From contracts to Courts Published Date: 15 Nov 2016

Nasser Al Osaiba and Sharon Lakhan

the Oath in association with Global Advocacy & Legal Counsel and with the Royal Institute of Chartered Surveyors as Knowledge Partner, organised the second  session of GC Talk Series on ‘Dispute Resolution in the UAE – From Contracts to Courts’ on October 5, 2016. The session was officially hosted by the DIFC-LCIA at the Dispute Resolution Authority premises at the DIFC.

The seminar was led by Nasser Al Osaiba and DIFC Sharon Lakhan of Global Advocacy and Legal Counsel on drafting clear and unambiguous contract clauses with discussions on choice of jurisdiction and effective dispute resolution methods.

Below, we have set out a summary of the discussion with the firm sharing tips and trends on avoiding and resolving disputes using case studies and examples.

Getting the contract right

What does it take to build a strong contract? The speakers outlined a step-by-step checklist on the key clauses that need to be included.  

Who?  First, it is imperative to have the correct names of the parties on contract in the event that the company needs to pursue action against the entity. Secondly, include a clause in the contract that identifies who has the capacity to sign the contract on behalf of the counter party. And thirdly, consider who owns the product or services that are mentioned in the contract.

What? The contract must include the nature of the deal the parties are transacting, describe in detail the subject of the contract, what the finished product should look like and so on.

Where? The next step is to set out where the contract will be performed - identify the geographical location. If there is electronic data involved, specify where the data will be held.

When? Specify the effective date of contract – when have the parties executed it and when have they signed it? This helps to determine the term of the contract.

Why? Understand the company’s goals in entering into an agreement with another party. It is important for the general counsel (GC) to be educated by the sales and commercial teams on all the facts of a project or transaction. If an external counsel is involved, they need to understand the nature of the contract and the project as well.

How? The next step is to focus on how the contract is going to be performed. Ensure that the parties’ rights and regulations are outlined clearly. Lakhan believes the true test of the clarity of a contract is if a third party can read and understand how the contract is meant to be performed. In this way, a change-over in the management or legal team can still comprehend the intent of the contract.

How much? The terms of the financial agreement should be set out clearly – for instance, the obligations involved, time period, the safe payment details and so on.

Forms of contract

Using templates is easy – they provide standard structuring to the contract. Often, these templates include tried and tested language (even through courts) and this helps speed up the process of review to facilitate negotiations. However, templates can prove to be a problem if they are customised. Simply adopting a template without giving much thought to the transaction at hand can result in issues due to inconsistencies. The firm has also seen instances where the legal team has established templates for certain transactions, however the sales and contracts team go ahead executing contracts without consulting with legal counsel. This can cause problems if there has been an update in law or if all factors listed above have not been taken into consideration. Lakhan stressed on the need for the legal and sales team to maintain an open relationship to ensure that relevant contracts are issued to parties involved.

Content of the contract
The contract has to be long enough to cover all the terms that need to be included. At the same time, the firm recommends that it has to be short and simple enough so that executive teams can review and approve contracts quickly. It helps to put in a background of the transaction and provide illustrative examples to explain complicated scenarios. In this way, the parties have a mutual understanding of the goals of the contract.

Termination clause
Consider the impact of the relevance of laws on termination clauses. For instance, be aware that the UAE law requires specific wording in order for parties to terminate. Also, consider the impact of the termination with regard to ongoing and pending contract obligations.

Governing law and dispute resolution clause
These clauses are often neglected and misunderstood especially if commercial teams are driving negotiations. From the firm’s perspective, the governing law of the contract should enlighten the drafting of the contract as a whole. Draft carefully as the choice of law and jurisdiction will impact enforceability of any judgment.

Lakhan said, “A well-drafted contract is really imperative. It is the first step in ensuring that disputes are minimised and managing risks that the company faces in a given transaction. Of course, no one can guarantee what is going to happen in the future and what looks like a tightly-drafted contract may in fact turn out that there are components missing that need to be considered. 

Options for Dispute Resolution in the UAE

Nasser Al Osaiba talked about the key considerations that GC should bear in mind for choice of law and forum in the unfortunate event that contracts do end up in disputes. In the UAE, the options are UAE local courts, common law courts and arbitration. He pointed out that standard boilerplate clauses maybe interpreted differently under civil and common law and the ability to enforce judgment must be the starting point.

Key considerations for enforcement

  • Identify the party who is most likely to be in default
  • Where are the assets located against which you will need to enforce?
  • Which option is easier for enforcement?
  • Is the proposed jurisdiction a signatory to the New York Convention?  Or any other conventions for enforcement?
  • The UAE is a signatory to the New York Convention - local courts regularly ratify and enforce foreign arbitral awards

Enforcement in the DIFC 

  • Consider the likelihood of a party having assets in the DIFC
  • Protocols for enforcement in place between the DIFC Courts and the local Dubai Courts 
  • DIFC Courts increasingly being used as a conduit for recognition of foreign arbitral awards and judgments of foreign courts 

The GC of a company faces unique challenges in conducting day-to-day activities. This includes balancing the speculative nature of business with minimisation of risk, reducing the risk of serious disputes and where disputes cannot be avoided, they should be able to manage litigation efficiently in a cost effective manner. “As in-house legal counsel, you don’t want your department to be known as the ‘sales prevention team’, so you have to strike a balance between mitigation of risk and facilitating appropriate risk,” said Lakhan. The goal should be to avoid disputes as much as possible and one of the key ways of doing that is to ensure the contracts are strong enough. So that even in the event of a dispute, the GC is sure that the right forum and mechanisms are in place to resolve the dispute.