28 April 2020

The pandemic's potential impact on disputes

Tim Taylor, QC, discusses the impact of Covid-19 on the UAE's legal landscape and disputes market with MEED.

During a crisis, the legal expectation is ‘deals down – disputes and restructuring up’. While this may be the case in the months to come, courts and arbitration centres across the UAE are first and foremost trying to utilise technology to ensure dispute resolution continues to function within our new work from home (WFH) reality.

There are of course questions raised as to how much technology can be relied upon during proceedings to ensure access to justice is maintained while the region tackles Covid-19.

As expected, a variety of other legal concerns have been raised during the pandemic. For projects, their financing and transactions, the collective issues stem from whether Covid-19 disruption allows a party to escape, delay or alter its contracts.

Reviewing contracts to precisely ascertain what has been drafted regarding force majeure, material adverse change and extension of time is an essential starting place for all.

Broadly speaking, declaring force majeure requires evidence to show that a contract can be ended due to circumstances outside the parties’ control that have made it impossible to perform. Unfortunately, the inability to pay does not qualify. 

Article 249

There is also the often overlooked feature of UAE law that cannot be excluded by agreement – Article 249 of the UAE Civil Code. This gives judges and arbitrators the discretion to modify contractual terms where unforeseen events have made a deal significantly more onerous, but not impossible. Although available to clients, this is a more nuanced tool. 

During the last period of economic unrest, the 2009 rescue of Dubai World needed a quick decree to commandeer key parts of the Dubai International Financial Centre’s insolvency laws to offer judges the tools they needed. The UAE now has a modern Bankruptcy Act, which introduces similar techniques to protect creditors and borrowers through newly introduced schemes as alternatives to liquidation/bankruptcy.

In the current situation, the name of the game economically is to do all that can be done to achieve, at best, a V-shape recovery, or at least a U-shaped one, by getting back to full capacity as quickly as the virus allows, while preserving as much liquidity as possible. 

Testing times

However, with no vaccine expected in time to achieve a U or a V recovery, testing both for Covid-19 and antibodies will be fundamental to ensuring businesses are running at their usual capacity as quickly as possible. With several new and quick tests now authorised worldwide and the UAE’s domestic manufacturing capacity, a swift response is required to ensure the best new tests can be produced here, in addition to exporting to markets where demand is outstripping supply.  

Dubai’s government is committed to getting people back to work and has already commenced testing in the most densely populated areas. With the UAE’s young population and world-class hospitals, we are well placed to ‘flatten the curve’, resume commercial activities and make testing for all foreign visitors a condition of entry to protect against reinfection.  

Ongoing efforts include social distancing regulations being rigorously enforced. While essential workers in sectors including healthcare and food can travel to jobs, the remainder of the city’s workers are restricted from breaking the curfew only when completely necessary and only with permit approval. 

In Dubai, where aviation, tourism, hospitality and financial services are the main economic drivers, indicators of the ambition to recover quickly include Emirates’ indicative resumption of services from 1 May 2020.

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With the UAE’s young population and world-class hospitals, we are well placed to ‘flatten the curve’ 

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In Abu Dhabi, however, oil revenues matter most and the emirate has been impacted by the slump in energy demand and the Russia versus Saudi Arabia production struggle. A key focus of debate will be the availability of reserves to prop up the hardest-hit businesses across the UAE, with some hotels already mothballing until autumn and many shops and small and medium-sized enterprises in dire need.

Bolstering survival 

By way of a silver lining, unlike 2009, bank liquidity is less of an issue. Support and deferral schemes need to be rolled out by banks with strong government encouragement if we are to bolster the survival and recovery of all sectors.

So, until recovery finds us, people around the world sit at home, adapting to the new WFH normal. The spectrum runs from the impossible, like coal mining, lumberjacking and aviation, via the tricky –  marriage, parenting and loneliness – to the fairly straightforward lawyering, authorship and zumba. 

George Bernard Shaw was once asked at a party, “Are you enjoying yourself?” He replied, “Frankly there is very little else here to enjoy.” 

We shall, however, meet again, so in the meantime, stay safe, stay home, and let’s all learn to enjoy ourselves.

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