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

  Wasel & Wasel has represented clients in over two hundred tax dispute procedures in the United Arab Emirates, gaining valuable experience in protecting taxpayers from tax penalties. The tax consequences arising out of deficient payments by debtors in commercial transactions has consistently grown more important as more taxpayers face tax penalties. A recent Dubai judgment introduces a novel perspective to this dynamic. This judgment, which potentially empowers creditors to claim tax penalties from their debtors, represents a significant shift in the commercial and tax law landscape. This development is particularly noteworthy given the evolving tax regime in the UAE, underscoring its potential implications for future commercial interactions. Liquidity Shortfall and Tax Penalties: The Age-Old Dilemma When creditors issue invoices, they anticipate timely payment. However, delays in these payments can lead to a liquidity shortfall, preventing the creditor from meeting their tax obligations. This can result in penalties from the Federal Tax Authority (FTA). These penalties, often substantial, further strain the creditor’s finances, essentially penalizing them for the debtor’s delay. The New Test Established by the Judgment The recent judgment has introduced a potentially groundbreaking test for creditors. The creditor was subject to tax penalties imposed by the FTA and claimed those tax penalties from the debtor. The three-member tribunal addressed the claim over the tax penalties as follows: “Regarding the request for the value added tax penalty, the plaintiff demands that the defendant be obligated to pay the VAT penalty…and whatever accrues until the date of paying the VAT. Given that the plaintiff did not provide evidence of paying the value of this penalty to the Federal Tax Authority, he cannot claim its payment from the defendant.” This implies that if a creditor can provide evidence of having paid the respective tax penalty, they might be able to claim it from the debtor. This test, while seemingly straightforward, could have profound implications for commercial transactions, especially when considering the broader context of the UAE’s evolving tax landscape. Understanding the Scope of Damages  The Civil Transactions Law recognizes both direct and indirect damages. If a particular head of damage encompasses both direct and indirect elements, the direct aspect takes precedence. Nevertheless, this does not preclude the possibility of claiming other heads of damages that are indirect alongside those that are direct. The distinction between direct and indirect damages is further clarified in Articles 283 and 284 of the Civil Transactions Law. Direct damages necessitate a guarantee without any conditions. In contrast, indirect damages require an offence, intent, or an action that leads to harm. If both direct and indirect causes coexist, the ruling leans towards the direct cause. Given this legal framework, it is evident that creditors have a viable avenue to claim tax penalties from their debtors. If a debtor’s delay in payment (the act) leads to a creditor facing tax penalties (the damage), and there is a clear causal relationship between the delay and the penalties, the debtor could be held responsible. UAE Federal Decree-Law No. 47 of 2022: Implications for Companies and Their Debtors The introduction of the UAE Federal Decree-Law No. 47 of 2022 on the taxation of corporations and businesses marks a significant shift in the UAE’s tax regime. With corporations now having to pay taxes on their profits, the financial landscape for businesses has undeniably changed. In this new environment, the judgment’s potential to allow creditors to claim tax penalties from their debtors becomes even more relevant. Companies, now burdened with tax obligations on their profits, might face penalties due to liquidity issues arising from delayed payments by debtors. This judgment provides them with a potential avenue to recoup these penalties. In essence, companies can utilize this legal avenue to ensure that they are not doubly penalized – first by the delay in payments from debtors and subsequently by the tax penalties arising from the new corporate income tax law. This development not only provides a safety net for businesses navigating the new tax regime but also serves as a deterrent for debtors, emphasizing the importance of timely payments in the broader context of the country’s tax obligations. Flexibility of Courts and Evidence Consideration The judgment’s statement, ” Given that the plaintiff did not provide evidence of paying the value of this penalty to the Federal Tax Authority, he cannot claim its payment from the defendant,” opens the door to a broader discussion on evidence. While evidence of payment is a clear route to claiming penalties, the courts’ flexibility in considering other forms of evidence is crucial. For instance, would enforcement actions by the FTA, despite the liquidity of the creditor, be sufficient evidence? This could be particularly relevant in cases where the creditor has made arrangements with the FTA or is contesting the penalty. Other forms of evidence might include communication with the FTA regarding the penalty, documentation of the liquidity shortfall directly resulting from the debtor’s delay, or even evidence of the debtor acknowledging their role in the creditor’s financial strain. Such flexibility would be in line with the pragmatic approach by the UAE courts, focusing on the real-world implications and fairness of the law, rather than a rigid adherence to form. Pragmatic Implications and the Way Forward From a pragmatic standpoint, this judgment, especially when viewed in the context of the UAE’s new tax law, could be transformative for creditors. It offers a potential remedy against the financial strain of delayed payments and the new tax obligations. Moreover, the potential flexibility of the courts in considering varying evidence further strengthens the creditor’s position. However, this potential remedy is not without challenges. Debtors could contest the validity of claims, and the exact nature and type of evidence accepted will likely be refined over time through subsequent judgments. Conclusion This judgment represents a significant development in the commercial and tax law landscape of the UAE. As the country’s tax regime evolves, this judgment offers a potential safety net for businesses, ensuring they are not unduly penalized due to the actions of their

  In the intricate tapestry of construction law within the United Arab Emirates (UAE), delays related to approvals have emerged as a recurring theme in disputes. The courts’ approach to these matters is both nuanced and pragmatic, reflecting a deep understanding of the complex realities of construction projects. This article will dissect three key judgments from the Dubai Courts, each shedding light on the stance of the judiciary on delays arising from construction-related approvals. Judgment 1: Case No. 673 of 2021, Court of Cassation (Dubai) The case involves a maritime construction project. The developer’s failure to obtain necessary approvals, licenses, and permits led to significant delays, resulting in the purchaser’s request for contract termination. Court’s Findings and Reasoning Contractual Obligations and Delayed Approvals: The court found that the developer’s delay in obtaining necessary approvals was not excusable. The developer was expected to study the project’s requirements and obtain all necessary approvals before commencing the project. The delay of over three years was deemed a breach of contractual obligations. Rejection of Force Majeure: The court rejected the developer’s claim of force majeure, reasoning that the delay in obtaining approvals did not constitute an unforeseeable event. The court emphasized that the delay was within the developer’s control and did not render performance impossible. Expert Evidence and Site Inspection: The court relied on an expert committee’s report and site inspection, which revealed that the construction was incomplete and did not meet the agreed specifications. The court found this evidence sufficient to form its belief in the developer’s failure to perform. Interest Rate Adjustment: The court reduced the interest rate from 9% to 5%, balancing the developer’s breach and the purchaser’s legitimate expectations. Relation to Disputes Arising from Approval Delays The judgment offers significant insights into how courts may approach disputes arising from approval delays in construction projects: Pre-Contractual Planning: The judgment emphasizes the importance of thorough planning and understanding of regulatory requirements before entering into a contract. Clear Contractual Terms: The case underscores the need for clear contractual terms addressing potential delays and unforeseen challenges, including approval delays. Judicial Discretion and Evidence Evaluation: The judgment illustrates the court’s discretion in evaluating evidence and understanding the factual matrix, particularly concerning delayed approvals. Judgment 2: Case No. 105 of 2013, Court of Cassation (Dubai) The dispute at hand revolves around a construction project that suffered significant delays. The developer (the appellant) alleged that the delays were caused by factors beyond its control, including changes made by the principal developer and governmental inaction. The buyer (the respondent), on the other hand, contended that the developer’s negligence and failure to meet its fundamental obligations led to the delays. The Court’s Reasoning The Developer’s Obligations: The court embarked on a detailed analysis of the developer’s obligations under the contract and the relevant statutory provisions. It emphasized that the developer’s commitment was not confined to the explicit terms of the contract but extended to all that was necessary for the proper execution of the project, including obtaining necessary approvals and ensuring the readiness of the land. The Developer’s Conduct: The court scrutinized the developer’s conduct, finding no credible evidence to support the claim that the delays were beyond its control. The absence of documents proving governmental interference or changes by the principal developer led the court to conclude that the developer was either negligent or in default of its obligations. The Buyer’s Rights: The court also considered the buyer’s rights under the law, recognizing that the buyer was entitled to withhold payment if the developer failed to fulfill its corresponding obligations. The court’s reasoning was grounded in the principles of good faith and reciprocity that underpin contract law. Analysis and Implications The Importance of Documentation: This judgment underscores the critical importance of proper documentation in construction disputes. The developer’s failure to provide evidence of external factors leading to delays proved fatal to its case. Parties must be diligent in maintaining records that can substantiate their claims, particularly when alleging circumstances beyond their control. The Interplay between Contractual and Statutory Obligations: The court’s interpretation of the developer’s obligations illustrates the complex interplay between contractual terms and statutory provisions. It serves as a reminder that parties must be mindful of not only the express terms of their agreements but also the broader legal framework within which they operate. The Broader Context of Construction Disputes: The judgment also sheds light on the broader context of construction disputes arising from approval delays. It highlights the multifaceted nature of such disputes, encompassing not only legal and contractual issues but also practical considerations such as project readiness, governmental actions, and the conduct of various stakeholders. Judgment 3: Case No. 161 of 2011, Court of Cassation (Dubai) The dispute arose between a contractor and a property owner. The contractor, having completed a significant portion of the construction, alleged breaches due to delayed approvals, which they claimed led to increased costs and project delays. The owner, on the other hand, attributed the project’s delays to the contractor’s actions, particularly their cessation of work pending increased prices. Delayed Approvals: The Heart of the Dispute Cancellation of Annex and Modified License: The court’s analysis delved deep into the impact of delayed approvals. Specifically, it examined the contractor’s claim that the cancellation of parts of the work, such as a service annex, required a halt in work pending a modified license. The court found that such cancellations did not necessarily warrant a work stoppage. Impact on Timelines: The court juxtaposed the actual project delays against the contractual timelines. It underscored the contractor’s refusal to continue work without price hikes as a breach of contract. Yet, it also acknowledged the role of delayed approvals in extending the project’s duration. Increased Costs: The court recognized that delayed approvals, combined with the contractor’s cessation of work, led to escalated costs for completing the remaining work. Damages were awarded, reflecting the multifaceted repercussions of delayed approvals. The Court’s Reasoning The court’s approach was marked by a meticulous examination of the contractual obligations, the parties’ conduct, and

  Wasel & Wasel has represented clients in over two hundred tax dispute procedures in the United Arab Emirates, gaining valuable experience in protecting taxpayers from significant losses over small procedural errors. From the start of a dispute at the reconsideration stage to the final trial at the Federal Supreme Court, the issues extend beyond taxes and penalties. They fundamentally focus on whether procedures have been followed correctly. This focus has been clear in numerous Federal court judgments and tax dispute resolution committee decisions since 2018. As a tax dispute moves through the court system, procedural integrity becomes increasingly scrutinized. The Federal Tax Authority’s litigation team is held as one of the UAE’s most skilled government litigation departments. Therefore, it is crucial to have counsel who are experts in the specific challenges of litigating Federal Tax Authority decisions. This article outlines key procedural judgments from the Federal courts and committees, providing insights for taxpayers on risk assessments and mitigation of taxes and penalties. Part I: Evidencing the Reconsideration Procedure Procedural Requirement The reconsideration procedure necessitates the submission of evidence to establish that the objector has filed a request for reconsideration in accordance with the law. Position of the Courts or Committees The Dubai Tax Dispute Resolution Committee no. 100/2021 emphasized the importance of evidence in the reconsideration procedure: “The evidence was devoid of anything that benefits establishing that the objector had filed a request for reconsideration, in accordance with the procedure set by law until the objection is considered by this committee, which makes the objection request submitted to the committee non-compliant procedurally.” Legislative Impact The Federal Decree-Law No. 28 of 2022 sets the legal framework for the reconsideration procedure, outlining the specific requirements for submitting evidence. Takeaway/Guidance The importance of evidence in the reconsideration procedure cannot be overstated. Taxpayers must ensure that all necessary documentation is included in the reconsideration request to establish compliance with the law. Part II: Scope of the Tax Dispute Procedural Requirement The scope of the tax dispute must be clearly defined and confined to the specific issues at hand. Position of the Courts or Committees The Supreme Federal Court, in cases no. 327/2021, 220/2021, and 181/2021, provided guidance on the scope of the tax dispute: “What the appellant raised regarding the legality of the tax imposition’s origin does not detract from that, as the scope of the relevant lawsuit does not relate to the extent of the legality of the tax imposition basically but its scope is limited to challenging the committee’s decision to cancel the delay penalty in payment, which does not allow exceeding that to reasons that were not a place for the relevant dispute from the beginning.” Legislative Impact The Federal Decree-Law No. 28 of 2022 does not explicitly define the scope of the tax dispute, leaving it to the courts to interpret and apply the law in this regard. Takeaway/Guidance Understanding the specific nature of the dispute and aligning legal arguments accordingly is essential. The scope of the dispute must be confined to the original issues, and overreaching must be avoided. In contrast, before a reconsideration request is filed, the taxpayer must ensure that the underlying decision obtained from the FTA encompasses all the items the taxpayer wishes to dispute. Part III: Discretion in Accepting Late Reconsideration Requests Procedural Requirement The reconsideration procedure allows for the possibility of accepting late requests, provided there are valid reasons for the delay. Position of the Courts or Committees The Emirati judiciary, in Federal Primary Court case no. 424/2019 and 438/2019, considered the discretion in accepting late reconsideration requests: “It is settled that the deadlines for appealing administrative decisions before the general appeal committees are characterized as regulatory deadlines intended for reconsideration of the administrative decision within specific deadlines without keeping them open without a controller for the stability of situations and legal positions. It means that the matter is left to the discretion of the administration in estimating the reasons for the excuse submitted for non-compliance with the deadline or the period specified by law, so if the applicant for reconsideration exceeds this specified period with an excuse accepted by the body, it has to override its will for these dates and address the reconsideration request. Saying otherwise makes the deadline set by the law non-existent, and the deadlines become open without a controller, which leads to instability of situations and legal positions that require the nature of tax laws and legislations due to the financial and economic effects on both parties, the state, and the tax funder. And the appellant company did not provide any reasons for not submitting its reconsideration request to the Federal Tax Authority within the specified period as stipulated in Article 27 of Law No. 7 on Taxes, and therefore the Authority rejected the request or did not accept it, its decision coincides with the correct law and what the tax legislator wanted.” Legislative Impact The Tax Procedures Law No. 7/2017, before being replaced with Decree-Law No. 28/2022, provided the legal basis for this discretion, allowing the administrative body to assess the reasons for non-compliance with stipulated deadlines. Takeaway/Guidance The discretion in accepting late reconsideration requests emphasizes the importance of providing valid reasons for any delay. Taxpayers must be aware of this flexibility but should not rely on it without substantial justification. Part IV: Issuance of a Reconsideration Decision After the Absence Thereof Procedural Requirement In the absence of a decision on a reconsideration request within the stipulated period, the administrative authority may still issue a decision, triggering a new period for recourse to the Tax Disputes Resolution Committee. Position of the Courts or Committees The Federal Supreme Court, in case no. 568/2022, provided guidance on this matter: “As long as this deadline is among the regulatory deadlines, if a person submitted a reconsideration request and the request was not decided within the stipulated period, and he did not resort to the Tax Disputes Resolution Committee after the period specified to decide on his request had passed,

  In the construction and engineering sector, extension of time claims (EoTs) are ubiquitous, often representing complex contractual and legal implications. Amid the evolving international perspectives on these claims, the United Arab Emirates (UAE) has carved out its distinct path, driven by a pragmatic and robust legal framework. A deep dive into the UAE’s legal ethos towards EoT claims reveals rich insights, hinged on a series of landmark court judgments. To capture this perspective, we turn to three pivotal rulings: Dubai Cassation Court case no. 389/2022 issued on 19 September 2022. Dubai Cassation Court case no. 161/2021 issued on 11 April 2021. Dubai Cassation Court case no. 348/2015 issued on 22 May 2016. 1. EoT in Repair Works: Dubai Cassation Court case no. 389/2022 In this case, the appellant claimed that the defendant had failed to adhere to the agreed upon project timeline, leading to significant delays. Further, the appellant alleged that the work done was flawed, requiring deconstruction and reassembly. The case turned on the question of whether the delays were permissible under the contract, and whether the repairs could be considered a breach of the same. Crucially, the expert’s report, addressing the appellant’s objections, concluded that modifications made to the architectural and structural works, boundary wall modifications, general modifications, and sanitary drainage modifications—totaling eight core works—required additional time beyond the original project timeline for completion. In other words, the delay was necessary, and not a result of any failure on the part of the contractor. One must observe that time extension claims often arise from the unforeseen complexities that are integral to any construction project. Contractors can be confronted with a variety of challenges beyond their control. Here, the nature and magnitude of the required modifications justified the delay. The consultant agreed to extend the project deadline based on a letter issued in response to the plaintiff’s request. Consequently, any delay could not be blamed on the contractor. The contractor rectified the flawed works, and the repairs were approved by the consultant. Therefore, as per the court, the appeal lacked a solid basis and was therefore dismissed. The Dubai Cassation Court’s ruling in case no. 389/2022 highlights the complex nature of time extension claims in construction contracts. It underscores the importance of considering project-specific circumstances, the necessity of repairs, and agreed-upon contract terms while dealing with such issues. Through this lens, the court’s ruling offers a logical, well-argued, and reasoned response to such claims, proving instrumental for arbitration in similar cases in the future. 2. EoT in Additional Works and Concurrent Delay: Dubai Cassation Court case no. 161/2021 In the Dubai Cassation Court case No. 161/2021, the Court made a seminal ruling on EoT claims, throwing into sharp relief the fine line between the rights and obligations of contractual parties. The Court’s ruling navigates the muddled waters of concurrent delay and additional work – both being principal triggers of EoT claims. Essentially, it ruled that a contractor could claim an EoT in instances of concurrent delay, provided the owner’s delay activities are simultaneous with those of the contractor. Simultaneity here denotes that the owner’s actions (or inaction) must be within the same period as the contractor’s delay-causing activities. Moreover, the ruling underscores the essentiality of establishing causation – the delay must directly spring from the owner’s actions. The Court also delineated on the question of additional work causing delay. It observed that when additional work requiring extra time is commissioned, it becomes imperative to grant an EoT to the contractor. This not only maintains the contractual balance but also upholds the fundamental principle of fairness. The judgement makes it clear that an owner cannot take refuge in the delay penalties clause if the contractor’s delay in execution arises from causes attributable to the owner. The critical aspect of this case, though, lies in the unfurling of the connection between EoT claims and performance bonds. The Court postulated that a contractor’s entitlement to return of performance bonds is intricately linked to its adherence to contract completion timescales – extended or not. In situations where the contractor has dutifully executed its obligations and delays are not its sole fault, it is entitled to the return of the bonds, as they have fulfilled their purpose. Moreover, the Court also shed light on the role of a project consultant, highlighting that the certificates issued by the consultant, attesting the progress of work, are consequential for the contractor’s payment claims. In this context, it was emphasized that allegations of collusion between the consultant and the contractor must be substantially proven. The ruling elucidates that in the adjudication of EoT claims, every aspect of the case is scrutinized – from the causation of delays to the extent of their impact on the project timeline. It reiterates the importance of thorough examination and comprehensive understanding of the project specifics, as well as the nuances of the EoT claim itself. The Court’s decision in case No. 161/2021 indeed serves as a comprehensive guide for stakeholders in construction contracts. It lucidly explicates the concept and ramifications of EoT claims, helping parties navigate this intricate facet of contract law. This case, thus, is a welcome addition to the compendium of legal guidance available for understanding EoT claims, a complex, yet pivotal element of construction contract disputes. 3. Elucidating Contractual Clarity: Dubai Cassation Court case no. 348/2015 The contractor sought compensation for additional costs arising from an extended period of project execution. The employer argued that the contract contained no provision allowing the contractor to claim any costs related to the EoT. The case turned upon the interpretation of Articles 199 and 207 of the UAE Civil Transactions Law, which emphasize the significance of a valid cause and subject matter for a contractual obligation to be legally enforceable. The Court, applying these provisions, found that the contractor’s claim for additional costs lacked a legitimate contractual or legal basis since there was no provision in the contract allowing such a claim. The EoT claim was purely for additional time

  Introduction The United Arab Emirates Federal Supreme Court has offered an important perspective on the implications of fraud and deception in the context of construction contracts, based on a ruling that delved into these concepts. The ruling gives critical insights into how the court views contractual procedures, quantity schedules, and the necessary evidence to establish fraud and deception. Construction Contract Procedures In the contract in dispute, a critical element was the inclusion of all specifications and descriptions related to the beautification work, which was the responsibility of the contractor. The contract details served as a roadmap for the contractor, defining their responsibilities and obligations in executing the project. Quantity Schedules Integral to the contract is the quantity schedule, a document detailing the types and quantities of work to be completed as part of the project. It acts as a guiding tool that helps eliminate disagreements over the project’s scope. The court ruling stressed that any variance from this quantity schedule or any modifications in the design would be viewed as a change, signifying the owner’s awareness of the contractor’s prices and work items. However, the court also noted that the owner had the opportunity to seek better price offers than what had been agreed upon, implying a level of responsibility on the owner’s part in terms of due diligence before entering into the contract. Legislative Provisions and Interpretations The court based its decisions on relevant legislative provisions, namely Article 94 of the Civil Procedures Law and Article 21 of the Commercial Companies Law No. 2 of 2015. Article 94 of the Civil Procedures Law primarily addresses issues related to lawsuits and legal procedures. In the context of this case employed to analyze the eligibility of parties involved in the lawsuit, eventually leading to the determination that directing requests to the three individuals along with the contracting company was litigation against an ineligible party. On the other hand, Article 21 of the Commercial Companies Law No. 2 of 2015 offers guidance on the responsibilities and liabilities of shareholders in a company used to examine the roles and potential liabilities of the three defendants who were partners in the company initially sued. Court Requirements to Evidence Fraud and Deception When it comes to proving fraud and deception, the court requires solid evidence to establish such allegations. In this case, the court found no compelling evidence of the three defendants’ role in the contract under litigation, undermining the strength of the claim of fraud. The court reasoned that the owner failed to establish that the contractor used means to mask falsehood as truth and create a deceptive appearance, accompanied by physical manifestations that would affirm the deception. Simply being partners in the contractor company initially sued does not, in itself, provide sufficient proof of deception. Similarly, claims of overreaching in the contract, while possibly significant, were dismissed by the court. Variations to Quantity Schedule: Fraud and Deception? In the context of construction contracts, variations or changes to the quantity schedule can become potential points of contention. The quantity schedule, as part of the construction contract, specifies the type and quantity of work to be undertaken. It serves as a guiding document that assists in preventing disagreements over the scope of the project. The courts are likely to consider deviations from this agreed schedule as a substantial change, provided these deviations are not mutually agreed upon by the parties. In the ruling at hand, the court took a pragmatic view of such variations. It asserted that any divergence from the quantity schedule or modifications in the design constituted a change. However, this alone does not equate to fraud or deception. The court maintained that the property owner’s awareness of the prices, work items, and overall understanding of the contract terms plays a crucial role in deciding whether any changes amount to fraudulent activity. The fact that the owner had the possibility to seek more favorable price quotes than what had been agreed upon in the contract signaled that they were aware of the pricing dynamics. This indirectly implies that even if the contract resulted in less favorable terms for the owner, it cannot be directly classified as fraud or deception unless the contractor employed fraudulent means to mislead or deceive. If any changes to the quantity schedule are made with the intention to deceive, mislead, or defraud the other party, it can be classified as fraudulent behavior. This could include actions like the contractor artificially inflating quantities or the owner knowingly accepting lower quantities than required, with the intent to later claim additional costs. However, changes made in good faith, or with full transparency and mutual agreement, are generally considered legitimate variations to the contract. In the absence of strong evidence of fraudulent means, as in this case, variations to the quantity schedule are not typically regarded as fraud or deception. This highlights the importance of clear, honest communication, and comprehensive documentation in construction contracts, particularly when dealing with changes to the project’s scope as outlined in the quantity schedule. As a takeaway, both parties should be fully aware of their obligations and rights, exercise due diligence before entering the contract, and maintain transparency and clear communication throughout the project to avoid misunderstandings that could be construed as deception or fraud.

  A recent case from the Abu Dhabi Cassation Court serves as an exemplary canvas on which several key arbitration concepts were explored, particularly concerning the validity and enforceability of an arbitration award that delves beyond the scope of its underlying arbitration agreement and the role of indirect claims in arbitration under the UAE Civil Transactions Law. Case The case revolved around a dispute arising from a contractual relationship involving the appellant – a contractor – and three respondents. The first respondent, on behalf of the other two, had previously filed a lawsuit against the appellant to enforce its rights per the UAE Civil Transactions Law’s Articles 392 and 393. These articles form a cornerstone of the UAE’s law regulating civil and commercial matters. Articles 392 and 393 of the Civil Transactions Law permit a creditor, even if their right is not due for performance, to exercise all the rights of the debtor, unless those rights are intimately linked to the debtor’s personality or non-attachable. A creditor is thus deemed to be representing their debtor in exercising these rights, and any benefit derived from such an exercise enters the debtor’s assets and becomes a guarantee for all the debtor’s debts. Decision The case’s focal point centered on the enforceability and validity of the arbitral award rendered in the ensuing arbitration proceedings. The appellant sought to nullify the arbitral award, primarily on the grounds that the arbitral tribunal had decided on matters not encompassed within the arbitration agreement. However, the Abu Dhabi Cassation Court dismissed these arguments, standing by the arbitral tribunal’s decision. Importantly, the Court upheld the arbitral award’s validity, noting that even if the award delved into issues not covered by the arbitration agreement, it would not be void if the award’s portions subject to arbitration could be separated from those that were not. The court further held that based on Article 393 of the UAE Civil Transactions Law, the first respondent was entitled to indirectly claim the last two respondents’ rights from the appellant, including resorting to arbitration under the construction contract between the appellant and the last two respondents. Thus, the arbitration award was affirmed, obliging the appellant to pay the first respondent the sum adjudged in the award, considering the first respondent as a representative of the second and third respondents. Reasoning The Court’s judgment was rooted in a number of principles. First, it relied on the fundamental notion that an arbitration agreement’s ambit defines the arbitrators’ jurisdiction. However, the Court applied a pragmatic approach in recognizing that an award may still be valid, even if it touches upon matters outside the arbitration agreement, provided those portions can be segregated without impacting the decision’s overall integrity. The Court’s decision also involved a careful interpretation of Articles 392 and 393 of the UAE Civil Transactions Law. The Court acknowledged that these provisions enabled a creditor to exercise all the rights of the debtor, even those not due for performance, subject to certain limitations. These provisions thereby authorized the first respondent to act on behalf of the other two respondents in claiming their rights from the appellant. This interpretation gave rise to an intriguing legal scenario, one where the first respondent was allowed to resort to arbitration based on the construction contract between the appellant and the last two respondents. Consequently, this reasoning empowered the first respondent to indirectly claim the last two respondents’ rights from the appellant through arbitration proceedings despite the lack of an arbitration agreement between the appellant and the first respondent. Significance The Court’s decision in this case sets several significant precedents and offers a profound avenue for future indirect claims, particularly for subcontractors in the construction sector in the UAE, such as in cases where a subcontractor attempts to pursue the employer on behalf of the main contractor via arbitration. Arbitration Agreement and Scope: The judgment underscores the arbitration agreement’s significance in delineating the arbitrators’ jurisdiction. However, it advances a nuanced interpretation, asserting that an arbitration award can still retain its validity even if it ventures beyond the agreement’s scope, as long as the portions relating to the arbitration agreement can be segregated from the rest. Role of Indirect Claims: Perhaps the most remarkable facet of this judgment is its interpretation and application of the provisions of the UAE Civil Transactions Law concerning indirect claims. By endorsing the first respondent’s capacity to act on behalf of the last two respondents in claiming their rights from the appellant, the Court offers a crucial precedent for the applicability of Articles 392 and 393. Arbitration and Indirect Claims: The judgment also establishes an essential principle regarding arbitration’s place within the domain of indirect claims. It affirms that a party representing another’s rights, under the context of Articles 392 and 393, may resort to arbitration under the original contract between the debtor and the creditor. Enforceability and Validity of Arbitral Awards: The ruling further adds to the ongoing dialogue concerning the enforceability and validity of arbitral awards. By upholding the award despite the appellant’s objections, the Court reinforces the UAE’s pro-arbitration stance and offers reassurance about the robustness and reliability of its arbitration regime. The decision’s legal implications are broad and far-reaching. It augments the body of legal precedents that will undoubtedly influence future disputes involving similar arbitration issues. It offers important guidance on interpreting the UAE Civil Transactions Law towards indirect arbitration claims under Articles 392 and 393 and provides valuable insights into the UAE’s arbitration landscape.

  Brief “Bitcoin is a digital currency that does not meet the legal and Sharia criteria that make it a currency subject to the rulings of dealing with official legal currencies recognized internationally. It also lacks the Sharia controls that make it a commodity capable of being exchanged for other commodities.” In a dispute over OneCoin cryptocurrency, a UAE court (Ras Al-Khaimah Primary Court) ordered the invalidation and rescindment of a cryptocurrency sale contract on the basis that the cryptocurrency transacted (OneCoin) was not a recognized currency or commodity in violation of Shariah rules and the Civil Transactions Law. Reference to Fatwa No. 89043 The Court referenced Fatwa No. 89043 issued by the General Authority for Islamic Affairs and Endowments in 2018 which addressed Bitcoin and cryptocurrencies in general. The Fatwa addressed the status of Bitcoin in that it did not possess the necessary specifications to make it a tradable currency, like the approved currencies that are traded worldwide. And that it also lacks the necessary legal requirements to be considered a commodity for exchange with other commodities. The following is the Fatwa content quoted by the Court in its reasoning: “Firstly, defining Bitcoin: Those who call Bitcoin a currency describe it as a virtual, intangible electronic currency with no physical existence. These currencies, with their varying types, methods of access, and acquisition, have been widespread and known for several years. Among the most famous are Ethereum, Dash, Ripple, Litecoin, and Ethereum Classic, all of which are digital currencies, each with its characteristics, features, and ways of processing and generation. The purpose of resorting to such currencies is that they are decentralized, allowing individuals to control them, providing them with a high degree of privacy and confidentiality, and they cannot be tracked because they do not rely on official institutions and intermediary financial entities like banks. As they are not linked to any financial institution, they have no real assets or balances, are not protected by any financial regulations or laws, and are not subject to any regulatory authority. This has been one of the reasons for their exposure to massive increases or sharp declines, and in addition to all this: the unawareness of who is behind the promotion of this virtual currency makes it susceptible to damage and loss of value in the face of any sudden changes. For this reason, no country in the world, including the United Arab Emirates, has recognized Bitcoin as legal tender. Secondly, the Sharia criteria considered in currencies: In the previous paragraph, we provided a description that clarifies the reality of this currency in its current state. In this paragraph, we mention the most important Sharia requirement for considering anything as currency, which is: state adoption, meaning that it should be issued by the state. This is what the scholars express as minting or striking coins. This is explained as follows: The adoption of monetary currencies is considered a special function of the state in Sharia. The state alone has the right to issue coins, according to the adopted laws and regulations. This is explicitly stated in the texts of scholars, whether for metallic money – like gold dinars or silver dirhams – which have intrinsic value and were prevalent in the past, or for credit currencies that rely on the power of the law and do not have intrinsic value, such as paper currencies, which have become prevalent worldwide. In conclusion, Bitcoin is a digital currency that does not meet the legal and Sharia criteria that make it a currency subject to the rulings of dealing with official legal currencies recognized internationally. It also lacks the Sharia controls that make it a commodity capable of being exchanged for other commodities. Therefore, it is not permissible to deal with Bitcoin or other electronic currencies that do not meet the recognized Sharia and legal criteria, as dealing with them leads to unsound consequences, whether for the individuals involved, the financial markets, or the entire community, and whether we consider it cash or a commodity, the ruling encompasses both cases.” (United Arab Emirates – General Authority for Islamic Affairs and Endowments, Fatwa No. 89043 dated 30/1/2018) Invalidity of a cryptocurrency contract In its reasoning in Primary Court case no. 87/2020 (Ras Al-Khaimah), the Court applied the statutes, case law, and legislative commentary, that govern the validity of contracts under the Civil Transactions Law. The following are extracts from the respective judgment. “According to the provisions of Articles 125, 129, and 141 of the Civil Transactions Law, a contract is the binding commitment issued by one of the parties by accepting the other party’s offer and their mutual agreement in a way that establishes its effect on the subject matter and results in the obligation of each party to fulfill what is required of them to the other party. For a contract to be concluded, both parties must agree on the essential elements of the obligation and on the other legitimate conditions that indicate their essentiality, and the subject matter of the contract must be something possible, specific, or determinable and permissible to deal with. (Federal Supreme Court – Civil and Commercial Judgments – Appeal No. 226 of the year 25 Judicial – Civil and Commercial Circuit – dated 2006-03-14 Technical Office 28 Part 1 Page 525) Article 202 of the Civil Transactions Law stipulates the possibility of having a future thing as the subject matter for counterbalances if the uncertainty is eliminated. The explanatory memorandum clarified the meaning of uncertainty as the inability to deliver, based on the statements of Ibn Al-Qayyim, which can be summarized in that there is nothing in the Book of Allah or the Sunnah of His Messenger (peace be upon him) that indicates that a contract on something non-existent is not permissible, and to what is mentioned in the Sunnah of the prohibition of selling some non-existent things as in his saying (peace be upon him) “Do not sell what you do not have”. The reason is not non-existence,

  Overview The taxpayer filed its tax return with incorrect amounts by mistakenly calculating the tax rate at a different value than the standard rate of 5%, resulting in an incorrect tax amount. The taxpayer submitted a voluntary disclosure to correct the error, and the Federal Tax Authority imposed a penalty for the difference between the incorrect and correct tax amounts. The Federal Primary Court, adjudicating the dispute, ruled that what the taxpayer did in the original form of submitting the voluntary disclosure subject to the contested tax is nothing more than a correction of the error it made when calculating the tax imposed on it for its activity at a different rate instead of the standard rate of 5%, and it is not a voluntary disclosure of errors in the value of the tax return or tax assessment, for which the penalties prescribed in Cabinet Resolution No. 40/2017 and its amendments are due, and therefore the imposition of penalties loses its legal basis. The Court reasoned that the voluntary disclosure subject of this dispute, is merely a correction of an “unintentional error in calculating the tax”. Instead of using a 5% rate, the company mistakenly applied a different rate in the tax return. The judgment confirms that this voluntary disclosure is not a “disclosure of errors in the tax return or assessment”, which would warrant penalties as per Cabinet Decision No. 40/2017 and its amendments. As a result, the Federal Primary Court found that the imposition of penalties lacks a valid legal basis. Significance This judgment comes as a relief to taxpayers in the UAE because it provides a more lenient interpretation of the tax regulations and reduces the likelihood of penalties for honest mistakes. By differentiating between an “unintentional error in calculating the tax” and “a voluntary disclosure of errors in the tax return or assessment” the Court ruling essentially provides taxpayers with a more forgiving approach to correcting their tax filings. In the given ruling, the Federal Primary Court treats the voluntary disclosure submitted by the taxpayer as a correction of an unintentional error rather than a voluntary disclosure of errors in the tax return or assessment. This interpretation has significant implications for taxpayers in terms of reduced penalties. According to Cabinet Decision No. 40/2017 and its amendments, penalties can be imposed on taxpayers for errors in tax returns or assessments. By treating certain voluntary disclosures as a correction of an unintentional error, the court effectively eliminates the legal basis for imposing such penalties. Overall, the judgment is a relief to UAE taxpayers because it offers a more favorable interpretation of the tax regulations, reduces the likelihood of penalties for unintentional errors, and encourages voluntary disclosure and correction of such errors.

  Introduction A recent judgment by the Dubai Appeals Court following a series of civil suits and criminal complaints has shed light on pitfalls and best practices when faced with disputes arising from cryptocurrency mining investments and when litigated before the UAE courts. This case involved a complicated series of litigation including multiple civil disputes before the Dubai Courts at various levels, criminal complaints, and various investments. This article explores the principal claims and remedies, with a focus on the complexities surrounding cryptocurrency mining and the legal ramifications when volatility is attached to such investments. Case Claims of misrepresentation and inflated fees in a cryptocurrency mining investment The plaintiff claimed that they had invested USD 300,000 in a cryptocurrency mining device through a partnership, which was held for over four months before the device was purchased. And that the defendants had admitted that the initial price of the device was USD 1,200,000 with the partnership share of the plaintiff at 25%. The plaintiff also alleged that it was later discovered that the actual price of the device was USD 1,100,000 and the defendants had charged a commission of USD 220,000. As a result, the final price of the device was USD 880,000 and the actual partnership share of the plaintiff in the partnership owning the cryptocurrency mining device should have been 34%. Inequitable distribution of Bitcoin earnings The court sided with the plaintiff that the losses suffered were further exacerbated by the distribution of Bitcoin earnings based on the original partnership share of 25%, rather than the corrected share of 34% which led to the plaintiff receiving a lower value of USD 175,000. Fluctuating Bitcoin value and delayed transactions The plaintiff also argued another issue that contributed to their losses was the decline in the value of Bitcoin from USD 19,000 to USD 6,000 over the seven-month period during which the second defendant refused to transfer the cryptocurrency to the account of the plaintiff. Consequently, the plaintiff argued that the total amount they should have received was estimated at about USD 1,900,000 in relation to the Bitcoin mining device investment. Lack of legal ownership and regulatory compliance The court also noted that the plaintiff was not registered as the owner of a 34% share of the mining device, with the entirety of the ownership retained by the second defendant. Additionally, the plaintiff argued that the defendants were operating without a license from the Securities and Commodities Authority to engage in investment management activities. Lack of Information on the mining device production It was evidenced to the court that 66.21021 Bitcoins were transferred to the wallet of the plaintiff during the period from 27 September 2017 to 31 October 2018. However, experts appointed by the court were not provided with data on the production capacity of the cryptocurrency mining and the number of Bitcoins produced during that period to verify the correctness of the Bitcoins transferred to the plaintiff, nor were the experts provided with information on Bitcoin distributions that had occurred after 31 October 2018. Dispute over investment and rising mining costs The investment was reportedly halted due to disputes between the parties and rising mining costs. This led the plaintiff and the defendants to suspend operations until the end of 2021 to decide whether to resume operations, sell the assets, or liquidate the project. The fate of the cryptocurrency mining device was not disclosed, and no evidence was provided to indicate that the device ceased operations on 31 October 2018. Bitcoin wallet and losses The plaintiff sold their Bitcoin wallet on the same date it was received. The total value of the Bitcoins sold amounted to USD 499,961.89. The first defendant held the Bitcoin profits of the plaintiff for the period from October 2017 to February 2018, totaling five months. The court found that the Bitcoin transfers to the plaintiff resumed on 17 March 2018, with the delayed payments resulting in a decrease in Bitcoin value and losses of USD 92,676.01 for the plaintiff. Takeaways Drawing upon the details of this case, we outline strategies and tactics to increase the efficacy of cryptocurrency mining claims and what pitfalls to avoid when litigating cryptocurrency mining investments before the courts in the UAE: Ensure transparency in crypto-mining investment agreements including accurate device prices, commission fees, and ownership percentages. Establish a fair and well-documented distribution of cryptocurrency earnings based on accurate ownership percentages and agreed-upon terms. Cryptocurrency value fluctuations can significantly impact investments. To minimize potential disputes arising from these fluctuations, parties should agree on strategies to mitigate their effects, such as setting predefined conditions for the transfer of assets or establishing a mechanism to address delays in transactions. Ensure that the ownership of mining devices and other assets is properly registered and compliant with local regulations and that parties engaging have the necessary licenses from relevant authorities. Justify hashrate and mining power guarantees. Disputes can arise if the mining company guarantees a certain hashrate or mining power but fails to deliver, especially if the reasons for underperformance are not clear or considered acceptable. When pursuing a cryptocurrency mining claim, it is crucial to have complete and accurate data on the production of the mining device and the amounts produced during the relevant period. This helps in verifying the correctness of the cryptocurrency distributions made to the involved parties. If the mining company has control over which mining pool to join, disputes can arise if investors believe the chosen pool is not providing optimal returns. In the event of rising mining costs, it is important to have a predefined plan in place to address such issues. The plan could involve suspending operations, selling assets, or liquidating the project, but should be transparent and agreed upon by all parties. Establishing a clear course of action in advance can help prevent additional losses and further disputes. Cryptocurrency disputes can be highly complex and require specialized knowledge. It is essential to engage dispute counsel who have expertise in blockchain and digital asset disputes. Including

  In various decisions issued by the (second) Tax Dispute Resolution Committee of Dubai, the Committee ordered that tax obligations that are not explicitly provided for in the legislation do not create a tax obligation on the taxpayers until a public clarification is issued by the Federal Tax Authority. Disputes Three separate disputes were heard in 2023 by the (second) Tax Dispute Resolution Committee of Dubai on whether penalties should be applied to taxpayers against matters that are not explicitly clear in the legislation – but were instead clarified by the Federal Tax Authority via public clarification. The FTA ordered the taxpayers to voluntarily disclose certain liabilities. The FTA instructed the taxpayers that the tax legislation required certain tax liabilities to be disclosed by the taxpayers. The taxpayers argued that the tax legislation did not explicitly require disclosing said liabilities. The position of the FTA was that irrespective of whether the taxpayer had read the legislation in a particular manner – the understanding of the taxpayer should have been as that of the FTA. The FTA also relied on a public clarification that it had issued in mid-2022 to justify its position. The taxpayers complied with the FTA instructions and filed voluntary disclosures throughout the year 2022. The FTA applied the tax liabilities in addition to tax penalties against voluntary disclosure filings and late payments. The taxpayers disputed the taxes and penalties before the Tax Dispute Resolution Committee. Decision The Tax Dispute Resolution Committee issued similar findings in the three disputes as follows: The tax legislation does not explicitly require the disclosure that the FTA had instructed the taxpayers to make. The position on how the tax legislation should be applied by the FTA was unknown to the taxpayer as it was derived from the specific legislative interpretation by the FTA. The interpretation of the tax liabilities by the FTA only became known to the taxpayers via the public clarification issued by the FTA. The taxpayers cannot be penalized for tax liabilities that dominantly arise from a public clarification issued by the FTA if such tax liabilities are not explicitly provided for in the tax legislation. The Committee ordered the cancellation of all penalties up to the date of issuance of the public clarification by the FTA. Takeaway A substantial number of tax disputes in the UAE arise from differences in interpretation of the tax legislation – whether value-added tax legislation, excise tax legislation, or in due course, corporate income tax laws. The decisions issued by the (second) Tax Dispute Resolution Committee of Dubai provide solace to taxpayers who are faced with penalty liabilities dating back to October 2017 or January 2018 for interpretations of tax legislation that differ from the interpretation by the FTA.

  On 22 February 2023, Dubai unveiled a new strategic plan that is set to further advance its judicial system towards a world-class model for efficiency and service excellence. The benefits that will be derived by litigants in Dubai, especially those with high-value claims, cross-jurisdictional disputes, arbitration matters, and litigants with potentially insolvent debtors are significant. The first major development in the strategic plan is the Privatisation of Execution Procedures. Aligned with the procedures of Civil Law No. (42) of 2022, the Dubai Courts will issue a decision to license private companies to provide judgment execution services. By allowing private companies to participate in the execution of judgments, the speed and efficiency of the process are expected to increase significantly. Moreover, to address market competition, private companies may provide innovative approaches to enforcement, which can lead to the development of new technologies and processes that improve the efficiency and effectiveness of enforcement actions. Under the new plan, litigants with high-value claims will benefit from an advanced judicial system that exceeds global benchmarks for speed, efficiency, and service excellence. The new initiatives will expedite the execution of judgments and redesign processes to enforce court judgments, making it easier for judgment creditors to recover their assets. The Electronic Writ of Execution Seal initiative, for example, will facilitate the enforcement of court judgments and potentially arbitration awards through an electronic seal, making the process more efficient and less time-consuming. This can be particularly useful in cases where the judgment debtor is difficult to locate or where assets are spread across multiple jurisdictions. Cross-jurisdictional disputes can be a challenge, but with the new initiatives, litigants in Dubai can expect an easier and more efficient process. The new plan includes the Smart Requests initiative, which aims to streamline the Writ of Execution procedures, making the process more transparent and easier to track. This will reduce delays and ensure that the judicial system runs smoothly. Litigants involved in collection claims will also benefit from the new initiatives, especially those relating to recognition and enforcement. The Disclosure Platform initiative, for example, will enable all authorities and officials involved in the execution of a ruling to be notified about the funds and assets of judgment debtors. This will allow officials to track and recover assets, helping to ensure that the judicial system operates at peak efficiency more easily. Litigants with potentially insolvent debtors can also expect to benefit from the new initiatives. The Sale Notification System initiative creates a system for notifying officials in charge of the execution of a judgment about items confiscated as part of a ruling so that they can be sold within a specified time frame. This initiative will ensure that assets are sold in a timely manner, and that judgment creditors receive the compensation they are owed. Furthermore, the integration with the Ministry of Interior will ensure that rulings are enforced with the help of police and security departments. This initiative will ensure that enforcement is efficient and transparent, helping to protect the rights of all parties involved in a case. This can be particularly beneficial for foreign investors and litigants who may be concerned about the enforceability of their rights in a foreign jurisdiction and can increase compliance with court orders and help prevent further disputes from arising. In conclusion, the new strategic plan announced by Dubai Courts is set to benefit litigants in Dubai, especially those with high-value claims, cross-jurisdictional disputes, arbitration matters, litigants with potentially insolvent debtors, and will support procedures for recognition and enforcement of judgments and arbitration awards.

  Brief Two parties to a construction contract agreed that all disputes would be subject to the International Chamber of Commerce Rules of Arbitration and for the arbitration to be seated in Abu Dhabi. The arbitration award was challenged by one of the parties before the Abu Dhabi Appeals Court. The Abu Dhabi Appeals Court found it had no jurisdiction and that jurisdiction was exclusive to the Abu Dhabi Global Market Courts. The reasoning of the Abu Dhabi Appeals Court was that: the arbitration was subject to the ICC Rules which resulted in, the arbitration proceedings being subject to the ICC representative office in the ADGM, and as the ICC representative office in the ADGM is considered an ADGM establishment, then the ADGM Courts have exclusive jurisdiction to consider challenges to the arbitration award. Petition The party petitioning the Abu Dhabi Cassation Court argued substantively presenting a myriad of grounds addressing the UAE Federal Arbitration Law, the ADGM respective laws, and the New York Convention. The arguments of the petitioner were as follows: That the parties expressly agreed to settle disputes between them in accordance with the ICC Rules, provided that the procedures and place of arbitration are in the Emirate of Abu Dhabi, without allocating the spatial scope in the Emirate of Abu Dhabi, and that applying the ICC Rules does not make that ICC or any of its branches a place for arbitration because it violates the contract between the two parties. That the ICC having a representative office in the ADGM does not mean that the two parties have agreed that the seat of arbitration is this representative office as they agreed in the contract to subject arbitration and its procedures to the laws of the UAE, they also agreed that the Emirate of Abu Dhabi as the place for arbitration, and in accordance with Articles 1 and 2/1 of UAE Federal Arbitration Law No. 6/2018, the Abu Dhabi Appeals Court is the competent forum to adjudicate challenges against the arbitration award. That it was not mentioned in the arbitration award that it was issued by the ICC in its capacity as a local court in the ADGM or in its capacity as a local court in the Emirate of Abu Dhabi, and neither in the award nor in the contract was there agreement to apply the rules of the ADGM or the Arbitration Regulations of the ADGM. That the arbitration award was not issued in the name of The Ruler of the Emirate (Abu Dhabi) as required by Article 13/2 of ADGM Law No. 4/2013, and it was not issued by judges as required by Article 13/1 of said ADGM Law, nor by the representative office of the ICC located in the ADGM, but rather by the Secretariat of the International Court of Arbitration affiliated with the ICC, nor did the ICC representative office in the ADGM notify the parties of the arbitration award, but the notification was rather conducted by the Secretariat. That assuming that the ADGM Courts are competent to hear challenges against the arbitration award, this causes a judicial vacuum because the Court of First Instance in the ADGM has no jurisdiction to hear the case and its jurisdiction is exclusively in accordance with the text of Article 7/13 of ADGM No. 4/2013. That neither the ADGM, nor any of the ADGM authorities, nor any of the ADGM establishments were party to the arbitration, and the contract was not concluded, completed, or executed, in whole or in part, and the incident was not completed in whole or in part in the ADGM, and the award is not an appeal against a decision or a procedure issued by any of the ADGM authorities. That the ADGM Courts apply the civil and commercial laws of the ADGM, specifically English laws, not the laws of the UAE, and the Abu Dhabi Appeals Court judgment violated the New York Convention, which requires under its Article Three the recognitions of arbitral awards as binding and enforceable in accordance with the rules of procedure of the territory where the award is relied upon, and para. (e) of Article V of the Convention prohibited those territories from refusing to recognize a foreign award or refusing to enforce it, and thus the Convention linked foreign awards to the legal system of the country that it was issued and in respect of the invalidity of arbitration awards and as the award is issued in the Emirate of Abu Dhabi, the Abu Dhabi Courts have exclusive jurisdiction to hear challenges against an award issued in the Emirate of Abu Dhabi and outside the ADGM. Disposition of the Abu Dhabi Cassation Court The petitioner filed their petition before the Abu Dhabi Cassation Court on 29 December 2022 and the Court issued its judgment on 18 January 2023 rejecting the petition and upholding the finding of the Abu Dhabi Appeals Court on the following legislative grounds: Article 18/1 of the UAE Federal Arbitration Law applies which states that: “The jurisdiction to examine the arbitration matters referred by the present Law to the competent Court shall be according to the applicable procedural laws in the State, and they shall, solely, have the power until all arbitration proceedings are terminated.” Article 1 of the UAE Federal Arbitration Law defines the ‘Court’ as: “The federal or local Appeal Court agreed by all Parties or which the Arbitration is carried out within its area of jurisdiction.” Article 1 of ADGM Law No. 4/2013 defines ‘ADGM Establishments’ as: “Any company, branch, representative office, establishment entity, or project registered or licensed to operate or conduct any activity within the ADGM by any of the ADGM authorities according to the provisions of this law or the ADGM regulations or the executive resolutions including the licensed financial ADGM Establishments.” Article 13/1 of ADGM Law No. 4/2013 states that: “The ADGM Courts shall be of two degrees, first instance (formed of a single judge) and appeal (formed of three judges). Without prejudice to

  The new UAE law on taxation of corporate (“Corporate Tax Law”) and business income was promulgated on 03 October 2022 and applies to tax periods commencing on or after 01 June 2023. The Corporate Tax Law does not define its own dispute procedure system. The Corporate Tax Law is subject to the Tax Procedures Law (Federal Decree-Law No. 7/2017). The Tax Procedures Law regulates tax disputes through a five-tiered system: reconsiderations with the Federal Tax Authority, objections with the tax disputes resolution committees, and litigation before the Federal Primary Court, the Federal Appeals Court, and the Federal Supreme Court. Here, we look at the top five prior tax-related judgments that would carry over to corporate tax disputes under the Corporate Tax Law. No tax penalties on payment delays caused by the tax authority. The Federal Primary Court has ruled that: the obligations of the taxpayer to make tax payments on time and the procedural nature of the law are undeniable, however, that does not produce an effect unless the way to implement the procedures is in accordance with what falls within the obligations of the Federal Tax Authority, and if this is prevented by the Tax Authority without cause on the part of the taxpayer, there is no liability on the taxpayer that requires the imposition of penalties. No tax penalties for re-submission of correct tax returns. The Federal Supreme Court has ruled that: “…it is decided that tax procedures are not an end in themselves, but rather a means to achieve the goal of the lawgiver in collecting the legally due tax. Allegedly, the tax returns made under the wrong procedure that were subsequently corrected were not taken into account. Rather, the FTA’s right to collect the fine decided by the legislator on the wrong procedure only recedes, without this right going beyond that by imposing other fines for a tax collected on the date specified by the law, even under the aforementioned procedure.” No disputes available without tax or penalty liabilities: The Federal Supreme Court has found that private clarifications are not disputable decisions until such clarification results in actual tax or penalties being applied to the disputing taxpayer. In other words, if a decision by the Federal Tax Authority does not create a tax or penalty liability, it may not be disputed under the Tax Procedures Law. No joint liability for tax evasion without laws validating the conviction. The Federal Supreme Court overturned a judgment against a party found to be an accomplice to a tax evasion crime on the basis that joint liability requires explicit provisioning in the law: “…the Appeals Court’s finding that the mere presence of the goods in the second accused’s warehouse is considered participation with the first accused in evading the tax as stipulated in the laws of the State, without indicating the laws criminalizing the act and validating conviction, stigmatizes the judgment for insufficient causation, and breaches the [second accused’s] right of defense, which requires it to be quashed.” Time limits related to tax disputes. The Federal Supreme Court ruled that the time limits related to tax disputes do not necessarily commence when notification is issued – but rather require evidence of the receipt and fulfillment of knowledge of the taxpayer of that decision and its contents. Takeaway As the Federal Courts consider a wider array of complex tax disputes, taxpayers would benefit from the guidance of the courts on general matters, such as those listed above – but also on more industry-specific matters such as those affecting the insurance industry, manufacturing, construction, and real estate. As taxpayers begin planning for compliance with the Corporate Tax Law, it is necessary to understand the position of the courts and tax dispute resolution committees on substantive and technical issues.

  The Dubai Cassation Court, the highest tier of court litigation in the Emirate of Dubai, recently rendered judgment rejecting enforcement of an arbitration award against a foreign award debtor on the basis that the debtor does not have a domicile in the United Arab Emirates. Furthermore, the Dubai Cassation Court provided an interpretation of Article III of the New York Convention in finding that its purpose is that enforcement of an award should be conducted “…in accordance with the rules of procedures applicable in the territory of enforcement with the adoption of the easiest procedures, and the exclusion of the more onerous procedures…”. The Dubai Cassation Court did not adopt the latter part of Article III which continues to state, “than are imposed on the recognition or enforcement of domestic arbitral awards”, developing an interpretation of Article III to consider its second sentence requiring application of easy and non-onerous procedural rules, instead of requiring application of procedural rules that are not more onerous than those that apply to the enforcement of domestic arbitration awards. The arbitration award: The arbitration award was issued by the London Court of International Arbitration. The award debtor is a foreign entity and has no domicile in the United Arab Emirates. However, the award debtor owned shares in companies established and domiciled in the United Arab Emirates. The award creditor applied for recognition and enforcement of the award before the Dubai Courts against the shares of the United Arab Emirates companies owned by the foreign award debtor. The enforcement judge rejected the application on the basis that the Dubai Courts have no jurisdiction to enforce an arbitration award against a foreign party. The award creditor challenged the finding through the courts, up to and in petitioning the Dubai Cassation Court. The Dubai Cassation Court considered the following arguments made by the award creditor: Pursuant to the principle of voluntary – legislative – compliance with the accession of the United Arab Emirates and the United Kingdom to the Convention on the Recognition of Foreign Arbitral Awards (New York Convention) ratified by Federal Decree No. 43/2006, the rules of jurisdiction contained in the Federal Civil Procedures Law do not apply to the enforcement of foreign arbitral awards, considering that both the United Kingdom and the United Arab Emirates have acceded to the Convention on the Recognition of Foreign Arbitral Awards of 1958 (New York Convention) and implicitly accepted their jurisdiction to consider the application for the enforcement of foreign arbitral awards and are obligated to recognize and order their enforcement in accordance with the terms contained in the Convention. It is evidenced within the contract in dispute and within the arbitration award that the award debtor is the owner of shares of two companies registered in the United Arab Emirates. The parties to the arbitration agreed to the sale and purchase of the shares owned by the award debtor in those two companies. The legislator deviated from the general principle of domicile jurisdiction, allowing the creditors of a shareholder in a limited liability company to execute against the shares of a debtor shareholder by selling the shares and collecting the debts from the proceeds of the sale in accordance with Article 20 of the Federal Commercial Companies Law. The Dubai Cassation Court rejected the petition for the following reasons: The text of Article III of the New York Convention of 1958 indicates that enforcement takes place in accordance with the rules of procedures followed in the territory of enforcement, with the adoption of the easiest procedures and the exclusion of the more onerous procedures. This matter is not limited to the general procedural law, which is the Federal Civil Procedures Law and its executive regulations, but rather includes any procedural rules for litigation and the implementation of its provisions contained in any other law that regulates these procedures, and to say otherwise is allocation without provision. And that it is established – in the jurisprudence of the Dubai Cassation Court – that the issue of sovereign or qualitative jurisdiction is one of the issues related to public policy and is considered to exist in any litigation and always before the court, which the court must address it on its own accord, even if none of the litigants raise the issue. It is also decided – in the jurisprudence of the Dubai Cassation Court – that the company of any kind – with the exception of the joint venture company – has a legal personality and a financial liability independent of the liabilities of its shareholders, and it has the capacity to sue as a plaintiff or defendant, independently of its shareholders. The jurisdiction of the Dubai Courts in the enforcement of the arbitration award is not affected by the request to enforce against the shares of the award debtor in the two companies domiciled in Dubai (in the United Arab Emirates) as the arbitral award required to be enforced does not include an order against the two companies, in addition to the absence of any other rulings against them, and therefore they are not considered a party to the instrument (the arbitration award) required to be enforced. For the competence of the enforcement judge in the Dubai Courts to recognize (apply exequatur) and enforce a foreign award, the domicile of the award debtor against whom enforcement is requested must be within the State jurisdiction of the Dubai Courts whilst in this case the award debtor is domiciled in a foreign State. Article III of the New York Convention The Dubai Cassation Court cited part of Article III and supplemented its quotation with an interpretive addition to the provision while omitting the application of the latter part of Article III. Article III of the New York Convention states: “Each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall

  Brief It was evidenced before the Federal Primary Court that the taxpayer had informed the Federal Tax Authority of an obstacle in the online tax filing portal that prevented the taxpayer from being able to file their tax returns. The taxpayer continuously requested resolve of the issues since early 2018 until mid-2021. The issue was finally resolved by the Tax Authority in 2021 and the taxpayer was able to file their returns and make tax payments after that date. The Federal Tax Authority applied penalties retrospectively on the taxpayer for (i) late filing of tax returns and (ii) late payment of taxes. Arguments The taxpayer argued that Article 25(1)(i) permits the application of penalties in case the “…taxable person fails to settle the tax defined as the payable tax in the tax return that has been submitted or the tax assessment notified thereto within the period set forth under the tax law”. And since the payable tax never manifested because of the inability to file a tax return, nor by way of an audit, no tax had become payable. The taxpayer argued that the Payment User Guide of November 2018 indicates that the filing of tax returns and payment of taxes are sequential procedures. In that payment of the tax is a subsequent stage to accepting the tax return. That is only after accepting the tax return, the taxpayer must pay the tax due, otherwise the Federal Tax Authority may implement penalties. However, where the taxpayer does not have the opportunity to submit the tax return due to the fault of the Authority, without cause on the part of the taxpayer, the subsequent stage of paying the tax cannot be triggered. In other words, the unencumbered submission of the tax return is a pre-condition for payment of the tax. Judgment The Federal Primary Court ruled that: the obligations of the taxpayer to make tax payments on time and the procedural nature of the law are undeniable, however, that does not produce an effect unless the way to implement the procedures is in accordance with what falls within the obligations of the Federal Tax Authority, and if this is prevented by the Tax Authority without cause on the part of the taxpayer, there is no liability on the taxpayer that requires the imposition of penalties. Wasel & Wasel was counsel on this matter.

  In a dispute over investment in Dash cryptocurrency, one of the more well-known and established altcoin cryptocurrencies, the Dubai Primary Court ordered payment to the plaintiff in Dash (as opposed to in Dirhams, US Dollars, or UK Pounds). This is one of the first cases in the UAE where the court orders compensation in cryptocurrency as opposed to fiat currency providing substantial considerations for how disputes over cryptocurrency transactions should be managed. Background The plaintiff purchased 6000 Dash from the defendant for the amount of USD 540,000, on the promise that the defendant would invest the cryptocurrency for a return of 3% per week. The defendant failed to pay the plaintiff the investment return, or the principal investment, despite multiple demands by the plaintiff. The plaintiff sued before the Dubai Primary Court for USD 1,009,800 being the value of the Dash coins at the time plus the agreed upon returns of 3% per week. Dubai Primary Court judgment The Court ruled in favor of the plaintiff awarding the 6000 Dash instead of the amount of USD 1,009,800 claimed by the plaintiff. Although the transaction agreement was evidenced and established, the Court did not award a monetary value in fiat currency on the basis that the plaintiff did not evidence the true market value of the Dash that was being claimed. This is the first known case where a UAE court awards damages in cryptocurrency only, without identifying any fiat currency as a value to such cryptocurrency in the award. The Court ordered in its judgment disposition: “Obligating the defendant to return to the plaintiff an amount of (6000 Dash Cryptocurrency) to the electronic address of the plaintiff’s wallet.” The Court based its reasoning on the Federal Commercial Transactions Law as follows: “The meaning of the provisions of Articles 76, 77, 88, 90 of the Commercial Transactions Law is that if the debt arises from a commercial business and relates to a sum of money of known amount at the time the obligation arises and the debtor is late in paying it, then the creditor has the right to demand interest on it as compensation for delay, and this interest applies from the maturity date of this debt, and is calculated according to the price agreed upon in the contract concluded between the two parties. If no interest rate is specified in the contract, it is calculated according to the prevailing market price at the time of dealing, provided that it does not exceed 12% annually until the full payment. … The contract concluded between the two parties did not include a reference to any website whereby the unit price of the [crypto] currency will be calculated and therefore the benefits resulting from it cannot be estimated due to the lack of knowledge of its price in the market as it changes daily.” Takeaway This is a significant judgment for those engaged in the digital asset economy in the UAE to account for; (i) at the time of contracting; (ii) at the time a dispute arises; (iii) and in strategizing the most appropriate relief to seek from the courts or arbitration tribunals to maximize return. Should parties wish to recover their cryptocurrency in fiat currency at the time of making a claim, it is crucial to: At the time of contracting specify how the value of cryptocurrency will be determined and based on which references. Post-contracting, at the time of dispute, disputants should provide an expert/technical report on the true market value of the cryptocurrency using credible reference points. On the other hand, should a plaintiff expect the value of the cryptocurrency to rise, this judgment provides grounds to make claims and request compensation in the cryptocurrency that was traded/invested as opposed to a monetary value. If the price of the cryptocurrency is expected to increase, it may be beneficial to request the courts to grant relief in the form of the cryptocurrency as opposed to the monetary value. This is because if the court awards relief in the monetary value of the cryptocurrency (as opposed to awarding the cryptocurrency itself) the value of the fiat currency in the judgment would be set at the date of the judgment and generally remain so during appeal and enforcement. Appeals and enforcement could take months or years. During which time the value of the cryptocurrency could increase in folds. However, if the judgment awards a party in cryptocurrency instead of fiat currency, that cryptocurrency value would continue to increase as the parties go through appeal and enforcement procedures. And the winning party would be able to enforce at the then-current price of the cryptocurrency (at enforcement), as opposed to the price at the time of the initial judgment.

  In a rare judgment, the Appeals Court of Ras Al-Khaimah (UAE) applies the elements of contract formation of the Federal Civil Transactions Law to invalidate a cryptocurrency transaction – finding that the object of the agreement did not fulfill the requirements of being “possible, specified or specifiable, and negotiable”. Furthermore, the Appeals Court classified the transaction as a Ponzi scheme and provided a definition thereof falling within the general understanding of a Ponzi scheme, but with a wider net that requires persons engaged in the digital asset economy in the UAE to be better attuned with the recent rules and regulation surrounding digital assets. Also notable, the transaction in dispute involved the infamous OneCoin. Claim The claim alleged that the defendant (Seller) sold to the plaintiff (Buyer) 40,000 units of OneCoin at a value of AED 100,000 and despite the Buyer’s payment for the exchange, the Seller did not deliver the tokens/units. The Seller sued the Buyer before the Primary Court of Ras Al-Khaimah. Primary Court technical analysis and judgment The Primary Court adopted the following technical provisions/understandings: An encrypted digital currency is a virtual currency or a digital asset based on a network and is distributed across a large number of systems known as “Blockchain.” Due to this decentralized structure, an encrypted digital currency is considered not subject to the control of governments, authorities, and centralization. Bitcoin, Litecoin, and Ether are among the most popular of these currencies and in order to be converted into cash, a cryptocurrency must be traded on a special exchange. To verify the actual value of that currency, a variety of sources on the internet were surveyed but no exchange trading OneCoin was found, and based on the information available on the internet, the OneCoin exchange known as “XCoinx” was closed without any notice and therefore the current and past value of this coin cannot be confirmed. This Primary Court ruled to rescind the sale contract and obligated the Seller to return the purchase price of AED 100,000 and pay AED 10,000 in comprehensive compensation to the Buyer. Appeals Court procedures The Seller appealed the Primary Court judgment before the Appeals Court arguing that the sale is valid as it was conducted through a “Deal Shaker” platform, and it does not violate the law nor public policy. The fact of the agreement – as argued by the Seller in appeal – between the two parties is that the Seller would maintain the cryptocurrency in accordance with the Seller’s terms and conditions as listed online and release it for transfer to the Buyer between certain periods of time. The Seller argued that they had explained to the Buyer the rules of the exchange and the possibilities of profit and loss and the risks that might occur to the Buyer. The Seller alleged that they had informed the Buyer of the period to acquire the OneCoin units but did not receive any confirmation from the Buyer. The Buyer refuted any communication to acquire the units during that period had occurred. Appeals Court judgment The Appeals Court rejected the Seller’s appeal on the following reasoning. The Court found that OneCoin (and its related companies and its founder Ruja Ignatova), as being the object of the underlying agreement, was deemed associated with fraud that tempts investors to join a Ponzi scheme. The Court defined a Ponzi scheme as “…a form of defrauding investors by paying dividends to early investors based on money deposited by newer investors. This scheme leads its victims to believe that profits come from sales of products or other investment means and remain unaware of the fact that other investors are the source of funding without real investment in valid means.” The Court concluded that the sold currency and its circulation constitutes fraud, which makes it an invalid transaction and a violation of law and public policy. Consequentially – the Court found – the agreement does not fulfill the necessary elements for the formation of a contract under Article 129(b) of the Civil Transactions Law that is: “The object of the contract must be something possible, specified or specifiable, and negotiable.” Which invalidates the contract and renders it void ab initio and restores the contracting parties to the state prior to the coming into effect of the agreement, with the obligation on the Seller to refund the moneys paid to the Buyer. Takeaway The majority of cryptocurrencies derive their value and increase thereof from their supply and demand on exchanges, so within the wide-encompassing definition of the Ponzi scheme by the Appeals Court, there is a risk of cryptocurrency transactions falling afoul of Article 129(b). In the past few years, the UAE Central Bank, the Securities and Commodities Authority, the ADGM and the DIFC have set out in regulating digital assets with instruments such as: Central Bank Circular No. 6/2020: Stored Value Facilities (SVF) Regulation Securities and Commodities Authority Decision No. 23/RM/2020: Concerning Crypto Assets Activities Regulation DIFC Dubai Financial Services Authority: Consultation Paper No. 143 – Regulation of Crypto Tokens Abu Dhabi Global Markets Guidance – Regulation of Virtual Asset Activities in ADGM (VER04.280922) The regulations set forth, those above and others in the digital asset industry, provide for various forms of licensing depending on the activity in the digital asset economy. Failing to operate within the confines of the rules and regulations, or license accordingly, may lead to the invalidation of digital asset transactions on the premise that they do not conform with Article 129(b) of the Civil Transactions Law, or be considered a Ponzi Scheme within the definition adopted by the Appeals Court. And for buyers who may have suffered from questionable transactions, the Appeals Court judgment provides a sign of relief in the technical competency of the UAE courts to deduce and adjudicate digital asset disputes.

  Dubai Court rejects claim of loss of 608 Bitcoins for lack of evidence of crypto-wallet ownership. Dubai Primary Court rules: “…the plaintiff had transferred the encrypted currency “Bitcoin” to the defendant…did not indicate how to prove the ownership of the account to the defendant, noting that by referring to the page shown in the advisory report taken from the “blockchain” website, it became clear to the court that they are symbols…” In brief, the Court found that cryptocurrency claims require a plaintiff to evidence crypto-wallet ownership by the alleged debtor. Background The plaintiff met the defendant in Dubai, and accepted making an investment in Bitcoin in return for “fantastic financial returns”. In January 2019, the plaintiff transferred 608 Bitcoins to the defendant. The Bitcoins were transferred to the crypto wallet of an investment company in accordance with the terms of the agreement between the plaintiff and the defendant. It was also agreed that after 15 February 2019, even if the project is not complete for any reason, the defendant and the company that owns the crypto wallet must return the Bitcoins to the plaintiff. On 15 March 2019, the plaintiff demanded from the defendant and the investment company the return of the Bitcoins delivered to them. The demand to return the Bitcoins was rejected by the defendant, and the defendant “disappeared”. Claim and ruling The plaintiff sued the defendant before the Dubai Primary Court claiming return of the 608 Bitcoins or their equivalent market value. The plaintiff filed an expert report which evidenced the validity of the transfer by referring to a blockchain records website (public ledger) showing that the Bitcoins were held by a particular crypto wallet. The Court commented that the expert report did not evidence that the crypto wallet belonged to the defendant nor the investment company as the only identification to the wallet’s ownership were “symbols”. By “symbols” the Court is referring to the crypto wallet identification number. In essence, the Dubai Court set a threshold for evidence of token possession by a wrongdoer. Proof of identity of crypto wallets is an ongoing issue in digital asset disputes. But solutions and remedies are available for claimants. Solutions for digital asset disputes Digital asset disputes – particularly involving the misappropriation of tokens – have resulted in innovative solutions in different jurisdictions using common law injunctive processes. Mareva injunctions A Mareva injunction is a worldwide freezing and asset disclosure order. It extends to all a defendant’s assets worldwide, limiting the defendant from utilizing those assets except for regulatory purposes (i.e., paying employment salaries) unless consent is granted by the plaintiff. And requires the defendant to disclose its worldwide assets over a certain threshold value (i.e., over USD 10,000 or USD 50,000). The Hong Kong High Court recently granted such remedy over Bitcoins that were fraudulently misappropriated in Nico Constantijn Antonius Samara v Stive Jean Paul Dan, freezing up to USD 2.6 million of the defendant’s assets (including any digital assets). Norwich orders Norwich orders – or Norwich Pharmacal orders – are injunctive orders obtained against an innocent third party in order to identify a wrongdoer or details related to a potential wrongdoer. A Norwich order compels an innocent third party (such as a cryptocurrency exchange) to disclose relevant information to a plaintiff/applicant. In digital asset disputes, these orders have been used to compel exchanges to disclose details related to crypto wallets and digital assets. The English High Court recently issued a Norwich order in Mr Dollar Bill Limited v Persons Unknown and Others – notably, the Norwich order was issued against cryptocurrency exchanges outside England compelling them to assist in identifying what had happened to the tokens in question. Anton Piller orders One increasing trend is the reliance on Anton Piller orders to access the digital assets of a defendant and investigate records that could prove the transfer of the tokens. Anton Piller orders are a common law remedy which compels a defendant to permit a plaintiff to enter its property to search for and seize evidence and records, including electronic data and equipment. An Anton Piller order in a cryptocurrency dispute was recently issued by the Ontario Superior Court of Justice in Cicada 137 LLC v. Medjedovic in relation to an alleged theft of CAD 15 million in digital assets from the plaintiff’s crypto wallet. Solutions in the UAE The UAE has two common law court systems: the Abu Dhabi Global Market Courts (ADGM) and the Dubai International Financial Centre Courts (DIFC). Both the ADGM and the DIFC have authority to grant Mareva injunctions, and the DIFC has historically granted several Mareva injunctions against parties in the UAE and otherwise. The ADGM and DIFC may also consider applications for Norwich orders to compel third parties to provide evidence in support of a dispute. Anton Piller orders before the ADGM and DIFC courts are possible, but there are no records of execution of such orders to date. Digital asset disputes in the UAE According to ‘The 2021 Geography of Cryptocurrency Report’ by Chainalysis, the UAE hosted USD 25.5 billion worth of cryptocurrency transactions between July 2020 and June 2021. With a significant value of cryptocurrency transactions taking place in the UAE, plaintiffs need to carefully strategize any dispute process and make use of all domestic and cross-border remedies. Relying on archaic means of pursuing claims in an industry that is incrementally complex may not be fruitful – and instead innovative tactics and strategies must be put in place. The UAE has six court systems – each with their own utility – and the UAE has agreements and treaties with various international dispute resolution forums and courts, that claimants need to consider when pursuing digital asset claims.

  On 13 September 2022, Judge Abdul Rahman Murad Al-Blooshi, Director of International Cooperation Department of the Ministry of Justice, issued a communique to His Excellency Tarish Eid Al-Mansoori, Director General of the Dubai Courts, confirming the enforcement of judgments issued by English Courts based on the principle of reciprocity. Extracts from the communique read as follows: “…based on the Treaty between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates on Judicial Assistance in Civil and Commercial Matters, and the desire to strengthen fruitful cooperation in the legal and judicial field; Whereas, the aforementioned Treaty does not provide for enforcement of foreign judgments, and states that the judgments should be enforced according to the relevant applicable mechanism set forth in the local laws of both countries; Whereas, Article (85) of the Executive Regulation of the Civil Procedures Law, as amended in 2020, stipulates that judgments and orders issued in a foreign country may be enforced in the State under the same conditions prescribed in the law of that country, and the legislator does not require an agreement for judicial cooperation to enforce foreign judgments, and such judgments may be enforced in the State according to the principle of reciprocity; and Whereas, the principle has been considered by the English Courts upon previous enforcement of a judgment issued by Dubai Courts by virtue of a final judgment issued by the High Court of the United Kingdom in Lenkor Energy Trading DMCC v Puri (2020) EWHC 75 (QB), which constitutes a legal precedent and a principle binding on all English Courts according to their judicial system, Therefore, we kindly request you to take the relevant legal actions regarding any requests for enforcement of judgments and orders issued by the English Court, in accordance with the laws in force in both countries, as a confirmation of the principle of reciprocity initiated by the English Courts and assurance of its continuity between the English Courts and the UAE Courts.” Lenkor considered whether enforcement of a Dubai Court judgment would be in breach of English public policy on the argued grounds that “it is contrary to public policy to permit the indirect enforcement (via a guarantee) of a contractual obligation that is illegal”. The Lenkor court rejected that the underlying transaction must be considered as in breach of English public policy – but rather it is the judgment that must be found to breach English public policy. The court found that there “is no suggestion that the public policy which arises under the law of Dubai precludes the enforcement of the statutory cause of action. As the judge said, if that point was to be taken, it should have been taken in Dubai”. And further that the “degree of connection between the claim and the illegality must also be balanced against the strong public policy in favour of finality, and in favour of enforceability”. The communique by the Ministry of Justice confirming the enforcement of judgments issued by English Courts based on the principle of reciprocity provides confidence and judicial stability for creditors looking to enforce English Court judgments against debtors in the UAE.

  Brief In June 2022 the UAE Federal Supreme Court issued a judgment finding that default termination clauses cannot be exercised by both (or all) parties to a contract — if that termination clause inures to the benefit of one of the parties with a standing claim. The reasoning rendered by the Supreme Court is where a termination clause is a default termination clause yet inures to the benefit of one party but not the other and is read to intend protecting the interest of that beneficial party, then it is that beneficial party who must explicitly trigger the default termination clause otherwise the contract remains intact. Ruling The Federal Supreme Court ordered that: “It is decided that if the contract does not contain an express condition, it is terminated if its elements are fulfilled. The court is not necessarily bound to terminate the contract based on an implicit termination condition established for the benefit of the applicant in the event the other party fails to implement their mutual obligation. The court may compel the debtor to implement their obligation immediately or within a specified time. And the court may reject the request for termination if it appears to it from the facts of the situation that the debtor is no longer in breach of implementing their obligation, by preventing the issuance of the judgment for termination, by implementing his commitment before or during the consideration of the case and until before the issuance of the final judgment in it. And there would be nothing in this delay that would harm the applicant requesting the termination or anyone else, and there would be no principle in this regard to the extent of the defendant’s obligation that he had not fulfilled, or the value of the obligation that the applicant fulfilled in accordance with the terms of the contract. Rather, the principle is what will be the state of affairs when the case is judged and until the final ruling is issued.” Facts In 2008, the applicant (seller) sold to the respondent (buyer) an apartment of which the buyer paid the deposit of about 15% for. The buyer failed to pay the rest of the installments despite the completion of the apartment. The seller requested the buyer take possession of the apartment. The buyer rejected without justification and issued a termination notice to the seller. The seller sued for the remaining amounts due for the development of the apartment plus interest. The primary and appeals courts rejected the claim on the basis that the contract had been terminated. Ultimately the seller petitioned the Federal Supreme Court for review. References The Supreme Court relied on Articles 267 and 272 of the Civil Transactions Law that state: 267: If a contract is valid and binding, none of the contracting parties may revoke, modify, or terminate it except by mutual consent, order of the court or a law provision. 272: (1) In bilateral contracts, if one of the parties does not perform his contractual obligations, the other party may, after serving a formal notification to the debtor, demand the performance of the contract or its termination. (2) The judge may order the debtor immediate performance of the contract or grant him specified additional time, as he may order termination with damages, in any case, if deemed justified. The Supreme Court deduced the penalty and termination clauses of the contract in dispute which read as follows: Clause 5: In the event of the buyer’s failure to pay three consecutive or non-consecutive payments, a notice of default for week shall be issued. In the event that the overdue amounts are paid during this period [the week], the buyer will pay a delay fine of 10% of the overdue amounts. Clause 6: If the buyer does not pay during the above-mentioned period, which is the week for payment of the overdue amounts, the contract is terminated without referring to the buyer, and the seller has the right to sell the apartment to another person, and the buyer deducts 30% of the total paid contract. Reasoning The trial courts, primary and appeals, had considered that the contract is deemed automatically terminated pursuant to clauses 5 and 6. The Federal Supreme Court overturned the lower court judgments and found that the option of the express termination clause is in the interest of the seller and not for the buyer. The Supreme Court found that the termination notice issued by the buyer is invalid as the termination clause is not in his interest and the buyer does not have the right to terminate the contract unilaterally. And the seller had insisted on executing the contract of sale of the apartment and requested that the buyer be obligated to pay the rest of the price and take possession of the apartment. The reasoning rendered by the Supreme Court is where a termination clause is a default termination clause yet inures to the benefit of one party but not the other and is read to intend protecting the interest of that beneficial party, then it is that beneficial party who must explicitly trigger the default termination clause otherwise the contract remains intact. And the courts may not terminate the contract without the request of the beneficial party to the termination clause – and must grant requests for performance of the contract.

  Brief In July of 2022, the Supreme Court adjudicated whether a bankruptcy judgment in a foreign jurisdiction provided sufficient grounds for the Ministry of Economy in the United Arab Emirates to de-register a company from the commercial agency register. Commercial agency registrations Foreign companies entering the UAE market from abroad can do so through commercial agency structures. These relationships are registered with the Ministry of Economy and are distinct from general unregistered contractual relations, distributorships, or otherwise. Commercial agencies are governed by a specific law (Commercial Agencies Law No. 18/1981) and grant the agent protections that are to an extent safeguarded by the Ministry of Economy. The Ministry of Economy registers commercial agencies and de-registration of agencies requires the consent of the parties (agent and principal), or court order, or a decision by a special Commercial Agencies Committee. The legislative purpose of restricting deregistration is to protect the agent. Ergo to ensure the efforts and investments of the agent made in developing a market for a principal are not abused by the principal through abrupt terminations. Commercial agency litigation Disputes between the agent and principal are generally governed by the contractual relationship between the parties. However, disputes related to registrations or the general status of a commercial agency registration arise from decisions issued by the Ministry of Economy and are subject to the jurisdiction of the Federal Courts (as Federal administrative disputes). Case facts An Emirati company was registered with the Ministry of Economy as the commercial agent for three Japanese companies. In 2019, two of the companies filed a joint request with the Ministry of Economy to de-register the third company from the commercial agency register on the basis that the third company had been liquidated since 2005. The Commercial Agencies Committee accepted the request and de-registered the third company. The agent was not informed of the de-registration decision issued by the Committee. The agent argued before the Federal Courts that it had no knowledge of the liquidation of the Japanese company since 2005 and that in 2015 the agent was informed that the apparent restructuring was due to a change of name, and the agency relationship continued between the parties. In 2021 the agent challenged the decision of the Ministry of Economy (the Commercial Agencies Committee) before the Federal Primary Court. The agent argued that the liquidation order of the courts of Japan has no effect on the rights of the agent (including his registration rights) because (i) the agent was not a party/litigant in the liquidation proceedings before the courts of Japan, and (ii) the agent was not informed or notified of the decision thereafter. Supreme Court decision The Supreme Court reasoned that: “Article 16 of the Commercial Agencies Law No. 18 of 1981 and its amendments states that every commercial agency registration, amendment, or cancellation from the commercial agencies register must be accompanied by the documents supporting it. The commercial agency [principal] of the appellant has been judicially liquidated by a ruling issued by one of the courts of Japan, and therefore the effects of this ruling before the courts of the United Arab Emirates do not apply until after the competent [UAE] judge issues the order to implement [the foreign judgment] pursuant to Article 85 of the Executive Regulations of the Civil Procedures Law. In the appealed ruling, the court ruled on the legality of the Ministry’s decision to de-register the foreign company from the commercial agencies register based on a foreign judgment that was not confirmed domestically, which renders the judgment defective and must be rescinded.” Article 85 of the Civil Procedures Law Regulations The decision by the Supreme Court is that foreign orders and judgments that may affect the status of the registration of a commercial agency in the UAE cannot be presented to the Ministry of Economy to action without first obtaining recognition by the UAE courts. Article 85 of the Civil Procedures Law Regulations governs the procedure for enforcement of foreign judgments, orders, and bonds. When an application to the court is filed for enforcement of a foreign judgment, such enforcement order may be appealed by any concerned persons. In this situation, agents would have the opportunity to sound or present any reservations or contentions to foreign orders that may affect their commercial agency relationship and registration. Author: Mahmoud Abuwasel

  Silence may be deemed consent Article 135 of the Civil Code (Law No. 5/1985) states that (i) no statement may be attributed to a silent person. However, circumstantial silence shall constitute acceptance. And (ii) silence shall amount to acceptance namely in case of previous dealings between the contracting parties that are met by the offer made or where the offer is made to the benefit or the offeree. The DIFC Court of First Instance addressed the meaning of Article 135 in DAS Real Estate Owned and represented by Mussabeh Salem Mussabeh Humaid AlMuhairi v First Abu Dhabi Bank Pjsc DIFC 002/2016 where Chief Justice Sir David Steel noted that: “In the event of silence the secondary question arises as to whether there was a “need” to speak…Silence in the face of “need” amounts to “acceptance”. Indeed Article 135(2) identifies the specific example of acceptance of an offer in the context of prior dealing between the parties. The commentary on the UAE Civil Code by James Whelan gives the example of a person who “has the right to prohibit the act by his words is regarded as consenting to it by his deliberately abstaining from saying anything.” In brief, silence may be considered acceptance under Article 135 of the Civil Code in certain circumstances. Silence in arbitration agreements Arbitration agreements have a high threshold in the UAE with respect to evident acceptance by the parties, such as in relation to capacity, authority to represent a principal, arbitration agreements in separate documents to the substantive agreement, or in reference to standard forms (such as the FIDIC forms of contract). Article 7(2)(a) of the Federal Arbitration Law (No. 6/2018) states that: “The requirement that an Arbitration Agreement be in writing is met in the following cases…If it is contained in a document signed by the Parties or mentioned in an exchange of letters or other means of written communication or made by an electronic communication according to the applicable rules in the State regarding the electronic transactions.” Article 7(2)(a) provides room for interpretation with respect to the nuances that arise in exchanges of electronic communication to conclude an arbitration agreement. And the UAE Federal Supreme Court has previously confirmed that an arbitration agreement can be concluded through written electronic communication or through instant messaging. Consequently, this raises questions as to whether an offer to bind a dispute to arbitration issued by some form of manuscript or – particularly – electronic communication may fall within the parameters of Article 135 of the Civil Code where silence is deemed acceptance. On 17 May 2022, in a matter involving a payment order and whether the courts had jurisdiction vis-a-vis a purported arbitration agreement, the Abu Dhabi Cassation Court explicitly addressed silence in arbitration agreement offers in finding that: “It is not permissible to derive proof of an arbitration agreement from the mere silence of one of the parties regarding the response to the arbitration offer from the other party, or the implementation of what was presented to it by this party related to the invitation to conclude a specific contract as long as it is not proven that the party to whom this offer is addressed has accepted the writing of arbitration while accepting the contract. It is also not permissible to deduce the proof of arbitration also from the mere work between the two parties to arbitrate in certain contracts that the arbitration will apply to another contract between them that did not provide for arbitration since the agreement on arbitration is not presumed and may not be implicitly drawn.” Author: Mahmoud Abuwasel

  Facts The taxpayer submitted tax returns for the prescribed tax periods as of January 2018, and these returns included supplies related to real estate owned individually to the taxpayer, as well as real estate owned in partnership with another person. The taxpayer’s partner was not added to the tax registration from the beginning due to the absence of his name as an owner in all real estate. The taxpayer registered a new account with the partner on the directives of the Federal Tax Authority during an audit and re-filed the tax returns under the new account. Penalties The FTA applied late payment penalties to the taxpayer as the new account required re-submission of the returns that had been filed previously by the taxpayer under the original account. The FTA considered that the new submissions were the correct submissions as the original submissions were not correct in form and procedure because the account did not include the partner. The FTA applied the late payment penalties to the new submissions tracing back to January 2018. Supreme Court order The taxpayer challenged this up to the Federal Supreme Court. The Supreme Court found that the reopening of the new account did not result in damages to the State funds because the taxpayer had originally submitted and paid all tax returns, including the real estate in the partnership, on the legally prescribed dates. The procedural deficiency did not manifest a circumstance where the payments had not been made. In reasoning, the Supreme Court stated: “Since this argument is in order, it is decided that tax procedures are not an end in themselves, but rather a means to achieve the goal of the lawgiver in collecting the legally due tax. Allegedly, the tax returns made under the wrong procedure that were subsequently corrected were not taken into account. Rather, the FTA’s right to collect the fine decided by the legislator on the wrong procedure only recedes, without this right going beyond that by imposing other fines for a tax collected on the date specified by the law, even under the aforementioned procedure.” Significance This judgment reassures the application of justice and equity in tax dispute proceedings before the Federal Courts of the UAE. Taxpayers must seek learned and practiced counsel when faced with a tax dispute. Author: Mahmoud Abuwasel

  Facts and Trial A company operating from 2001 till 2012 was in strong financial standing. After 2012, the company faced financial difficulties and lawsuits and by 2020 had encumbered debts amounting to almost AED 20 million. The Federal trial courts (Primary and Appeal) assessed that the company was trading in a commercial business by nature, and it was declared bankrupt as a result of its failure to pay its commercial debts and the disruption of its business and lack of confidence in it in the commercial market, which indicates its troubled financial position, with which its credit position is shaken. The creditors petitioned for the bankruptcy of the two shareholders as well. The Federal trial courts rejected the bankruptcy of the two shareholders on the finding that the bankruptcy conditions did not apply to them according to the text of Article 142 of Federal Decree-Law No. 9/2016 on Bankruptcy. The creditors challenged the position of the Federal trial courts before the Federal Supreme Court on the basis that Article 142 states that if there is an order for bankruptcy of a company and liquidation of its assets, then all the joint partners of the company shall be declared bankrupt. Supreme Court Assessment The Supreme Court rejected the petition on the grounds that the company whose bankruptcy was declared is a free zone company that has a separate legal personality, and its financial liability is independent of the liabilities of its shareholders, and the responsibility of each of the shareholders is determined with his share in the company both in relation to each other and to third parties. The Supreme Court clarified that shareholders could be found accountable in their personal capacity for debts within the limits of any issued personal guarantees. If the shareholders are not joint partners nor are responsible for the company debts with their personal assets, they are not considered merchants, just as their participation in the formation of the company and their rights to profit share from the company is not considered a commercial act. The Supreme Court confirmed that Article 142 applies to ‘merchants’ and/or joint partners in unlimited liability companies (or civil companies) but does not extend to shareholders in a limited liability company. The Court clarified that Article 142 should be read in line with Article 2(4) which states the provisions of Bankruptcy Law applies to licensed civil companies of professional nature. Although not referenced by the Court, a ‘merchant’ is defined in Article 11 of the Commercial Transactions Law as every person performing, in his own name and for his own account, acts of commerce, and every company exercising a commercial activity or adopting one of the forms prescribed in the Commercial Companies Law, even if such activity is a civil activity. Supreme Court Holding Whereas the text of Articles 2(4) and 142 of Federal Decree-Law No. 9 of 2016 regarding bankruptcy states that its provisions apply only to the person who is approved by the description of the merchant in its legal sense, that he was conducting business in his name and in a professional and exploitative manner, and that the description of the merchant applies to a general partner in the company that conducts trade as a profession, and it was decided and based on what was done by the judiciary of this court that declaring bankruptcy is a penalty that is limited to merchants who stop paying their commercial debts as a result of their financial position insolvency, and that the description of the merchant is only valid on the person who practices trade as a professional, and the capacity of a merchant in commercial business cannot be a presumption, and the burden of proof falls on the one claiming it, and that the bankruptcy of the company entails the bankruptcy of each joint partner in it, with the effect that the joint partner in a commercial company is considered a trader that permits his bankruptcy. Significance The clarification by the Supreme Court on the reading of Article 142 of the Bankruptcy Law comes at a significant time on the heels of the recent Marka ruling by the Dubai Courts in adjudicating the bankruptcy of Marka Holdings PJSC. The Dubai Primary Court had ordered that the managers and directors of Marka be found personally liable for the debts of Marka to amount of approximately AED 450 million. The Primary Court, in the Marka case, based its finding on Article 144 of the Bankruptcy Law which permits the Court to compel any or all board members or managers to pay all or some of the debts of the company if the assets of the company are not sufficient to meet at least twenty percent of its debts. Article 144 reads in a sequential manner to Article 142 – with Article 142 discussing liability of partners. It is noteworthy now the Supreme Court highlights that the reading of Article 142 must be in conjecture with Article 2(4) which applies the Bankruptcy Law to licensed civil companies and does not extend to shareholders in companies protected with limited liability provisions. Author: Mahmoud Abuwasel

  Brief In December 2019, the UAE formed a high Commission to establish unifying precedents across the various judicial systems of the UAE. The UAE has six judicial systems: Federal, Abu Dhabi, Dubai, Ras Al-Khaimah, the Dubai International Financial Centre, and the Abu Dhabi Global Market. Historically there have been conflicting positions between the judicial authorities. The power of stare decisis has been granted to the decisions of this high Commission by law. Even where a high court of the UAE (including the Federal Supreme Court) rules in contradiction to an order of the high Commission, standing is granted to appeal against that contradictory ruling. Whether the DIFC and/or ADGM courts are subject to the jurisdiction of the high Commission is unclear. This high Commission issued its first decision in July of 2021 addressing a few issues. Of those issues, we discuss here, are the concept of absolute invalidity of contracts, the doctrine of apparent circumstances, and the standard of good faith. The high Commission acknowledges that the doctrine of apparent circumstances is not stipulated in UAE legislation neither implicitly nor explicitly. And with this acknowledgment made clear by the high Commission, it has issued what may be considered as the UAE’s first stare decisis order — the first case law binding precedent in the UAE enshrining a nationwide binding doctrine that is prior non-existent in statutory nor customary law. The Commission The ‘Commission for the Unification of Conflicting Judicial Principles’ was established on 19 December 2019 by Federal Law No. 10/2019 on the Regulation of Judicial Relationships between Federal and Local Judicial Authorities. The Commission is headed by the President of the Federal Supreme Court and paneled by judges from each of the Federal Supreme Court and the Courts of Cassation of the UAE. Res judicata effect and stare decisis status The decisions of the Commission have res judicata effect and stare decisis status. All Federal and local judicial authorities must abide by the principles decided by the Commission. Violation by any judgment of a lower trial court to any Commission principle is grounds for appeal. If the violation is by the highest court of a respective UAE jurisdiction, that provides standing to appeal before the respective courts. Commission Order 1 of 2020 The first petition to the Commission was filed on 4 October 2020 by the Federal Public Prosecution. The Commission issued its decision on 7 July 2021. Concept of absolute invalidity Brief: The Commission held that the absolute invalidity of a contract does not affect persons who relied on the contract, nor does it affect contract successors, should such persons (or successors) had relied on apparent circumstances that created an appearance of validity for the contract. Holding of the Commission on absolute invalidity: Applying the concept of absolute invalidity in contracts and extending the effects of invalidity to others leads to instability in transactions and conflicts with (i) the requirement to protect those who relied on what appeared to be truthful acts by the contract right holder and (ii) the good faith presumption that applies in considering the truthfulness of apparent circumstances. This is because the invalidation of a contract that is acted on within the apparent circumstances and cancellation of its effects from the time it was concluded will inevitably lead to turbulence and instability of transactions. Moreover, considerations of justice and the requirements for protecting the sanctity of transactions and upholding public trust in them requires protecting good-faith actors from the consequences of the contracts of their predecessors* when entering into such contracts after they – the good-faith actors – were assured of and believed in the validity of those contracts. Public interest requires that such protection be given for public welfare and the legitimate trust on which people depend. This protection finds its support in the fact that the absolute invalidity of a contract does not prevent considering its existence an actual reality. As the contract, despite its invalidity, creates apparent circumstances of validity on the basis of which a person acts in perceived good faith that it is a legally valid contract, as long as no error or negligence attributed to the person in this belief. *Predecessors is meant to mean the market, historically, or in a corporate sense, not the familial predecessors of the good faith actor. In other words, the market consists of a plethora of contracts. Many are predecessors or foundational to novel transactions or successor contracts. Should absolute invalidity be accepted by default, reliance on such predecessor contracts and bodies would fade and disrupt market stability. Doctrine of apparent circumstances Brief: Apparent circumstances that are deemed to have granted a contract validity must be given the same weight as the actual circumstances whose elements had invalidated the contract. Holding of the Commission on the doctrine of apparent circumstances: The actual circumstances that are deemed contractually illegal in respect of an invalid contract carry the same effect vis-à-vis persons who acted on such contract in good faith in the same manner as would have manifested if the required elements to perfect the validity of the contract had been achieved. This is based on the doctrine of apparent circumstances which justifies protection of persons in the event of wrongful disposal – that arise due to contracting with the agent of the apparent circumstances – that is contradictory to the actual circumstances, so long as good faith is evidenced on the part of the protected person. Notwithstanding that the doctrine of apparent circumstances is not stipulated explicitly nor implicitly in the Civil Transactions Law, the doctrine can still be relied on in pursuit of the protection of justice and interests. This is particularly the case as Article 1 of the Civil Transactions Law states that the rules of justice and interests are considered foundational to the law, after considering legislation, custom, and the principles of Islamic Law. Standard of good faith Brief: The act conducted between the agent of the apparent circumstances and any good faith actor is effective against the

  Brief A company in Abu Dhabi providing electronic services since 2009 had its commercial license revoked by its licensing authority. The company challenged the revocation decision for being unfounded before the Federal Courts. The company requested from the Federal Courts: (1) cancellation of the license revocation decision, and (2) compensation of 100 million Dirhams. The Federal Primary and Appeals Courts ordered the cancellation of the license revocation decision – but rejected granting the company any damages. The Federal Supreme Court overturned the rulings of the lower courts and awarded the company compensation of AED 500,000 in damages for loss of profit. Liability to compensate In considering the liability of the government agency to compensate, the Supreme Court stated: “And since it is established in administrative law jurisprudence and case law, and the position of this court, that when a judgment is issued to cancel a decision issued by the administration on its non-contractual actions and the judgment acquired the force of res judicata, the element of error in the issuing of the administrative decision and its violation of the law is established and the liability for compensation for damages manifests.” Right to monetary damages In addressing the right to monetary damages, the Supreme Court ruled: “And since the damage as the second pillar of responsibility is the breach of the financial interest of the injured person, it includes the loss suffered by the injured and the loss of profit, provided that the damage is real, that it actually occurred, and it was found to be proven with certainty, or that it will inevitably occur in the future.” Legislative basis In quantifying the damages owed to the company, the Supreme Court relied on Article 282 of the Civil Transactions Law and accounted for a court-appointed expert report (obtained at the lower courts), and estimated damages as follows: “Article 282 of the Civil Transactions Law states that every act that results in harm to a third party obliges the perpetrator to repair the prejudice, and since the government agency had withdrawn the company’s license with a decision that the court canceled by a judgment that had the force of res judicata, and this [cancelled] administrative decision was what led to the damages sustained by the company, and therefrom, compensation for damage is dependent on the extent of the damage, and that in order to determine its elements, the court delegated an expert who … stated in his report that the decision revoking the company’s license prevented it from providing services to the public and lead to loss of the company’s clients that it held since 2009 … since the compensation is estimated for the damage incurred by the aggrieved party, and there is no provision in the law that obliges a specific criteria in estimating compensation, the court sets it at an amount of 500,000 Dirhams according to the elements of the aforementioned damage…” Author: Mahmoud Abuwasel

  Brief For the first time since the UAE tax laws came into effect in October 2017, the legislation now: Grants permission to pay tax penalties in installments. Specifies reasons that permit penalty waivers.* Prohibits installments or waivers if litigation is ongoing. Allows for a class action against tax penalties. Permits waiver of penalties paid during the past five years. *Before, the legislation only stated that “accepted justifications” may substantiate penalty waivers, but it was unclear what would entail an accepted justification. Importantly, taxpayers must choose between either disputing tax penalties through the tax dispute resolution committees and the Federal Courts — or filing installment applications. The new changes make it unworkable for both to occur at the same time. And because of the time limitations, a dispute may be time-barred if the taxpayer opts to file an installment application instead of contending the penalties before the tax dispute resolution committees and the Federal Courts. Although there is no explicit similar restriction for waiver applications, it is assumed that litigation may prevent waiver applications as well. This is a substantive consideration for taxpayers as they must weigh the risks of sacrificing litigation against the risk of receiving a rejection on an installment application (and potentially waiver applications). Decree Cabinet Decree number 105 of 2021 was signed into effect on 28 December 2021 and published in the official gazette in first week of January 2022. The Decree is titled: ‘Regarding Protocols and Procedures for [Tax] Penalty Installments and Waiver’. The Decree comes into effect on 1 March 2022. Acceptability of tax penalty installments Approval of requests to pay tax penalties in installments is subject to the following conditions: The request must be in respect of unpaid tax penalties only. The minimum tax penalties subject to an installment request must be at least AED 50,000. The penalties subject of the installment request must not be currently in dispute before the tax dispute resolution committees or the Federal Courts, or any other relevant authorities. That the penalties do not have any associated outstanding taxes. Acceptability of tax penalty waivers  Approval of requests to waive tax penalties (in part or in full) is subject to the tax penalties not be associated with any crimes of tax evasion. The law is unclear on whether ‘crimes’ refers to mere allegations or actual convictions. Accepted reasons to grant penalty waivers are as follows: Death or illness of the taxpayer if the taxpayer is a natural person or owner of an establishment. Death, illness, or resignation of a principal employee of the tax registrant. Evidence of restrictions, or precautionary or preventive measures, applied on the taxpayer by UAE government agencies.* Evidence of system failure in the general, payment or communication systems of the Federal Tax Authority that affects a class of persons. Causes relating to restrictions on liberty and freedom of a natural person taxpayer or owner of an establishment. Payment of all taxes via the tax account of another registered taxpayer. In cases of insolvency or bankruptcy, penalties may be waived if they have been paid prior to the insolvency or bankruptcy, ad if it is evident that the insolvency or bankruptcy was not for purposes of tax evasion. *The law does not state “other” government agencies. It is unclear whether restrictions or precautionary or preventive measures, also apply to actions by the Federal Tax Authority itself. These reasons must – of course – be evidently directly linked to the implementation of the penalties. The committee maintains the right to waive penalties for any other reasons it deems acceptable. Class actions: The Decree permits the Director-General to propose to the committee waiver of penalties against a class of persons to whom are collectively affected by one of the accepted reasons noted above. As a note, the Decree refers to natural person owners of establishments. The Decree does not discuss single-person owned limited liability companies. Procedure for either tax penalty installment or waiver applications  The applicant of either an installment or waiver application must provide the general details (tax number, penalty amounts, reasons, etc.) in their applications. Importantly for installment requests, the taxpayer must file an undertaking that the penalties will be paid in accordance with the payment schedule that is accepted by the committee. Importantly for waiver requests, the taxpayer must file an undertaking that the cause of the penalties shall be rectified, and that the cause shall not occur again. A taxpayer may not file more than one application for the same penalty[ies]. Breach of the undertakings will nullify and void the underlying application. In other words, if the taxpayer breaches an undertaking against a waiver application by repeating the problem, the waived penalties may be re-implemented by the Federal Tax Authority. An application will be reviewed by the Federal Tax Authority within forty weekdays for compliance with all requirements, if the application is valid, it shall be referred to the committee. The committee has sixty weekdays to decide on an application (and ten days to notify the applicant thereafter). Lack of a decision is deemed a final rejection. Committee decisions  The committee will be responsible for setting the time limit for filing waiver applications. The committee will draw the payment procedures and schedules for installment applications. The committee is free to decide the percentage of penalties to be waived in respect of waiver applications. The committee may request any guarantee it sees fit to process an installment application. Presumably, the committee may request corporate, personal, or bank guarantees against an installment application. Failing to adhere to an installment payment plan may result in either: A new payment plan if there is a justifiable excuse for non-compliance with the schedule, or Action by the Federal Tax Authority against the taxpayer to collect the penalties. Retrospective penalty waivers The Decree requires waiver applications to be made in respect of unpaid penalties only – but the Decree also grants the committee authority to waive paid penalties that were paid five years prior to a waiver application. The

  In a recent judgment by the Abu Dhabi Cassation Court, the Court looked into whether an amended memorandum of association binds the shareholders to the arbitration agreement in the original memorandum. Case The shareholders of a limited liability company included an arbitration agreement in the memorandum of association at the time of incorporation of the company. The memorandum was duly attested by the public notary and registered with the commercial registrar. The arbitration agreement between that parties stated that: “In the event that any dispute arises regarding the interpretation, implementation, or application of the agreement [the memorandum of association] provisions or for any other reason, it shall be resolved by amicable means agreed upon between the parties. If this is not agreed upon, the dispute shall be referred to an arbitration tribunal composed of three arbitrators.” Subsequently, one of the shareholders sold their shares in totality to the other shareholder, and the amended memorandum of association reflecting the new share ownership was duly attested by a public notary and registered with the commercial registrar. The amended memorandum expressly stated in its sixth clause that with the exception of the amendments stated therein, the rest of the terms of the original memorandum of association remain in effect. The amended memorandum did not include an arbitration agreement. The shareholders disputed and the case was brought before the Abu Dhabi Courts. The Courts applied their jurisdiction to adjudicate the dispute on the reasoning that the amended memorandum of association did not include its own respective arbitration agreement, and that the parties were not bound by the arbitration agreement in the original memorandum of association. Cassation Court reasoning The Cassation Court found that the referral to the original memorandum of association contained in the sixth clause of the amended memorandum did not imply the express consent of the parties to the arbitration agreement in the original memorandum and that it was not to be deemed clear and express reference to the arbitration agreement in the original memorandum. The Court’s position was that the reference to the original memorandum of association was just a general reference to its texts without specifying the arbitration agreement to evidence the parties’ knowledge of its presence in the original memorandum, and hence the general referral to the provisions of the original memorandum of association does not extend to the arbitration agreement therein. The Cassation Court reasoned as follows: “The provisions of Articles 4, 5 and 6 of Federal Law No. 6 of 2018 on Arbitration states that arbitration is an express agreement of the parties on the jurisdiction of the arbitrator excluding the courts to settle a dispute between them, and whether the agreement on arbitration is in the form of terms or conditions, it must be established in writing, whether the writing is in writing signed by the parties or what the parties exchanged in letters, telegrams or other written means of communication, and is considered an agreement on arbitration every reference in the substantive agreement to the document that includes the arbitration clause if the referral is clear and explicit in approving this clause. The effect of referral is achieved only if it specifies the arbitration agreement contained in the document to which it is referred. If the reference to the substantive agreement is just a general reference to the texts of this agreement without specifying the arbitration agreement evidencing that the parties know of its presence in the referred to substantive agreement, then the referral does not extend to the arbitration agreement and the arbitration is not to be considered agreed upon between the contracting parties, just as if there are annexes or schedules to the substantive agreement, it is not required that the parties sign and stipulate that these schedules and appendices are considered an integral part thereof, given that these annexes and schedules are nothing more than a detailed statement of the essential issues agreed upon by the parties, except that if those annexes include an exceptional condition such as the arbitration agreement, in which case the arbitration agreement does not apply to the parties unless they sign that annex.” (The translation of the judgment is for informational purposes only and is not a substitute for the official judgment. The original version of the judgment is the only definitive and official version.)  Takeaway In this judgment, the Abu Dhabi Cassation Court sheds light on the judicial approach with respect to Article 7(2)(b) of the Federal Arbitration Law which permits incorporating arbitration clauses by reference to any model contract, international agreement, or any other document containing an arbitration clause. And particularly does so in the sense of corporate constitutional documents. For shareholders with arbitration agreements in their memoranda of association, this judgment provides guidance on the position of the courts if any amendments are made to the original memorandum without an explicit arbitration agreement governing that amendment. Revisiting amendments to memoranda of association, or registered share transfer deeds, to ensure they reflect express consent to the arbitration agreement in the original memorandum would be a cautionary step to take to ensure the validity of the arbitration agreement. Author: Mahmoud Abuwasel

  Brief The Public Prosecution took action against two entities; a tobacco trader (first accused) and a warehouse operator (second accused) on tax evasion charges for possessing cigarette goods that lack the requisite distinctive marks (tax stamps). On 27 May 2020, the warehouse operated by the second accused was inspected by the Public Prosecution where eighty thousand cartons of cigarettes were found lacking distinctive marks. The cigarettes were owned by the first accused and sent for storage with the second accused on the basis of being subsequently exported to Pakistan. The first accused acknowledged knowing that the goods did not have the required tax stamps and that no evidence was provided from the selling party validating the entry of the goods into the UAE. The first accused’s defenses relied on whether the provisions of law relied on by the Prosecution were valid at the time of charge by the Public Prosecution. The second accused, however, argued mainly that the storage service was conducted pursuant to its permitted commercial activities, that it had no interest nor benefit in evading the tax, and that none of the criminal elements were evidenced against it. The Federal Supreme Court upheld the conviction by the Federal Appeals Court against the first accused. However, the Supreme Court quashed (set aside / voided) the judgment of the Appeals Court on the finding that the mere presence of the goods in the second accused’s warehouse is not sufficient to convict the second accused of participating in tax evasion with the first accused. Arguments – first accused The first accused confirmed that: They sent the tobacco goods to be stored in the warehouse of the second accused in preparation for shipment to Pakistan. They knew that the goods did not have the distinctive marks (tax stamps) as they were intended for export outside the country. They did not obtain documents from the party that sold the cigarettes proving their entry into the country through customs. The first accused argued – however – that the Federal Primary and Appeals Courts applied a repealed law, because the date of arrest was on 27 May 2020, and the provisions in force at that time were that of Law No. 2/2019 on Implementing the Marking Tobacco and Tobacco Products Scheme. Prior to Law No. 2/2019, the proceeding law was Law No. 3/2018 – also on Implementing the Marking Tobacco and Tobacco Products Scheme. Article 1 of Law No. 2/2019 set the starting date for certain prohibitions: Prohibition on importing designated excise goods without the tax stamps as of 1 March 2020. Prohibition on supplying, transferring, storing, or possessing designated excise goods without the tax stamps as of 1 June 2020. Article 1 of the canceled Law No. 3/2018 provided similar prohibitions against importing and supplying. The Federal Courts reasoned that these amendments between the repealed Law No. 3/2018 and the applicable Law No. 2/2019 were nothing but a renewal of this prohibition and do not justify storing excise goods without the requisite marks. Arguments – second accused The second accused did not dispute that the goods were seized in its warehouse, but insisted that; the criminal elements for conviction were missing; its actions were in good faith; the goods were being stored for the benefit of others as permitted by its commercial license; that it had stored the seized goods belonging to the first accused without knowing that they do not bear the distinguishing marks (tax stamps) that would prevent their possession or storage; that the first accused requested to store them to send them outside the country; and that the second accused had no interest in evading the tax imposed and due on the goods. The principal argument of the second accused (the storer) was that it was convicted despite the absence of the elements of the crime and the absence of criminal intentو and that it evidenced the presence of good faith and that it had no knowledge that the cartons stored do not bear the distinctive marks (tax stamps) and that it has no interest in not paying the tax and that it did not violate the company’s permitted commercial activity in its license and that the tax law did not provide for the criminalization of storage work for others, and the seized goods were in the possession of its owner – possession by means. The second accused focused on arguing that the Primary and Appeals Court judgments did not prove the second accused’s contribution to the non-payment of tax and that the first accused admitted that the goods belonged to it and that it deposited them in the second accused’s warehouse until they were to be exported outside the country and that the first accused bears the full tax due. The Federal Primary and Appeals Court relied on the testimony of the second accused during interrogation with the Public Prosecution which was quoted as follows: “The second accused testified that during interrogation by the Public Prosecution that a quantity of tobacco that was not allowed to be circulated inside the second accused’s warehouse was seized from and that it was owned by the first accused, and that the first accused sent it to their warehouse for the purpose of storing it and then shipping it outside the country, but they were unable to export it, so it remained in their (the second accused’s) possession. This indicates that the second accused participated with the first accused in evading the tax stipulated in the laws of the State and that he shall be jointly and severally liable before the State with the first accused towards paying the due tax and administrative fines.” On the basis of the interrogation testimony, the Federal Appeals Court upheld the conviction of the second accused as ordered by the Primary Court. Supreme Court trial The first accused was represented by the company owner in interrogation and in liability. The second accused was represented by a corporate representative in interrogation and in liability. The alleged evaded

  Novelty  It has generally been the case that a jurisdictional challenge against the courts to hear a dispute where an arbitration agreement exists must be made at the first hearing that takes place, at the first level of the overseeing trial court. (To clarify – the ‘first hearing’ is in reality usually the first case management session where a party is ordered to file their pleading. It does not necessarily refer to be a trial hearing before the supervising or trial judge.) Long-standing case law authority has been that where a party does not challenge the courts’ jurisdiction on the grounds that an arbitration agreement exists between the parties, it would be deemed as implicit consent to the courts’ jurisdiction. In a landmark judgment passed by the Dubai Cassation Court in October 2021, the Court found that: The court may of its own accord reject jurisdiction where an arbitration agreement exists. And (more significantly): That a party can file its jurisdictional challenge for the first time at the appellate or cassation courts – even if not presented at the primary or the appeals courts. Case The dispute revolved around a private corporate share acquisition where the share transfer agreement was subject to an arbitration agreement as the dispute resolution forum. The buyers filed their claim before the Dubai Primary Court seeking claw-back of the share sale with an order on the seller to re-acquire the shares. The seller did not defend before the Dubai Primary Court, nor before the Dubai Appeals Court, only filing their defense and rejection of the courts’ jurisdiction before the Cassation Court. Rulings The Dubai Primary Court rejected its jurisdiction to hear the dispute by its own accord, citing that the parties had agreed to resort to arbitration – even though the seller/defendant had not appeared nor filed any statements before the Court. The buyers appealed before the Dubai Appeals Court. The Dubai Appeals Court overturned the Dubai Primary Court judgment and ruled on the substance of the dispute. The seller/defendant had not appeared nor filed any statements before the Appeals Court either. The seller/defendant petitioned the Dubai Cassation Court to review and overturn the Dubai Appeals Court judgment. The Cassation Court ruled that: “…and it was proven in the evidence that the appellant [seller] did not appear before the Primary Court or before the Appeals Court, whose judgment is being contested, and he [the seller] did not submit any memorandum of his defense in the case, proving that he had not made any request or any defense or argument on the subject matter of the case in the two stages of litigation and that he had done so for the first time – arguing against the jurisdiction of the court due to the existence of the arbitration agreement – before this [Cassation] Court before making any request or any defense in the subject matter of the case…so the appellant’s argument that the Dubai Courts have no jurisdiction over the dispute in question due to the presence of the arbitration agreement is valid, and since the judgment of the Appeals Court has contradicted this consideration and decided on the merits of the case, it is thus defective, which requires its revocation.” The Cassation Court overturned the Appeals Court judgment and ordered that the Dubai Courts lack jurisdiction in view of the arbitration agreement. As noted, the position by the courts has generally been that a party must iterate and voice their challenge to the jurisdiction of the courts at the first hearing/case management session. This judgment and position taken by the Dubai Cassation Court expand the temporal and procedural spectrum of challenging the courts’ jurisdiction where an arbitration agreement exists between the litigants – granting litigants avenue to trigger jurisdictional arguments at latter court stages. Author: Mahmoud Abuwasel

  Novelty In a landmark judgment by the Abu Dhabi Cassation Court in October 2021, the Court confirmed that an agent/representative may bind a principal to an arbitration agreement if they have: Explicit written authority. Explicit verbal authority. Implied authority. Apparent authority. It was recently the case that the Dubai Courts acknowledged apparent or implied authority to bind a party to an arbitration clause/agreement whilst the Abu Dhabi Courts generally required evidence of explicit written authority to do so. As a general matter, explicit authority as construed by the Abu Dhabi Courts had high thresholds such as maintaining an attested and valid power of attorney. This novel judgment by the Abu Dhabi Cassation Court establishes substantial precedent in expanding the validity of explicit authority to include verbal authorization. But more so, creates a new dynamic in acknowledging implied authority of an agent/representative to bind a party to an arbitration agreement. And furthermore, the position by the Abu Dhabi Cassation Court falls in line with global jurisprudence and practice in accepting the general principle of apparent authority (sometimes referred to as ‘ostensible authority’) which is a central principle of the doctrine of agency. Petition to invalidate the award Two subcontract agreements were entered into by the disputing parties containing an arbitration clause/agreement. The dispute was adjudicated, and an arbitration award was issued, under the rules of the Abu Dhabi Commercial Conciliation and Arbitration Centre. The net-loser of the arbitration procedures challenged the award before the Abu Dhabi Appeals Court on the basis that the signing representative was not an authorized signatory per the petitioner’s corporate bylaws and commercial registration records, nor did the representative have explicit authority to agree to an arbitration clause/agreement. The petitioner relied on Article 58/2 of the Federal Civil Procedures Law which states: “It is not valid, without a special authorization, to declare a right of the defendant, disclaim it, reconcile or arbitrate therein, approve the oath, or direct or challenge it, abandon the litigation, renouncing the judgment entirely or partially , relinquishing one of the channels of appeal therein, releasing the attachment (seizure), relinquishing the insurances with the continuation of the debt, claiming the falsification, recusing the judge or the expert or the real petition, or accepting it, or any other disposition that the law requires therein a special authorization.” Appeals Court finding The Abu Dhabi Appeals Court reasoned that the contracts, subject of the arbitration award, were signed by a representative who had previously been issued a duly notarized power of attorney, and that the contracts were signed within the year 2016 whilst the power of attorney was valid, notwithstanding lack of explicit authority in the power of attorney documents to bind the principal to an arbitration agreement. The Court continued to reason that the representative had indeed signed the contracts between the two parties in his capacity as a representative, and hence the petitioner (principal) is bound by all the clauses in those contracts, including the agreement on arbitration in the event of a dispute between the two parties. The court also factored in that it was proven during the arbitration proceedings that the petitioner paid some of the payments owed to the net-winner of the arbitration award and that the dealings regarding the contract transactions were conducted with the representative signatory of the contracts subject of the arbitration award. The Appeals Court concluded that these elements suffice to establish the validity of the arbitration agreement between the parties, and no basis is available to invalidate the arbitration agreement pursuant to the grounds available in Article 53 of the Federal Arbitration Law which governs possible objections to an arbitral award. Cassation Court decision The Abu Dhabi Cassation Court upheld the finding of the Appeals Court and further elaborated that: “…the authority of the agent may be explicit, implicit or apparent, and the authorization is explicit if it is verbal or written, and the authorization is implicit if it is inferred from the reality of the situation, and everything that was said or written, or the normal method of dealing may be considered…” The Cassation Court rejected the petition and upheld the validity of the arbitration agreement. Apparent or implied authority test In recent years the UAE courts have identified certain elements that test whether apparent or implied authority binds a principal to an arbitration agreement signed by an agent/representative lacking explicit authority. The courts consider any or all of the following elements if evidenced. The contract states the name of the signatory in the preamble. The contract states the name of the signatory in the signature page. The contract is stamped with the corporate seal/stamp. The contract is signed/initialed on every page. The contract is on the company’s letterhead. The contract was operated by the company. The contract was overseen by the signing agent/representative. The signing agent/representative communicated to the effect of enacting the transaction/contract. The courts do not necessarily require all these elements to be evidenced, but use their application to weigh and test whether implied or apparent authority manifests. Author: Mahmoud Abuwasel