as such, should be applied to all relevant instances that occurred prior to the new law from the point of enactment of the new law. This principle was applied to the case at hand, where the supply and installation of goods took place before 2018 but created a tax liability post-2018. Another critical aspect of the judgment is the court’s interpretation of tax obligations. According to the ruling, tax obligations arise from the law, which dictates the tax rate and the mechanism for its payment. The court emphasized that every entity subject to tax must register for tax and file tax returns for each tax period during their registration. This requirement holds even if the underlying transactions were completed before the new tax laws came into effect. In this sense the court reasoned that: “And this implies that all effects that occur under the authority of this legislation, even if they originate from facts that happened before its effective date, should be subject to its jurisdiction. This is to ensure uniformity in legal statuses. This does not constitute retroactive application of the legislation but is rather the implementation of its immediate effect.” In addressing the arguments presented by the appellants, the court rejected the notion that applying VAT retrospectively to pre-2018 transactions was unlawful. The court referred to specific provisions of the VAT law, particularly those concerning the timing of supply and the completion of the installation of goods, to support its ruling. It was determined that the taxable event, in this case, occurred after the VAT law came into effect, thus subjecting it to VAT regulations. Moreover, the court underscored the importance of contract interpretation in determining tax liabilities. It highlighted that the intent of the contracting parties, as expressed in the contract terms, is paramount in deciding whether a transaction falls within the scope of VAT. In this case, the payments made under the contract for engineering works (purchase, construction, and operation) were deemed advance payments, falling under specific provisions of the VAT law. The court reasoned as follows: “It is decided that Article 80 of the Federal Decree-Law No. 8 of 2017 concerning Value Added Tax stipulates that if the supplier receives the consideration or any part of it, or issues an invoice for goods or services before the date of the implementation of the provisions of this decree-law, the date of supply is considered to be the date of the implementation of the provisions of this decree-law in the cases stated below if it occurs after the date of the implementation of the decree-law… J – Completion of the assembly and installation of goods, and it is decided that the event that creates the Value Added Tax applies to the events that occur after its enforcement starting from 1/1/2018… … It has not been proven that the amounts subject to tax in the appellants’ accounts were recorded as a loan, and it is established from the terms of the contract that they were an advance payment under the account of works. The contract, which is the subject of the tax, concerns engineering works involving purchasing, construction, and operation, which falls under item J of Article 80 of the Value Added Tax Law.”Top of Form The court further addressed the administrative and procedural aspects of tax collection. It stated that tax procedures are a means to achieve the legislative intent of tax collection and should fulfill the state’s right to collect taxes within legally prescribed timelines. Even in cases of procedural errors, the state’s right to collect taxes remains intact. On this issue, the court reasoned that: “Council of Ministers issued Decision No. 105 of 2021, and the second article of it stipulates that the provisions of this decision apply to requests for installment payments and exemptions, and the full or partial refund of administrative fines imposed on any person for violating the provisions of the Tax Procedures Law or the Tax Law. Given this, and the fact that the appellants did not resort to this committee or to the tax disputes resolution committee for any request for exemption or reduction of the penalties before or during the lawsuit of the contested judgment or the appealed judgment, what the appellants claim about the error in applying the law due to non-application of Council of Ministers Decision No. 49 of 2021 is not valid and not acceptable.” The court indicates that the tax disputes resolution committee, traditionally limited to review of reconsideration decisions, might also possess the authority to consider requests for exemptions and reductions in administrative penalties. This revelation is significant as it potentially expands the options available to taxpayers in handling penalty disputes. Previously, such matters were primarily associated with the special committee outlined in Federal Decree-Law No. 28/2022. This new interpretation suggests a broader role for the tax disputes resolution committee beyond its conventional scope, offering taxpayers an additional avenue to seek penalty relief.

Vanishing Arbitration: U.S. Court Rejects DIAC Jurisdiction Post DIFC-LCIA Abolition

  In the recent dispute between Baker Hughes Saudi Arabia Co. Ltd. and Dynamic Industries, Inc. and its affiliates (Dynamic Industries International, LLC, and Dynamic Industries International Holdings, Inc.), the United States District Court for the Eastern District of Louisiana was presented with a significant contractual disagreement. The case, titled Baker Hughes Saudi Arabia Co. v. Dynamic Industries (Civil Action 2:23-cv-1396), was published on November 6, 2023​​. The core of the dispute stemmed from a contract under which Baker Hughes Saudi Arabia agreed to supply materials, products, and services for an oil and gas project in Saudi Arabia, being executed by Dynamic Industries. Baker Hughes Saudi Arabia claimed it had fulfilled its contractual obligations but had not been paid the owed sum of $1.355 million by Dynamic Industries​​. Dynamic Industries, in response, filed a motion to dismiss the case on the grounds of forum non conveniens (a legal principle allowing courts to dismiss a case if another more appropriate forum is available) or to compel arbitration. They based their argument on the contract’s clause, which stated that any unresolved disputes should be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC LCIA (Dubai International Financial Center London Court of International Arbitration)​​. However, the situation was complicated by the fact that the DIFC LCIA had been abolished in 2021 by a decree from the government of Dubai and replaced with the Dubai International Arbitration Center (DIAC). Baker Hughes argued that the contract’s arbitration provision was unenforceable because the agreed-upon forum, the DIFC LCIA, no longer existed​​. Dynamic Industries countered by suggesting that the Dubai government’s decree effectively transferred the assets, rights, and obligations of the DIFC LCIA to the DIAC, arguing that this allowed for the arbitration to proceed under the DIAC. However, Baker Hughes contested this, stating that the Dubai government could not unilaterally change the arbitration forum agreed upon in the contract​​. After reviewing the arguments and considering the legal precedents, the court ruled in favor of Baker Hughes Saudi Arabia. It denied Dynamic Industries’ motion to dismiss the case or compel arbitration in the DIAC, concluding that the original forum for arbitration, the DIFC LCIA, no longer existed and could not be substituted unilaterally. This decision underlines the importance of specific arbitration clauses in contracts and the challenges that may arise when the selected arbitration forum is no longer available​. The court reasoned: “As the Fifth Circuit explained, this Court “cannot rewrite the agreement of the parties and order the [arbitration] proceeding to be held” in a forum to which the parties did not contractually agree. Nat’l Iranian Oil Co., 817 F.2d at 334. Nor can the Dubai government. Whatever similarity the DIAC may have with the DIFC LCIA, it is not the same forum in which the parties agreed to arbitrate. That forum is no longer available, and this Court thus cannot compel Plaintiff to arbitrate.” The ruling in Baker Hughes Saudi Arabia Co. v. Dynamic Industries sets a significant precedent for future disputes involving DIFC-LCIA clauses, particularly in U.S. and other international jurisdictions. With the dissolution of the DIFC-LCIA and government-mandated transfer of DIFC-LCIA arbitrations to DIAC, contracts specifying the former as the arbitration forum face legal uncertainties. U.S. courts, as demonstrated in this case, may not recognize the DIAC as a valid substitute, thereby impacting the enforceability of arbitration clauses and potentially leading to more litigations being adjudicated in court rather than through arbitration. This development urges parties in international contracts to reassess and potentially revise their arbitration clauses to ensure clarity and enforceability, acknowledging the evolving landscape of international arbitration forums.

UAE Supreme Court Insight on Free-Zone Corporate Tax Exemptions

  The United Arab Emirates (UAE) has many free zones that attract businesses with tax benefits among other incentives. For example, free zones in the UAE typically offer a zero percent corporate tax rate for a certain number of years, often extendable. However, with the introduction of a new corporate tax regime in the UAE, there have been questions about how federal tax laws interact with these domestic exemptions. A recent judgment from the Federal Supreme Court issued in October 2023 provides clarity on this matter, setting a precedent for how tax laws are applied to entities operating in free zones. This article examines the judgment, explores the exemption provisions for free zone entities under the UAE corporate tax law, and discusses the implications of the judgment. Wasel & Wasel was counsel on this matter and has represented clients in over two hundred tax dispute procedures in the UAE. The Federal Supreme Court Judgment The Federal Supreme Court of the UAE recently issued a judgment in October 2023, clarifying the relationship between federal tax laws and domestic emirate-specific tax laws, particularly concerning tax exemptions. In this case, the Federal Primary Court and the Federal Appeals Court had found that domestic tax laws have no impact on federal tax legislation. The Supreme Court on the other hand took a different reasoning approach. The Supreme Court stated: “The local law does not restrict or specify the federal law issued by the federal authorities; rather, they operate within a framework of legislative integration and synergy. The petitioner is considered subject to tax, as what it practices in the activity in question … aims for profit as a whole. The [tax] exemption of the petitioner does not change the foregoing.” The petitioner had approached the Supreme Court after being subject to a number of ministerial decrees in its respective emirate that provided exemptions from any form of tax. The petitioner sought to overturn the findings of the lower federal courts. The Federal Primary Court had stated: “That the law establishing the Federal Tax Authority in its Article 4 outlined the authority’s jurisdiction over the management, collection, and enforcement of federal taxes and related fines…The local laws regarding exemption from tax and local fees were only concerned with the concerned emirate and have no impact on the application of the federal tax law.” Similarly, the Federal Appeals Court had noted: “The exemptions issued under local legislations have no impact on the application of the tax imposed under federal tax legislations.” The lower federal courts focused on whether the exemptions granted to the petitioner in its respective emirate were reflected in the federal tax legislation or not. The lower federal courts reasoned that domestic emirate-specific tax exemptions operate only to the benefit of the taxpayer within the applicable emirate but not on a federal level. However, the Supreme Court highlighted that the focus should be on whether an entity is engaged in profit-making activities, rather than where it operates, and whether the federal tax legislation has adopted the emirate-specific tax exemptions. Through this judgment, the Supreme Court confirmed that domestic tax laws do in fact apply but must be applied in “integration and synergy” with federal tax laws, marking a departure from the reasoning of the lower federal courts and providing reassurance for free zone entities. Exemption Provisions for Free Zone Entities The new corporate tax law in the UAE, introduced in 2022, outlined the tax obligations for all entities, including those in free zones. To be considered for tax exemptions, a free zone entity needs to meet several conditions. These conditions include maintaining a substantial presence in the UAE, earning qualifying income, and following specific auditing and pricing regulations. If a free zone entity meets all the required conditions, it is termed a “Qualifying Free Zone Person” (QFZP) and can enjoy tax exemptions. The law aims to ensure that entities are compliant with international tax standards while also providing a clear framework for tax obligations and exemptions. Implications of the Supreme Court Judgment The judgment of the Supreme Court is crucial as it identifies that a profit-generating entity falls within the federal tax regime despite any emirate-specific tax exemptions. This confirms that profit-making entities in free zones are subject to federal tax laws, just like other entities outside free zones. The judgment helps in understanding how federal and local tax laws interact, ensuring that businesses in free zones are also contributing to the country’s tax revenue when they engage in profit-making activities. It aligns the tax treatment of free zone entities with the broader tax framework of the UAE, promoting fairness and compliance with the new corporate tax regime. It is important to consider notwithstanding that the Supreme Court acknowledges the existence and validity of domestic tax exemptions, such as those provided in free zones, without setting them aside. Instead, the Supreme Court emphasizes a prerequisite for domestic emirate exemptions to operate in “integration and synergy” with federal tax laws. This denotes a principle of harmonization between federal and local tax frameworks, underscoring that the local exemptions are recognized as long as they are in alignment with the overarching federal tax laws. Takeaway In conclusion, this novel judgment by the Federal Supreme Court, along with the new corporate tax law, provides a clear understanding of the tax obligations for entities operating in free zones. It ensures that all entities, regardless of their location, are subject to the same tax laws if they are engaged in profit-making activities. This creates a level playing field for all businesses, contributing to a transparent and fair business environment in the UAE. The principle set by the federal courts is reassuring for free zone entities as it does not dismiss domestic tax exemptions outright. It provides a structured approach where both federal tax obligations and local tax exemptions coexist, given they are operating in harmony. This balanced standpoint from the Federal Supreme Court affirms a level of reassurance to free zone entities, emphasizing a cooperative framework between federal and

Designer / Architect Delay Claims: Insights from the Ontario Superior Court of Justice

  In the realm of construction, project delays are inevitable yet potentially costly occurrences. The ability to accurately identify and claim these delays is a crucial skill for any party involved in a construction project. A recent case from the Ontario Superior Court of Justice in Onespace Unlimited Inc. v. Plus Development Group Corp. sheds light on the evidentiary standards required to substantiate claims of project delays, particularly for claims related to design errors and omissions. Overview In this case, the owner/developer claimed a sum of about $760,000 for a 100-day extended duration delay allegedly caused by the architect due to various design errors and omissions. The alleged errors encompassed a wide range of issues including missing gas lines, incorrect details for a windowsill, inadequate personnel, and poor work review, among others. However, the court found several shortcomings in the owner/developer’s claim. Firstly, there was a lack of clarity in defining the alleged design errors and omissions. The owner/developer failed to identify the specific drawings containing these errors, which is a fundamental step in substantiating a claim of design-related delays. Without pinpointing the exact source of the errors, it becomes a herculean task to prove the alleged delays. Furthermore, the court noted a significant lack of evidence supporting the claim that the architect was responsible for these errors and omissions. The days of delay claimed were merely unsubstantiated estimates provided by an individual from the owner/developer’s side, which were reviewed but not corroborated with concrete evidence demonstrating the impact on the overall project duration. The court also highlighted an essential distinction between a delay event and an overall project delay. A delay in a particular activity does not necessarily translate to an extended project duration. For a claim of extended duration to hold water, a causal link between the alleged delays and the extended project duration is imperative. The owner/developer’s failure to provide evidence corroborating the delay from the alleged errors and omissions was a significant blow to their claim. Moreover, the court found that the owner/developer did not meet the evidentiary onus of demonstrating any breach of contract or the standard of care by the architect, which would support liability for the alleged project delays. This underlines the necessity of a well-documented and evidence-backed claim when alleging project delays. This case serves as a stark reminder of the rigorous evidentiary standards required to successfully claim project delays. It emphasizes the importance of clear documentation, precise identification of errors, and the provision of cogent evidence to support claims of project delays in the complex landscape of construction disputes. Takeaway Evidencing delay caused or not caused by design errors and omissions generally requires a delay claim methodology, which in most cases is a schedule analysis. In a schedule analysis aimed at identifying delays due to design errors and omissions, the process begins with a thorough review of the project’s baseline schedule and the as-built schedule. The baseline schedule represents the initial plan, while the as-built schedule reflects what actually transpired on the ground. The crux of the analysis lies in identifying the design errors and omissions through a careful examination of the design drawings and other related documentation. Once these errors are identified, they are mapped to the specific activities in the schedule they affected. This mapping is crucial as it establishes the link between the design discrepancies and the activities that were delayed as a result. The next step involves quantifying the delay caused by each design error or omission. This is achieved by comparing the planned and actual completion dates of the affected activities. The difference in completion dates illustrates the extent of delay attributable to the design errors. Furthermore, the analysis delves into how these delays impacted the overall project timeline. It is not just about identifying the days of delay, but also understanding how these delays affected the sequence of activities, especially those on the critical path which directly impact the project’s completion date. The data extracted from this analysis provides a clear illustration of the delay days caused by design errors and omissions. It evidences the direct and indirect impacts of these errors on the project schedule, thereby providing a solid foundation for any claims or discussions related to project delays. In essence, the schedule analysis serves as a practical tool to not only identify and quantify the delays but also to provide a clear, evidence-backed narrative of how design errors and omissions contributed to these delays.

Supreme Court of Victoria Affirms Judicial Restraint in Arbitral Appeals

  In the realm of arbitration, the delicate balance between finality and fairness often finds itself at the heart of appellate scrutiny. The recent judgment from the Victorian Supreme Court in Factory X Pty Ltd v Gorman Services Pty Ltd unveils yet another layer of this intricate interplay, particularly focusing on the threshold for leave to appeal questions of law emanating from arbitration awards. The court’s reasoning, deeply rooted in the principles laid down by Lady Justice Arden in HMV UK Ltd v Propinvest Friar Limited Partnership, provides a rich tapestry for understanding the nuanced approach towards the ‘obviously wrong’ standard under s 34A(3)(c) of the Commercial Arbitration Act 2011 (Vic). The focal point of the discourse centers around Lady Justice Arden’s clarification of an ‘obviously wrong’ decision as one that is unarguable, makes a false leap in logic, reaches a result for which there is no reasonable explanation, or represents a major intellectual aberration. The respondent, in underscoring these parameters, argued that a mere arguable error on a point of law or a divergent conclusion by the judge does not suffice to meet the threshold of ‘obviously wrong’. The clarity and transparency of the error, as emphasized by the respondent, stand as indispensable requisites to traverse the appellate pathway. The court, in its analysis, concurred with the respondent’s submissions, accentuating that the arbitrator’s decision should not be deemed ‘obviously wrong’ merely because the court might harbor a different interpretation of a contractual clause. This stance resonates with the fundamental ethos of arbitration, where deference to the arbitrator’s decision is emblematic of the autonomy and finality that arbitration envisages. Furthermore, the court’s acknowledgment of the arbitrator’s rejection of the applicant’s construction in the arbitration award underscores the appellate reluctance to re-engage with matters of critical relevance already deliberated and dismissed by the arbitrator. This judicial restraint is emblematic of a broader jurisprudential acknowledgment of the arbitrator’s role as the primary adjudicator of disputes, whose decisions are to be interfered with sparingly and only under manifestly erroneous circumstances. The South Australian Court of Appeal’s stance in Inghams Enterprises (10 February 2022), as highlighted by the court, further cements this principle. Despite recognizing the ‘some force’ in Inghams’ submissions and the complex nature of the construction question, the Court was unpersuaded that the arbitrator’s decision displayed any ‘obvious error’. This narrative underscores the high threshold that appellants must surmount to successfully navigate the appellate avenue. In dissecting the contract clause, the court acknowledged the lack of clarity in its drafting and the applicant’s submissions on the practical implications of the arbitrator’s construction. However, the court remained unswayed by the possible merits of the applicant’s construction, reiterating that the arbitrator’s conclusion was not ‘obviously wrong’ for the purposes of s 34A of the Act. The arbitrator’s meticulous consideration of other possible constructions, including those submitted by the applicant, fortified the court’s stance against an obvious error in the arbitrator’s decision. This judgment, in its essence, epitomizes the judicial restraint and deference towards arbitration awards, reinforcing the high threshold for leave to appeal on questions of law. It underscores the imperative for clear and transparent errors in arbitration awards to warrant appellate intervention, thereby preserving the sanctity and finality of arbitration as a distinct and autonomous mechanism for dispute resolution..

Exceptional Taxation: UAE Supreme Court Rules on Domestic and Foreign Related Companies’ Tax Liabilities

  The recent judgment delivered by the Federal Supreme Court regarding the application of tax liabilities to related companies, even those situated outside the state, in exceptional circumstances where the tax event occurs within the state, is of paramount importance. It not only delineates the legal boundaries of tax obligations among interconnected corporate entities but also sets a precedent for how tax laws are interpreted and applied in cross-border corporate scenarios. This judgment underscores the necessity of a nuanced understanding of the legal and fiscal framework governing such entities, thereby providing a robust foundation for tax planning and compliance, especially in an increasingly globalized business environment. Tax events amongst related entities The Federal Supreme Court’s analysis concerning a tax event and the separation of liabilities among multi-entity enterprises is a nuanced examination of the legal and fiscal responsibilities that these entities bear. The court’s reasoning on the matter sheds light on the intricate fabric of corporate law and tax obligations, particularly in the context of parent and subsidiary companies or branches. The court underscores the distinct legal persona of a subsidiary company, which is conceived through the collaboration of another company, yet operates independently from its parent company. This independence is manifested in its legal and moral personality, enabling it to acquire rights and bear obligations. The subsidiary, with its unique name and domicile, operates as a separate legal entity, its nationality remaining unblended with that of its partners or parent company. On the other hand, the tax event, as delineated by the court, is a pivotal circumstance that triggers tax liability. The court adopts a clear standard in identifying the tax event, which is fundamentally the supply of goods within the state. This standard is instrumental in determining the tax liability, which is incumbent upon the entity where the tax event is realized. The separation of liabilities among multi-entity enterprises is a complex domain, necessitating a meticulous examination of the legal and fiscal dynamics that govern the relationships between parent companies, subsidiaries, and branches. The court’s analysis provides a robust framework for understanding these dynamics and the legal parameters that define tax liability in the context of multi-entity enterprises and multinational companies. The Supreme Court says in this regard: “The subsidiary company is the company that is co-founded by another company and is independent. Originally, from a legal standpoint, it is independent of the parent company, and its legal and moral personality is established, which qualifies it to acquire rights and bear obligations. It is considered a separate legal entity from the partners and the parent company. The subsidiary company has an independent name and domicile, which is the place where its main administration is located. Also, its nationality does not mix with the nationality of the partners. The person liable for tax is the one in whom the event established by law is available. The legislator adopted a clear standard in determining the event that creates the tax liability.” Tax liabilities for out-of-state entities The Federal Supreme Court’s analysis on the application of tax liabilities to related companies, even those situated outside the state, in exceptional circumstances where the tax event occurs within the state, unveils a nuanced understanding of the legal and fiscal framework governing such scenarios. The Court emphasizes the sanctity of the distinct legal persona of each company, underscoring the principle that the tax liabilities of one cannot be arbitrarily imputed to the other. However, it carves out an exception to this rule in extraordinary circumstances, thereby introducing a layer of complexity to the tax liability discourse. The Court’s stance is rooted in a logical necessity that once the tax event is realized, the tax assessment becomes anchored in the legal truth. This notion of a tax event is pivotal as it triggers the tax liability, and its occurrence within the state’s jurisdiction is a critical factor in determining the tax obligations of related companies. The Court highlights that the tax liability is not merely a function of the corporate structure or the domicile of the companies but is intricately tied to the locus of the tax event. This analysis brings to the fore the concept of exceptional circumstances as a determinant of tax liability. The Court posits that in such rare scenarios, the veil of separate legal persona of related companies may be pierced, allowing for the tax liabilities to be assessed in a manner that transcends the conventional boundaries of corporate separateness. This is a significant departure from the traditional understanding of tax liability as being confined to the entity where the tax event is realized. Furthermore, the Court’s discourse illuminates the legal rationale underpinning this exception. It underscores the imperative of a rational and equitable assessment of tax liability, particularly in scenarios where the strict adherence to corporate separateness may lead to an unjust enrichment or evasion of tax obligations. The Court’s analysis is grounded in a pragmatic understanding of the fiscal realities, recognizing the potential for cross-border corporate structures to be employed in circumventing tax liabilities. The Court’s exposition also hints at a broader legal and fiscal paradigm wherein the principles of equity and justice are harmonized with the tenets of corporate law and tax policy. It invites a reevaluation of the legal doctrines governing the assessment of tax liability, particularly in the context of multi-company enterprises with cross-border operations. Moreover, the Court’s narrative underscores the imperative for a meticulous examination of the circumstances surrounding the tax event, advocating for a judicious approach in the assessment of tax liabilities. This nuanced understanding of tax liability, as expounded by the Court, provides a robust framework for navigating the complex terrain of tax law, particularly in scenarios involving related companies with cross-border operations. The Supreme Court says in this regard: “It was decided, according to the judgment of this court, that the legal personality of both companies must be respected, and it is not permissible to penetrate it or decide the liability of one for the tax debts of the other, except