Country-by-Country Reporting (CbCR) compliance obligations for multinational entity groups (MNCs or multinational companies) were introduced in the UAE in mid-2019 via Cabinet Resolution No. 32 of 2019, where the first notification and reporting deadline was set for 31 December 2019.

There is no shortage of industry experts in the UAE to have assisted MNCs with the technical elements of the submissions with respect to contents of the report, identification of constituent entities, tax residency parameters, and so.

In this article, we look at the penalties that could be imposed on an MNC for violation the CbCR compliance obligations, and how to dispute those penalties before the competent authorities.

Penalties

The Ministry of Finance, which oversees CbCR compliance, has the authority to implement penalties of various proportions on the reporting entity (e.g. the MNC);

• Failure to retain CbCR compliance documents/data for a minimum period of five years after the date of reporting to the Ministry of Finance: AED 100,000;

• Failure to provide the Ministry of Finance with any information requested: AED 100,000;

• Failure to report information in a complete and accurate manner: AED 50,000 to AED 500,000; and

• Failure to submit on the reporting date or failing to notify the Ministry of Finance on or before the reporting date of the intention to file for a certain accounting period: AED 1,000,000 and AED 10,000 daily until the failure is resolved, or the daily amount reaches ED 250,000.

The Ministry of Finance must notify the reporting entity in writing if the reporting entity violates any CbCR compliance requirements and should provide a grace period of fourteen business days for the reporting entity to rectify the contravention.

If the reporting entity fails to rectify, the penalties would apply, and the reporting entity must be notified of the penalties within six months of the date the penalty liability arises, or the violation comes to the attention of the Ministry of Finance.

Insufficiency of funds or lack of access to information are not cause for excuse against the imposition of a penalty.

Any penalty applied must be settled by the reporting entity within 30 business days from the notification date of the penalty, or the date of which a grievance against the penalty has been denied.

Grievance

If the reporting entity may submit a grievance if it has grounds to believe that; (i) it did not commit a violation that warrants the imposition of a penalty; or (ii) disagrees with the amount of the penalty imposed on it.

The grievance must be submitted to the Ministry of Finance within 30 business days from the date of notification of the penalty.

The Ministry of Finance must notify the reporting entity of its decision within 60 business days. If no decision is provided to the reporting entity within 60 business days, then the grievance is deemed accepted, and the penalty imposed shall be canceled.

Litigation

Cabinet Resolution No. 32 of 2019 on the CbCR compliance regulations is silent on what occurs if the Ministry of Finance decides to reject the grievance.

In this case, the reporting entity may turn to the Civil Procedures Law which provides the reporting entity with an avenue to apply for the annulment of the Ministry of Finance’s rejection of the grievance in its nature as an administrative decision.

The appeal would be lodged before the administrative circuit of the federal courts and must be lodged with 60 calendar days from the date the reporting entity is notified of the Ministry of Finance’s rejection of the grievance, or the date on which the reporting entity is otherwise proved to have admittedly been informed of the rejection.

Grounds for Appeal

As a general matter, Emirati jurisprudence provides that administrative decisions by government bodies (or civil servants) may be appealed on five grounds;

• if a decision is outside the administrative powers of the government body;

• procedural issues in that the government body does not issue its decision pursuant to the steps and procedures provided for by law (e.g. Supreme Court Case No. 146/1985);

• lack of jurisdiction whereby the government body is not the competent body to issue the decision in dispute (e.g. Supreme Court Case No. 258/1993);

• lack of reasoning whereby the decision issued does not provide the legal or factual grounds to support its action (e.g. Supreme Court Case No. 772/2004); and

• abuse of power in cases where an administrative decision is issued in an arbitrary manner, or in a manner that deviates from public benefit (e.g. Supreme Court Case No. 89/2001).

In comparison with general dispute practices, tax disputes are subject to a limited number of judges; three judges at the tax dispute resolution committees (TDRCs), one judge at the Tax Disputes Circuit of the Federal Primary Court, one judge at the Tax Disputes Circuit of the Federal Appeals Court, and the Chief Justice at the Federal Supreme Court.

The three judges at the TDRCs are appointed pursuant to Ministerial Decrees and serve a term of one to three years, that may be extended.

Each TDRC has an alternate judge that adjudicates disputes in place of the primary judge in case the latter is unavailable.

Each of the tax disputes circuits of the Federal Primary and Appeals Courts is headed by a judge appointed pursuant to Ministerial Decree – the first appointment having had occurred pursuant to Decisions No. 237 and 238 of 2019.

Finally, tax disputes that reach the Federal Supreme Court would be adjudicated by a panel of five judges; the Chief Justice and four judges.

What does this mean?

Other disputes in the UAE, such as construction, banking and finance, personal affairs, criminal matters, and so on may be adjudicated over by one of a plethora of judges, depending on the Emirate or court system that has jurisdiction over the dispute, the respective circuit, stages of litigation, amongst other variables.

With such a significant number and variety of judges reasoning and issuing rational over interpretations of the same provisions of law, it is relatively difficult to hone in on a particular stance that the judiciary is taking with respect to a particular law or provision.

On the other hand, because tax disputes have only begun in 2018, and due to tax disputes being heard by a limited number of judges, a tax dispute litigant (or their counsel) can develop better foresight to the persuasions of each of the TDRCs or Federal Court tax dispute circuits.

Textualism or original intent?

Tax judges have taken differing positions on readings of certain tax law provisions. The difference in rationale generally boils down to whether the interpretative approach is an explicit application of the text, or whether the judge expands the reading of the law to grant more weight to the intent of the legislator* at the time the law/provision was drafted and ratified.

*The ‘legislator’ essentially means their Highnesses the seven Rulers of each Emirate who approve Federal law, supported of course by the Ministry of Justice and the technical and legislative lawmaking committees.

A practical example for this discussion would be disputes over decisions by the Federal Tax Authority that do not have an immediate monetary value; such as a dispute over a private or public clarification as opposed to a dispute over an incorrect tax return or a voluntary disclosure.

There is a level of procedural ambiguity with respect to disputes over private or public clarifications. The Tax Procedures Law and the Cabinet Decision forming the TDRCs requires that a tax dispute litigant settle any taxes and/or penalties in dispute prior to objecting before the competent TDRC. The question becomes; what if a clarification dispute does not have an immediate monetary value (i.e. tax or penalty liability) as is generally the case?

We have seen so far different judicial interpretations amongst judges on this particular issue as to whether a dispute that has no immediate monetary value (such as a private or public clarification dispute) can be adjudicated upon.

Of the various methods of judicial interpretation; two common approaches are textualism and original intent. A textualist would look at the structure and text of the law and apply the explicit reading of a provision. Original intent applies where the judicial interpretation of a law or provision broadens the analysis into what the authors of the text intended to achieve.

Of course, the spectrum of whether an interpretation falls within either approach is extensive, but the example provided with respect to tax disputes that carry no monetary value provides a useful empiricist view within the following cases.

In one private clarification dispute in 2019, a textualist judicial interpretation resulted in a tax judge finding that no immediate monetary value in dispute renders non-fulfillment of the requirement of settling the taxes and penalties prior to objecting and serves as grounds for rejection of a private clarification dispute on a procedural basis.

In another private clarification dispute also in 2019, an original intent judicial interpretation resulted in the finding that dispute procedures in tax laws were intended to grant avenue for adjudication of disputes vis-a-vis the Federal Tax Authority notwithstanding the lack of an immediate tax or penalty liability, also as the subject matter in dispute may ultimately manifest a tax or penalty liability in the future or in retrospect based on the tax treatment in dispute.

The difference in the method of judicial interpretation applied in these two cases draws a very practical example of how different judicial interpretation approaches could bear significantly different results, and how tax dispute litigants would benefit from understanding the nuances of tax dispute procedures and prior interpretive approaches taken by the UAE tax judiciary.

During the Summer of 2020, the Supreme Court ruled on the validity and priority of ‘hidden’ agreements over fictitious (sham) contracts.

A similar case was brought to the Supreme Court earlier in 2015 but was not addressed on merits and was rejected procedurally.

The Dubai Cassation Court looked at similar cases in relation to the constitutional contracts of commercial companies in the past but found that constitutional contracts of companies cannot be rendered fictitious but only void.

Now the Supreme Court has taken a definitive position on ‘hidden’ agreements granting them priority over fictitious contracts.

Case

The facts of the case revolved around two siblings conducting a sale agreement and a gift contract otherwise known as “Heba” under Shariah law – for the transfer of the property owned by their father who was at the time mentally impaired due to an accident.

As per the submissions of the litigants and in the obiter dicta of the judgment, the gift contract was put together to avoid the Dubai Land Department registration fees.

One of the siblings sued before the Federal Primary Court requesting the Court to rescind the gift contract, and to order the Dubai Land Department to re-register the land in the name of the father, on the basis that their father was taken advantage of due to his mental impairment to sign-off on the gift contract, and on which basis the property had been transacted without the father’s knowledge.

The Primary Court appointed a real estate expert and a forensic doctor as expert trial witnesses, and the forensic doctor confirmed that the father suffered from mental dementia and disability, and impaired memory, and would have been easily influenced and unaware of his actions. The forensic doctor concluded that the father could not be held responsible for his actions from a medical perspective.

The Primary Court ordered rescindment of the gift contract and addressed the Dubai Land Department to re-register the property in the name of the father. The defendant appealed this ruling.

In January 2020, the Appeals Court rejected the appeal, which was challenged before the Federal Supreme Court on the grounds that the transaction was in fact subject to a sales contract and not the gift contract that had been rescinded, and that the gift contract was a fictitious contract drawn up in order to avoid the real estate registration fees.

In deciding the matter, the Federal Supreme Court applied the provisions of Articles 394 and 395 of the Civil Transactions Law which state as follows:

Article 394

1-If a fictitious contract has been concluded, creditors of the contracting parties and particular successors in title may, if they are in good faith, avail themselves of the hidden contract and prove, by any means, the fictitious of the contract by which they were prejudiced.

2-In the case of a conflict of interest between the interested parties, some of whom rely upon the fictitious / apparent contract and others on the hidden contract, the former shall have preference.

Article 395

When the contracting parties hide a genuine contract behind a fictitious contract, the genuine contract will bind the contracting parties and their universal successors in title.

The Supreme Court also referenced the provisions of Sharia law in stating that:

“…if the contracting parties conceal a real contract with a fictitious contract, then the contract in force between the contracting parties and any concerned parties is the real (concealed) contract.”

The finding of the Supreme Court was ultimately:

“…the fictitious contract has no effect between the contracting parties, given that the contracting parties intend to refute the fictitious contract and adhere to the concealed contract.”

Scene

You are a services or goods provider registered as a taxpayer with the Federal Tax Authority.

You are facing liquidity and cash flow difficulties.

You have customers; you have issued tax invoices, but your invoices are unpaid.

In consequence, due to liquidity issues, you are late in paying your due taxes.

A few weeks or months pass since the end of your tax period until invoices are paid.

You now have the liquidity to pay your taxes, but shortly after, the Federal Tax Authority issues an administrative penalty assessment against you for late payment of taxes.

Late tax payment penalties of 2% immediately, 4% after the first week, and 1% per day, of the value of the unpaid taxes are applied.

Did you draft a comprehensive and enforceable tax penalty indemnification agreement against the late-paying customers to indemnify you against any tax penalties you incurred?

What are tax indemnification agreements against tax penalties?

A tax indemnification agreement against tax penalties (whether standalone or as part of a contract) may grant the taxpayer protection Dirham-for-Dirham for unexpected tax penalties that arise due to a customer’s late or non-payment, without necessarily the need for the taxpayer to evidence loss.

The incorporation of a tax indemnification agreement into your standard contracts provides a claim by contract, with proven values, allowing for speedier recovery and enforcement against the customer.

Contracts – in the UAE or otherwise – may generally include a tax respective provision along the lines of the following:

“The First Party agrees to bear any current or future tax or increase to any current or future tax.”

The language of such provision could be in various forms, length, or complexity, but the crux of it usually obligates one of the parties to bear the tax liabilities that arise out of a transaction. However, as a general matter, such provisions do not obligate a party to reimburse another party against tax penalties levied by the Federal Tax Authority.

Administrative tax penalties applied by the Federal Tax Authority against a taxpayer are issued in a ‘Notification of Administrative Penalty Assessment’ pursuant to Article 21 of the Executive Regulations to the Tax Procedures Law.

In an administrative penalty assessment issued by the Federal Tax Authority, the penalties are applied in an itemized list corresponding to the applicable tax return periods (monthly or quarterly) with details on the formulas used pursuant to Cabinet Resolution No. 40/2017 to calculate the penalties; highlighting the values which have formulated as late penalties.

A statement of account provided by the Federal Tax Authority also itemizes the taxes due and penalties in detailed chronology.

These details allow the taxpayer to correlate the tax penalties to the tax invoices issued in a respective time period, and subsequently, be able to allocate the late payment penalties to the unpaid tax invoices and the respective clients with the outstanding debts.

Are indemnification payments against tax penalties taxable?

In its public clarification VATPO01, the Federal Tax Authority states that predetermined amounts that contractual parties designate during the formation of the agreement for an injured party to collect as compensation upon a specific breach are not considered consideration for a provision of any goods or services but to compensate a party for loss.

Consequentially, tax indemnification payments against tax penalties levied by the Federal Tax Authority would arguably fall outside the scope of VAT.

Since around September 2020, the tax dispute resolution committee of the Emirate of Dubai has been inoperable (under reformation).

Objections that have been filed since then with the Dubai tax dispute resolution committee had not been decided on.

On 25 November 2020, the UAE Minister of Justice issued Ministerial Decree No. 691/2020 on the Formation of Tax Dispute Resolution Committees for the Emirate of Dubai.

The Decree was recently published in the Official Gazette and orders the formation of two tax dispute resolution committees for the Emirate of Dubai.

The Ministerial Decree is significant because formerly, under Ministerial Decrees No. 109/2019 and 456/2020, the Emirate of Dubai had only one tax dispute resolution committee to hear objections against reconsideration decisions of the Federal Tax Authority.

Since 2018, all taxpayers registered in the Emirate of Dubai would submit their objections to only one committee and the statistics over the past three years reflect a substantial increase of objections that seem to have necessitated expanding the capacities to hear objections:

• 10 objections filed in 2018 (approximately).
• 30 objections filed in 2019 (approximately).
• 160 objections filed in 2020 (approximately).

The two new committees will be assigned objections to decide on based on whether the first numeric of the docket registration number is an odd or even number.

The Ministerial Decree names new chairs (judges) and members (experts), and new general secretaries for the two newly formed tax dispute resolution committees.

Has this happened before and what to expect?

The first tax dispute resolution committee objections were filed on 29 August 2018 with the Ministry of Justice and were a total of five objections addressed to the Dubai tax dispute resolution committee (TDRC).

However, the objections were officially registered upon the formation of the Dubai TDRC on 31 March 2019, and the decisions were issued on 8 April 2019.

In hindsight, one can see that even where objections were filed before the formation of the TDRC, the TDRC formally registered and decided on the objections when it was formed.

However, this is not the only potential outcome for the current objections filed with the Dubai TDRC since September 2020.

In mid-2020, the Federal Courts ruled that if a reconsideration decision is not issued by the FTA within the procedural time-bar, it must be considered an implied rejection triggering the time-bar to challenge the implied rejection (twenty weekdays).

An implied rejection pursuant to Article 84(bis) of the Civil Procedures Law is the general rule that a grievance to an administrative body (in this case the FTA or TDRC) that is not decided upon within the procedural time-bar is to be considered an implied rejection.

This is also supported by Article 33(2)(b) of the Tax Procedures Law which states that challenges against objections that are not decided on may be filed with the Federal Primary Court in case of non-issuance of a decision by the tax dispute resolution committee.

As was the case in 2018 and 2019, the newly formed Dubai tax dispute resolution committees may issue decisions on the backlog of objections that had been registered since September 2020.

On the other hand, the newly formed Dubai tax dispute resolution committees and the Federal Courts may take the position that Article 33(2)(b) of the Tax Procedures Law should have been triggered by those who filed objections and the disputes should have been directed to the Federal Primary Court.

A roundup of the 50 most crucial additions, amendments, and deletions to the Civil Procedures Law No. 11 of 1992 that were promulgated pursuant to Cabinet Decision No. 57 of 2018 that came into effect in early 2019:

1. Approving the designation of execution officers instead of representatives and adding the possibility of execution by private companies and offices.

2. Deletion of the description of “provisional” in execution matters, which the judge of execution is competent to adjudicate.

3. Linking the jurisdiction of the execution judge to the court that issued the writ of execution.

4. Granting the execution judge the power to take direct action in the jurisdiction of the courts of the other State or to delegate the execution judge thereof.

5. Expansion of the field of delegation to include explicitly all implementation procedures (instead of provisional procedures and declarations).

6. Explicitly provide for the possibility of electronic delegation.

7. Explicitly stipulate the possibility of combining execution files pending before the execution judges of different courts.

8. Granting the execution judge the power to initiate imprisonment proceedings, even when the debtor’s domicile is within the jurisdiction of the courts of the other State.

9. Addition of provision for grievance against the decisions of the execution judge. The decisions of the execution judge shall be subject to appeal in any of the following cases:

a. Order of preference among convicts.

b. Postponement of execution for any reason.

c. To provide the debtor a time limit to pay or install the amount for which it is executed.

d. Acceptance of guarantee.

e. Travel ban.

f. Seize and arrest order.

10. The grievance shall be filed with the President of the Court or his authorized representative within seven days from the day following the date of issuance in respect of the person in whose presence the procedure is issued, and from the date of notification in respect of the person who issued the procedure in his absence, pursuant to a request filed in the same execution file. Cancellation or amendment of the grievance decision may occur in absentia. The decision of the appeal shall be final and not subject to appeal.

11. Explicitly stating that judgments and orders that are considered writs of the criminal court in restitution, compensation, fines and others, are considered writs of civil rights.

12. To grant the execution judge the competence to order the execution of foreign judgments and orders, within a maximum of three days from the date of submission of the petition, with his order considered as subject to appeal in accordance with the rules and procedures established for the appeal of judgments.

13. Granting the execution judge the power to complete the supporting documents before issuing his decision.

14. Addition of an exclusive description of the non-competence of the courts of the UAE.

15. Granting the execution judge the competence to order the execution of the notarized documents and conciliation minutes approved by the courts in a foreign country, in accordance with the same procedures and conditions for ordering the execution of foreign judgments and orders.

16. Deletion of the term “paper” from the notification provisions to suit e-litigation.

17. Granting the execution judge, prior to the execution of the execution order against the executor against him, the authority to order the provisional seizure of the movable and the real estate and the seizure of the debtor with others, and to inquire about the debtor’s property.

18. Authorization of the execution procedure by breaking the doors or forcibly opening the locks by the executor even if he is not the court execution representative.

19. Lessening the threshold to prove the presence of a member of the police, to avoid invalidity, even if the police officer did not sign the minutes.

20. Reduction of the period of implementation from third parties to 7 days from the date of the notification, instead of 8 days.

21. Excluding the house (or common share) mortgaged to guarantee a debt arising from its price from the principle that the debtor’s home may not be sold.

22. Explicitly stating that no more than a quarter of the wage or salary may be enforced against even if transferred to a bank account.

23. Explicitly stating that funds of embassies and bodies enjoying diplomatic immunity may not be seized (with the condition of reciprocity being present).

24. Addition of the explicit provision for the requirement of thorough evidence justifying the fear of the flight of the debtor or the smuggling of its property, so that it can be adopted as a ground for provisional detention.

25. Addition of the explicit provision to add the case of the worker whose settlement of the entitlements could not be settled, after provisionally assessed by the competent administrative authority, to cases of preventive detention.

26. Addition of the power to conduct the necessary investigation or investigations with the assistance of the competent administrative authorities, to the judge (or court) who adjudicates the request for provisional detention.

27. Adoption of the date of issuance of the attachment order for the validity of the filing of the substantive claim, instead of the date of the attachment.

28. Explicitly stipulate that the detention order may be appealed to the urgent matters judge and before the court hearing the right before filing the attachment.

29. Explicitly stipulating the expiry of the attachment by the issuance of a final ruling rejecting the substantive claim.

30. Explicitly permitting the attachment of the movables or debts of the debtor to others, even if they are subject to dispute.

31. Explicitly stipulating that attachments may be made by electronic or paper minutes.

32. Permitting the sale of movables that have been attached to a specific buyer at the request of the debtor and the consent of the creditor.

33. Adding the authority of the judge of execution to initiate the sale procedures or lifting the seizure of if the creditor fails to proceed with the sale of the seizures within (30) days from the date of seizure.

34. Adding the authority of the judge of execution to reduce the price set to start selling the reserved movables by 5% five times and then selling at an estimated price, when the sale does not take place on the day specified.

35. ​​The addition of the use of telecommunications technology in the procedures of auctioning movables.

36. Adoption of notification of the decision of seizure of the property to the competent department of registration of real estate, instead of mandatory transfer of the representative of the execution the day after the issuance of the decision of seizure.

37. Requiring the department where the property is registered to inform the judge of execution directly (without the need to move the delegate in order to obtain an official statement).

38. Reduction of the time limit for declaring the heirs of a right holder to 3 months.

39. Granting the judge the power to request guarantees to defer the sale whenever the debtor had other income in addition to the property’s income sufficient to repay the debt in installments within three years.

40. Reduction of the maximum period for estimating the price of the property to 15 days instead of 30 days.

41. Addition of the explicit provision to exclude real estate that foreigners may own in the State in accordance with the laws in force from the condition that real estate may not be sold to non-citizens.

42. Explicitly stipulating that the sale of the property of the bankrupt shall be in accordance with the Bankruptcy Law, with the condition of informing the bankruptcy administration, and the provision of the role of the execution judge in approving it.

43. Explicitly stipulating that partial or total attribution of the execution of the seizure procedures and the sale of the seizures may be made to any natural or legal person in accordance with the rules and procedures that determine the mechanism of their work and for their fees.

44. Cancellation of the obligation to inform the obligor to vacate the property at the time of execution.

45. If the execution is not possible or the execution requires the debtor himself to do so, the execution judge may commit him to a daily fine of not less than AED 1,000 and not more than AED 10,000 to be paid as compensation to the executor. Provided that the total fines of the principal of the debt in force shall not exceed the original enforcement amount.

46. The execution judge shall have the right to cancel the fine, or part thereof, if the executor is against it.

47. The fine shall apply to the legal representative of the legal person or to any employee who personally obstructs the execution.

48. Explicitly stipulating the imprisonment of the debtor obliged to do or abstain from work.

49. Explicitly stipulating the permissibility of issuing travel bans or imprisonment against a person who refuses to execute a writ of execution issued against a legal person, whether he is a legal representative or otherwise.

50. Adding the removal of a travel ban order after the lapse of three years from the last valid procedure for the implementation of the final judgment of the debt issued by the said travel ban order, without the creditor applying for a continuation of the execution procedures.

With the disruption to global business and trade due to the Coronavirus pandemic, parties may look to argue hardship events under the law to alleviate extraneous obligations (such as an extraneous increase of cost in concluding the obligation).

Hardship events are occurrences that result in changing the equilibrium of a contract creating an extreme burden on one of the parties to the contract.

Contracts may provide for provisions that address hardship events, and therein include pandemics as an example of a hardship event – but if parties have entered into a contract that lacks a hardship event provision, can they rely on UAE legislation to argue that the Coronavirus pandemic makes their obligation extraneous and seek remedy from the Courts (or an arbitration tribunal)?

Hardship events are addressed under Article 249 of the UAE Federal Law No. 5/1985 on Civil Transactions.

Notably; pandemics are also addressed in one provision under Emirati law; that is Article 587 of the Civil Transactions Law. Article 587 explicitly addresses pandemics that affect fruit sales, and the obligations on the buyer and seller when the fruits sold are affected by a pandemic.

What is relevant in Article 587 is the Sharia jurisprudence that leads to its drafting before coming into promulgation in 1985, and how that jurisprudence can apply in disputes that occur between parties over hardship events that have occurred or will manifest due to the Coronavirus pandemic.

Article 249 on Hardship Events

Article 249 of the UAE Civil Transactions Law allows that when as a result of general exceptional and unpredictable events, the performance of a contractual obligation, without being impossible, becomes excessively onerous in such a way as to threaten the debtor with exorbitant loss, a judge may reduce the obligation that has become excessive to reasonable limits.

In light of no particular event being referenced or given as an example to qualify as a hardship event in Article 249, or in Article 893 which indirectly addresses force majeure events, it is necessary to rely on other provisions in the law to confirm whether pandemics qualify as hardship events and the strength of such arguments before the judiciary.

Sharia Origin of Article 587 on Pandemics

In the implementation of the directives of the late Sheikh Zayed bin Sultan Al Nahyan (may God have mercy upon him), the founding father of the United Arab Emirates, to apply the provisions of Islamic Sharia in the UAE, the Council of Ministers issued decision No. 50/26 in 1978 to form a supreme committee for Islamic legislation and delegated His Excellency the Minister of Justice to form two subcommittees, one for criminal laws and the other for civil, commercial, maritime and civil procedure laws, in order for these committees to prepare and review laws in accordance with the provisions of Islamic Sharia.

The supreme committee reviewed civil transaction laws, and – for example – theories of individual will as a source of commitment, contracts of adhesion and their origin in Sharia as ‘contracts of trust’, and other theories and principles that became codified in UAE law.

Amongst the matters addressed by the supreme committee, and most relevant to the Coronavirus pandemic, was the theory of hardship events and their origin in Shariah law as ‘pandemic theory’.

The rule of ‘pandemic theory’ finds its basis in Islamic jurisprudence in the principle of ‘excuses’ in the Hanafi jurisprudence and ‘pandemic’ in Maliki and Hanbali jurisprudence with a difference in the provisions and in the fairness between the two parties to the contract and justice in general.

Not only is the codification of hardship events derived from ‘pandemic theory’ in Sharia law, but scholarly jurisprudence has found that in light of the principle of pandemic theory applying to contractual relations in relation to fruit trade, the same principle can arguably be applied to other contractual transactions such as industry, construction, and general trade contracts where a pandemic causes a hardship event.

The ability to influence has been a topic of dialectics for centuries – how the influence was obtained, how it was used, how much of it was at stake. When the topic of influence comes up, we may refer to great writers, composers, or philosophers. But these days the discussion of influence brings about names like Kylie Jenner, Selena Gomez, and The Rock. Influence is more powerful and puissant than ever before and that is solely due to the insurmountable ascent of social media. The social media marketing wave is truly remarkable; a conservative estimate of the new industry falls at around USD 1.28 billion, with brands estimated to spend USD 15.1 billion on influencer campaigns by 2022.

Nonetheless, some influencers fail to do the sole job that they claim to be proficient in – influencing. In 2018, Luka Sabbat, a self-proclaimed “Creative Entrepreneur exploring all the world has to offer. Stylist, Creative Director, Design Director, Actor, Model, etc” with 2.3 million followers on Instagram, was sued by Snap, Inc. for his failure to ‘influence’. Sabbat had been contracted by Snap, Inc. to promote their line of eyewear by posting three Instagram stories and one Instagram feed post during fashion week in New York, Paris or Milan, along with being photographed wearing the product during Paris or Milan fashion week. Sabbat was sued on the basis that he did not post all of the required material and was not photographed wearing the product. In 2019, Sabbat was sued once more by Konus, a streetwear brand, for failure to participate in a photo shoot for the brand’s look book and failure to share two permanent posts on Instagram with specified tags.

If you are a virtual purveyor, you need to be diligent in how you approach the landscape of influencing. So here the question lies, how is the business of influencers operated and what are the legal ramifications that could be in store for an influencers failure to influence.

In the UAE, there is a procedure for becoming an influencer that is a little bit more complicated than merely posting a photo with some flashy filters. Since 2019, the UAE has established licensing procedures in order to be a professional influencer. Social media influencers have become regulated requiring Federal level licensing with the National Media Counsel (NMC) and domestic licensing in the influencer’s respective Emirate.

For example, the Ras Al Khaimah Economic Zone grants a Social Media Influencer Permit is for influencers or bloggers residing in the UAE. Other economic zones across the UAE that provide social media influencer permits include Dubai Media City, Dubai Studio City, Dubai Production City, or Abu Dhabi’s twofour54.

Depending on the number of followers and the rate of engagement that an influencer has, they will be approached with different business proposals. There are generally two categories that apply to influencers: reach and niche. Reach refers to influencers with large followings, while niche refers to influencers with smaller, more specialized and engaged communities.

A key consideration when it comes to a business engaging with an influencer is the appreciation that the industry is at a very early stage of development, so there will be varying expectations and varying degrees of professionalism. In this context, it is recommended that arrangements with between both parties are clearly set out in a suitable agreement, specifying the scope of work, the key performance indicators, nuanced matters such as restrictions and expectations of hashtags, and compliance with NMC guidelines.

For example, the NMC prohibits publishing any advertisements about medications or pharmaceutical products without a special permit from the Ministry of Health and Prevention. In case the influencer is needed to advertise medication or pharmaceutical products; who would be responsible for obtaining said permit? This is particularly relevant with a significant number of influencers in the UAE promoting self-care products (beauty-care, skin-care, etc.).

On the other hand, a key consideration for influencers is taking into account that agreements entered into in their personal capacity may lead to personal liability against them – in other words, failure to comply to their influencer obligations may lead to loss of their personal assets as compensation.

An alternative model that influencers adapt is creating a company that limits liability, of which the influencer may operate through. Although the influencer licensing requirements by NMC remain necessary, influencers would bode well limiting personal liability by engaging their clients through a limited liability company. This structure is often used by actors and other talent and is referred to as a ‘loan out company’. The business established by the social media influencer ‘loans out’ the influencer themself to the client.

The influencer would then separate their personal wealth from that of the ‘loan out company’; holding separate bank accounts, contract liabilities, and so on.

The Court of Arbitration for Sport (“CAS”) is based in Switzerland and is considered the elite international dispute resolution forum for legal disputes relating to sports, including commercial disputes (i.e., issues arising from sponsorship agreements or player contracts) and discipline (i.e., doping, non-compliance with codes of conduct). CAS also acts as an appeals court for decisions made by the arbitration systems of sports organizations or dispute resolution mechanisms, including global associations with disciplinary arms such as FIFA and the International Olympic Committee.

In May 2012, Abu Dhabi hosted the first seat for the Court of Arbitration for Sport outside Switzerland. Now, Abu Dhabi is home to its own arbitration centre, dubbed the UAE Sports Arbitration Centre (“UAE SAC”) which has been established under the Federal Law No 16 for 2016 issued by His Highness Sheikh Khalifa bin Zayed Al Nahyan.

UAE SAC partly began operations in 2016, but as of June 2020, it has commenced full operations. The UAE SAC is equipped with every facility, which is available for anyone seeking to resolve their disputes related to sports through mediation or arbitration. This significant milestone is a positive development in sport, aiming at spreading a culture of sports mediation or arbitration in the United Arab Emirates.

According to a recent study, Dubai’s burgeoning sports industry now exceeds USD 1.7 billion annually; this accounts for 0.8% of Dubai’s GDP. Of the USD 1.763 billion, USD 670 million originates from overseas markets, which indicates Dubai’s growing importance as a world sporting destination.

The UAE is renowned as a prime emerging sports market and continues to grow and offer a landscape for development. This aptitude across the nation brings vast opportunities and challenges and will most certainly act as a catalyst for sustainable development; with such development requiring a parallel expansion in the legal infrastructure of the sports market.

The UAE SAC will seek to be the answer to the legal challenges in play and assist in the sustainable development of the market. Although the UAE SAC has yet to unveil its rules of arbitration, they will most likely be revealed to the public in the coming weeks. However, looking at the CAS – which the UAE SAC is closely modeled after – we can arguably presume that the standard clause to be inserted into contracts for resolution by the UAE SAC will look like this:

“Any dispute arising from or related to the present contract will be submitted exclusively to the Sports Arbitration Centre in Abu Dhabi, United Arab Emirates, and resolved definitively in accordance with the [UAE SAC Rules].”

Optional explanatory phrases:

“The Panel will consist of one [or three] arbitrator(s).”

“The language of the arbitration will be…” 

Enforcement is an issue that frequently arises with plaintiffs in the United Arab Emirates. The difficulties are multi-fold; lack of follow-up by counsel; aggressive asset transfer and concealment by the defendant (i.e. such as real estate transfer to a spouse); queuing behind prior creditors whom have already issued attachment orders on assets; but one crucial factor is knowing where to look for assets.

Horses and camels in the United Arab Emirates can have values in the millions of US dollars and, for example, during the annual Abu Dhabi International Hunting and Equestrian Exhibition, transactions can be in the hundreds of thousands for young camels or horses.

When a favorable judgment is obtained and at the time of enforcement, it may be found that the defendant would have cleared bank accounts and transferred ownership of vehicles and real estate to other parties.

What a defendant may overlook is concealing was their livestock, which is an asset that can be enforced against.

Below we provide a general overview of the enforcement procedures, and a clearer insight into how enforcement procedures against horses or camels would play out, bearing in mind that other livestock such as falcons or sheep can be valuable assets to consider.

General Enforcement Steps

Enforcement orders are administered by the Enforcement Judge (alternatively translated as the ‘Execution Judge’). A request is submitted via the online system where the request must include inter alia the respective judgment and itemized details of the debt (including items such as costs, etc.), requiring the Judge to notify the debtor and hold a hearing within fifteen working days. The online system is available in Abu Dhabi, Dubai, and Ras Al-Khaimah. The Federal Courts, on the other hand, require over-the-counter applications and follow-up.

Once the Judge is comfortable that notification has concluded successfully, through all the required methods, by courier, digitally, and so on, but the debtor has not attended a hearing, the Judge would liaise with the UAE Identification Authority to confirm whether the debtor is within or outside the UAE. Finally, it is preferable that the creditor requests the Judge to issue a public notification via a daily Arabic newspaper.

With all the above steps concluded, the creditor can begin to apply for enforcement of assets. This process requires the creditor to request the Judge to issue a writ to one or various entities for the disclosure of assets that the debtor may own as registered in the databases of such entities. The Abu Dhabi Courts, for example, have a predefined list of entities that can disclose such information.

The list, however, is not comprehensive and it is up to the creditor (or more so, the creditor’s counsel) to explore other valuable assets and their respective overseeing authorities.

When it comes to livestock, a bespoke request must be made, even if electronically.

Horses

Horses generally have title deeds that are registered with a particular authority such as the Emirates Equestrian Federation, the Emirates Arabian Horse Society, or the UAE Equestrian and Racing Federation.

A writ of inquiry issued to the above entities would result in the disclosure of any registration data of horses owned by the debtor. The details would also include the stables at which a horse is being housed.

Subsequently, a request is made to the Judge to issue a writ of enforcement addressed to the stable to seize the horse(s).

Once the writ is communicated to the stable, the stable will maintain the horse until it is auctioned off through court.

During the period of when the horse is seized and until it is auctioned off, the horse remains maintained and looked after for, and all costs associated with the horse’s maintenance are added to the cost order against the debtor.

Camels

As opposed to horse trade, camel trade in the UAE is not as systematic and occurs in a more customary manner.

The reason being is that camels may be prize/breeder camels or race camels, as horses may be prize horses/breeder or racehorses, but a significant portion of camels in the UAE are generally kept on farms as cattle.

Trade of camels occurs on a more customary basis with owners transferring camels without contractual arrangements, and camels being cared for by other private farm owners, as opposed to commercial stables.

These customary transactions make asset tracing of cattle camels somewhat more difficult than for horses, but entities such as the Dubai Camel Racing Club or the Camel Racing Association would hold data with respect to race/prize camels for a creditor to enforce against.

The lack of systemization of camel trade also makes it difficult to quantify the costs associated with maintaining the camel. However, the courts can accept reasonable valuations submitted by parties.

For example, in Federal Supreme Court case no. 320 of 1995, the following ruling was issued:

The facts, as evidenced by the contested judgment and all other documents, indicate that the plaintiff filed the case no. 108 of 1994 before the Federal Court of First Instance in Al Ain to 1) oblige them to pay him an amount of AED 367,500 as the value of the camel, the amounts incurred in feeding and care in addition to the amount of 400 dirhams value of water per month, and the amount of 1,000 dirhams per month as wages of the worker who supervised the camel until the dismissal of the case…3) writing to the Office of the Ruler’s Representative in the Eastern Region to commission the “Camel Commission” to inspect the camel and to give an opinion as to whether it is a pure breed race camel…