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FIDIC
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The following books and publictions are available by order from the Dubai Ofce of Al Tamimi & Company. To order phone Mubasher: Tel: 971 4 364 1641 Fax: 971 4 364 1 777 Email: books@tamimi.com United Arab Emirates Court of Cassation Judgments 1998-2003 By Essam Al Tamimi & Richard Price AED 475
The Practical Guide to Litigation and Arbitration in the United Arab Emirates By Essam Al Tamimi, Hardcover 179 pages AED 399
Setting up in Dubai 2006 Now Available! with application forms and directories on CD! By Essam Al Tamimi AED 79
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Setting up in the Dubai International Financial Centre By Al Tamimi & Company Banking & Finance Department Hardcover 164 pages AED 95
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CONTENTS
Corporate Commercial
Construction
Corporate group structuring: considerations for owners and management Recommendations on the proposed labour Law reforms
Property
Another step forward ... the Federal Electronic Transaction and Commerce Law is now out 14 The UAE Government and the private sector partner in an Intellectual Property awareness initiative 16
Legislative Update
Ofcial Gazette 30
An Overview of article 12 of the Civil procedure law (Federal Law 11 of 1992) Regarding Service of courts documents
Article 12
1- A Grace Period shall be added to the time periods specied in this Law which is 10 days for persons residing outside the Courts jurisdiction and 90 days for those residing outside the United Arab Emirates. 2- A Grace Period may, due to transport considerations or urgency, be shortened by order of the judge concerned or circuit chairman, as applicable, and such order shall be notied with the summons. 3- This time limit shall not apply to persons to whom notice is personally served whilst in the UAE, but the judge concerned or the circuit chairman, as applicable, may order, upon reviewing the case, an extension of the normal time limits or deem the same extended provided in either case that the time span shall not exceed the period of grace the said person would be entitled to had he been served notice at his place of residence overseas.
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Commentary:
1) The rst paragraph of this Article was revised by Law No. 30 of 2005 such that the grace period for persons residing outside the UAE is now 90 days instead of 60 days (as required prior to the amendment.) 2) According to Articles 12 and 159 (see footnote 1) of the Civil Procedures Law a 10 day grace period shall be added to the original time limit for appeal for those who reside outside the jurisdiction of the Court of Appeal such that the new deadline supersedes the old one. When adding a grace period to the original time limit for appealing a decision of the Court of First Instance, it does not matter legally whether that decision was issued on the merits or on a summary matter. Either way, the purpose of the grace period is the same, namely to enable the judgment debtor to travel from his present location to the desired location either in person or by proxy to complete the appeal formalities within the time limit. Domicile on the basis of which the grace period is calculated is the place the party has established as his domicile for the period of litigation before the Court of First Instance, notwithstanding any other domicile he might have within the jurisdiction of the Court of First Instance or the Court of Appeal. Respondents
who resided in the Emirate of Ras Al Khaimah, which is outside the jurisdiction of the Dubai Courts, as indicated by their address in the Statement of Claim. Appealing the decision issued against them in the proceedings requires that they, or their lawyer, travel from their place of residence in Ras Al Khaimah to the Clerks Ofce of the Court of Appeal in Dubai to carry out the appeal formalities. The Court of Appeal must, when calculating the time limit for appeal, add 10 days to the original time limit as required by said Articles 12 and 159. The lower Court took this approach and there is no basis for faulting it because it decided to admit the appeal from a procedural point of view. The second part of the argument is unacceptable. The Appellants legal defence is interspersed with fact never before raised in the Court of Appeal and which cannot therefore be raised for the rst time before the Court of Cassation. (Decision handed down by the Dubai Court of Cassation in Civil Appeals No.s 367, 378 & 3921997 on 17.01.98) 3) Article 12 (1) of the Civil Procedures Code states that a 60 day grace period be added to the periods specied in that Code for persons residing outside the United Arab Emirates. This is an express provision intended to enable the person to attend in order to carry out the necessary legal formalities,
regardless of whether or not his lawyer resides in the UAE. Express provisions are not subject to interpretation. The lower Court took this approach and held that a 60 day travel period should be given to Respondent to le his appeal since he resides in Kuwait and there is no indication in the documents that Respondent has domicile in the UAE. The lower Court got it right and there is no point in Appellant arguing that the grace period would apply only to a summons to appear on a specic date. The provision is broadly worded in that the period shall be added to all time periods specied in the Law. Because the Law xes a time limit for appeal, the Appellant was entitled to add the grace period thereto. Hence, the exception taken is without basis. (Decision handed down by the Dubai Court of Cassation in Civil Appeal No. 357-1999 on 22.01.00) Footnote 1 Article 159 provides that unless the Law stipulates otherwise the time limit for appeal is thirty days. In expedited matters, the time limit is ten days.
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CORPORATE COMMERCIAL
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CORPORATE COMMERCIAL
A)
Mr A
Mr B
Mr A
Mr B
Mr A
Mr B
Company 1
Company 2
Company 3
B)
Mr A
Mr B
Holding company
Company 1
Company 2
Company 3
particular division of the group should be sold off, so that the group can focus all its efforts on other core businesses. If there is a rational ownership structure in place such that the relevant division can simply and easily be divorced from the remainder of the group, this will facilitate the sale and avoid the need for a possibly more complex pre-sale reorganisation at a later date. Additionally, a business division (comprising of a number of companies engaged in related businesses and/ or inter-dependent businesses) will be more attractive and more valuable to a potential purchaser if it already has a sensible and manageable structure in place. Otherwise, the purchaser may have to carry out the reorganisation following the sale and all the disruption and loss of management time involved, whilst possibly at the same time attempting to integrate the new division into its own group. The transaction costs
incurred in selling a business division will be signicantly reduced if a business division (comprising of a number of related companies) exists under a single intermediate holding company. Simply transferring the intermediate holding company to the purchaser will result in the entire division being transferred to the purchaser. Accordingly, the shape of a corporate group should ideally resemble a pyramid.
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CORPORATE COMMERCIAL
Mr A
Mr B
bank borrowings (no borrowing beyond prescribed limits) other bank facilities (including guarantees) increase/decrease of share or loan capital change of company names change of core business, opening new business streams, abandoning any business stream appointment / dismissal of senior personnel award of commercial contracts of certain types or to particular organisations appointment of agents and representatives in particular circumstances purchase / sale of certain assets (dened by value or type e.g. any real estate) approval of accounts or business plans and budgets declaration of dividends (and allocations to reserves) opening of new branches or formation of further subsidiaries institution / settlement of legal proceedings Additionally, a corporate structure organised with different divisions under an ultimate holding company will enable the more senior management to devote their time to higher level issues and so to formulate policy that will then apply group-
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CORPORATE COMMERCIAL
wide, rather than sitting on the board of each and every operating company. Also, where a group is divided into different divisions, particular managers can be assigned responsibility for their own divisions whilst at the same time falling under the authority and direction of the holding companys board. In general, it is considered simpler and more effective to allocate management responsibilities within an organisation with a divisional, multi-tiered structure. This allocation is reinforced by the fact that companies within the higher tiers of a group own and ultimately control those in the lower tiers.
use of the relevant assets by way of a lease, licence or similar arrangement with its sister concern.
Final comments
Whenever a business is considered likely to expand or to be the subject of a sale, partial sale or IPO, the management of the group should consider the points raised above. In essence, the key projects of focus of a corporate group reorganisation are likely to be: simplicity, consolidating business streams into saleable modules, ringfencing key assets and ensuring overall tax efciency. The issues highlighted above are merely a foretaste of what is a complex set of considerations. Managers of groups of companies will need to consult carefully with their legal and accounting advisers to best protect and develop value within their groups.
Asset protection
A corporate group should aim to ensure that the assets of the group are protected where possible and practicable. For example, it would be prudent for expensive or unique assets to be owned by different companies. By these means, if a claim is brought by a third party against any one of the asset holding companies, then only the assets of that particular company are likely to be susceptible to attachment if court proceedings brought by the third party are successful. But those assets held by other companies in the same group can be protected from attachment. Shipping companies in particular avail of this structure by ensuring that each individual vessel is owned by a separate owning company. If accidents occur, ships can give rise to huge liabilities for their immediate owners if damage is caused to other vessels, ports, coastlines etc. Accordingly, to safeguard other ships within the same commercial eet from potential creditor claims, each ship will be owned by a separate owning company. Similarly, it is generally prudent for companies carrying on a trade, which exposes them to a greater degree of risk from third party claims, not to have a signicant asset base. Where a business necessarily involves the provision of services or trading activities and the use of signicant assets (e.g. real estate, plant and equipment or intellectual property rights), then that business may be carried on by two or more companies working together within a contractual relationship. One holds the assets (thereby shielding them from creditor claims behind the corporate veil) and the other trading or service company deals with third parties and can make
Counter-considerations
Naturally, there will be legal and accounting costs to be borne in carrying out any form of reorganisation. Management will need to devote some of their time to planning and implementing the changes. This may involve talking to employees, customers, suppliers and bankers to assure them that the changes are to be implemented for the benet of the group and are not indicative of insolvency or otherwise likely adversely to affect employees, customers and suppliers. However, most successful corporate groups will go through one or more reorganisations from time to time and once a rational structure has bedded down, it should serve to boost the morale of management and other employees within the group as they are more likely to consider themselves as part of a cohesive commercial enterprise.
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CORPORATE COMMERCIAL
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CORPORATE COMMERCIAL
Employee Records
Currently the proposed reform suggests that employers with fteen or more workers should maintain records and documentation of those workers. We recommend that all employers regardless of the number of employees should be required to keep such records.
Without such guidance, employers wishing to terminate an employee are facing signicant difculty. For example, whether or not poor performance will be deemed a legitimate reason by the courts or whether it will be viewed as arbitrary dismissal is unclear. Furthermore, Article 122(10) of the proposed reform states a worker may be terminated without notice for deliberately refraining from doing his work or inciting others to do so, or take part in any such activities. As currently drafted, the clause is broad and again does not provide any boundaries. Merely inciting others to refrain from working constituting grounds for termination without notice, may give employers the ability to terminate on a whim for any type of behaviour.
in full freedom, to organize their administrative activities and to formulate their programmes. In order for the UAE to match other jurisdictions internationally, freedom of association as a fundamental basic right is an important aspect of the labour environment and should be addressed. C158 Termination of Employment Convention, 1982 This convention at Article 4 addresses the justication for termination. The employment of a worker shall not be terminated unless there is a valid reason for such termination connected with the capacity or conduct of the worker or based on the operational requirements of the undertaking, establishment or service. Ratifying this convention would provide some much needed clarity. C155 Occupational Safety and Health Convention, 1981 This Convention provides for the periodic review of a coherent national policy on occupational safety, occupational health and the working environment. The aim of the policy is to prevent accidents and injury to health arising out of, or linked with or occurring in the course of work, by minimizing, so far as is reasonably practicable, the causes of hazards inherent in the working environment. The Convention goes on to describe the main spheres of action, in so far as they affect occupational safety and health in the working environment. C167 Safety and Health in Construction Convention, 1988 This Convention applies to all construction activities, namely building, civil engineering and erection and dismantling work, including any process, operation or transport on a construction site, from the preparation of the site to the completion of the project. Given the level and quantity of construction work in the UAE, we believe ratifying this convention would be a positive step towards reaching international standards in the construction industry.
Organisation
The UAE currently has ratied 9 ILO conventions, specically: C1 Hours of Work (Industry) Convention, 1919 C29 Forced Labour Convention, 1930 C81 Labour Inspection Convention, 1947 C89 Night Work (Women) Convention (Revised), 1948 C100 Equal Remuneration Convention, 1951 C105 Abolition of Forced Labour Convention, 1957 C111 Discrimination (Employment and Occupation) Convention, 1958 C138 Minimum Age Convention, 1973 C182 Worst Forms of Child Labour Convention, 1999 However, there are several conventions which we recommend the UAE should also seek to ratify, to move closer towards achieving international standards. The rst and most important, being: C87 Freedom of Association and Protection of the Right to Organise Convention, 1948. Freedom of association is a basic human right and a factor in the achievement of social justice. Essentially, ratifying the convention would mean workers and employers, without distinction, would have the right to establish and (subject only to the rules of the organization concerned), to join organizations of their own choosing without previous authorization. Workers and employers organizations shall have the right to draw up their constitutions and rules, to elect their representatives
Summary
The Ministry of Labour has closed the timeframe for public comment on the proposed reforms. However, we believe several organizations have submitted their comments and recommendations moving forward, therefore it will be interesting to see which areas are amended further before the reforms are adopted as law.
Termination
Currently the labour code does not provide clear grounds for termination on notice. Article 117 of the current code provides for termination of an unlimited contract by provision of 30 days and a legitimate reason. However, there is no description of what constitutes a legitimate reason.
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By Husam Hourani, Partner, Banking & Finance Dubai Financial Services Authority (the DFSA)
The DFSA is the independent regulatory authority for the Dubai International Financial Centre (the DIFC), created persuant to DIFC Law No.9 of 2004. The DFSA plays a key role within the DIFC. In order for a nancial service of a rm to be conducted in or from the DIFC, approval must be sought from the DFSA. To ensure that DIFC activities are conducted to the highest international standards, the DFSA has built a robust, riskbased framework in which only the best practices from nancial centres world wide have been adopted.
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industry in the DIFC/QFC (reduction of RISK). To prevent, detect and restrain conduct that causes or may cause damage to the reputation of the nancial centre or the nancial industry in the nancial centre, through appropriate means including the imposition of sanctions. To protect direct and indirect users and prospective users of the nancial services industry in the nancial centre. To promote public understanding of the regulation of the nancial services industry in the nancial centre.
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Deposit taking from the UAE Markets; Dealing in UAE Dirham; Dealing in Dirhams by Banks; Dealing with individual client with less than US$1 Million in liquid assets; Dealing with an institutional clients
with called up share capital, or net assets less than US$ 5 Million; Insurance business with individuals; and Direct insurance of risks located in the UAE.
Principal Trading Firms: USD2 Million Agency Broker: USD500,000 Certain Fund Managers: USD500,000 Arrangers or Advisers: USD250,000 Reinsurers: USD20 Million Insurers (Direct) USD10 Million Captive Insurers: USD150,000, USD1 Million, USD10 Million.
Mandatory Individual Positions for Authorised Firms in the DIFC & QFC
1. Senior Executive Ofcer An individual who has the ultimate responsibility for the day to day management, supervision, and control of an Authorised Firms nancial services. 2. Compliance Ofcer An individual who is responsible for compliance matters of an Authorised Firm. 3. Finance Ofcer An individual who is responsible for nancial affairs of an Authorised Firm. 4. Money Laundering Reporting Ofcer Responsible for compliance with anti money laundering rules of the DFSA, and any relevant anti-money laundering legislation applicable in the UAE.
Application Fee, Annual Renewal Fee USD30,000. Category 3 USD10,000 License Application Fee, Annual Renewal Fee USD10,000. Category 4 USD10,000 License Application Fee, Annual Renewal Fee USD10,000. Category 5 USD10,000 License Application Fee, Annual Renewal Fee USD10,000.
QFC
Deposit Taking, Providing Credit Facilities, Carrying/Effecting out Contracts of Insurance = USD 40,000. Dealing in Investments (as Principal) = USD25,000. Dealing in Investments (as Agents), Providing Custody Services, Managing Investments, Advising on Investments, Arranging Deals In Investments, Arranging Credit Facilities, Arranging the Provision of Custody Services, Operating a Collective Investment Fund = USD10,000 Annual Renewal Fees in the QFC are as above NOTE: For every Licensed Individual in the DIFC the Fee is USD1,000 with the same annual renewal fee. For every Licensed Individual in the QFC the Fee is USD 500 with the same annual renewal fee.
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INTELLECTUAL PROPERTY/ IT
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INTELLECTUAL PROPERTY/ IT
Another step forward ... the Federal Electronic Transaction and Commerce Law is now out !
By Samer Qudah
T
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he UAE Government has committed itself to facilitate E-commerce conducted from the State, at both the local and federal levels. The federal and the local governments have been very positive and have been bold in taking the initiative in this area as they realised that their future business growth lies through the Internet and the media (which will eventually also end up being transmitted electronically through the Internet).
As part of the Federal Governments efforts to regulate electronic transactions and boost users condence, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the UAE, has, in February 2006, issued Federal Law No. 1 of 2006 concerning Electronic Transactions and Commerce Law (the Law). The law is divided into ten chapters as follows:
Chapter Two addresses the exempted transactions from the scope of the Law and outlines the objectives which the Law is meant to achieve. The Law shall not be applicable to personal status transactions such as marriages, divorces and wills, deeds of title of immovable property, negotiable instruments, transactions related to the sale, purchase, lease (for a term more than 10 years) and other deposition of immovable property, any documents which require attestation by the Notary Public and any documents or transactions exempted by
INTELLECTUAL PROPERTY/ IT
validity or enforceability for the simple fact that it was formed by one or more electronic messages. Further, an on-line contract may be concluded between two or more Automated Electronic Systems; without personal intervention, and such contract shall be valid by virtue of Article 12 of the Law. The Law contains provisions that govern when an addressee is entitled to regard an electronic message as being that of the originator and to act on that assumption. It also sets out the guidelines as to when the dispatch of an electronic message occurs and outlines the decisive factors in terms of the time and place of dispatch and receipt of electronic message. The Law also deals with the acknowledgement of receipt of electronic messages, under Article 14 of the Law.
of electronic registers, accept fees or any other payment in electronic form and put out tenders and receive bids in relation to government purchases electronically. The Law contains enabling provisions allowing the government to specify the manner and process for performing the above functions.
special provision of law. The Cabinet may add any transactions or matters to the exempted transactions under Article 2, or make any deletions or amendments with respect to the same.
Chapter
Six sets out provisions relating to electronic attestation of certicates and authentication services. The Law provides for the appointment of a controller of authentication services. The controllers main duties are to license, approve and to monitor and oversee the activities of Authentication Service Providers. Article 21 outlines the duties of the Authentication Services Provider and contains the regulatory elements of their business. Chapter Seven sets out the criteria
according to which the foreign electronic certicates and signatures shall be recognised.
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Chapter Eight deals with the government use of electronic records and signatures. According to Chapter Eight, government departments may approve the deposit or submission of documents or their creation or storage in form of electronic records, issue any permit, licence, decision or approval in the form
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INTELLECTUAL PROPERTY/ IT
The UAE Government and the Private Sector partner in an Intellectual Property Awareness Initiative
By Hoda Barakat, Managing Partner, IP/IT
n the 22nd of April 2007, the Ministry of Economy and the Brand Owners Protection Group (BPG) of the Gulf & Yemen co-hosted a seminar on Intellectual Property Rights to announce the joint initiative between the two parties on awareness and education of intellectual property rights. The seminar was also in celebration of the World Intellectual Property Day which takes place yearly on the 26th of April and was held this year under the slogan of Supporting Innovation.
the real partnership between the public and private sectors which is proven by events such as the seminar. Bin Abdul Aziz commended the decisions of His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice President and Prime Minister of UAE and Ruler of Dubai, especially the decision No.12/45 of 2006 (immediately upon assuming the post of Prime Minister) to unite all Intellectual Property Departments under the Ministry of Economy supported by administrative and technical manpower to meet the needs of the future. Mr. Omar Shteiwi, Chairman of the BPG, which represents a number of multinational companies such as Beiersdorf Middle East, British American Tobacco, General Motors, Johnson & Johnson, Nestle Middle East, Philips International, Procter & Gamble, Unilever, etc. and service providers such as Al Tamimi & Company, also conrmed the real joint initiatives that are taking place between the private sector and the public sector through the Ministry of Economy, the Customs and others. This will be the rst of many events and initiatives.
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Ms. Fatima Al Hossani, Head of the Trademark Section at the Ministry of Economy, delivered the speech of His Excellency, the Under Secretary of Planning in the Ministry of Economy, Mr. Mohammad Ahmad Bin Abdul Aziz, where the UAE Government conrmed adherence to its obligations under the World Intellectual Property Organization (WIPO) and other agreements as well as its whole hearted support for Intellectual Property protection and enforcement. The speech went on to announce
JFAS Seminar
DIFC 11th April 07
ith over 3000 members, JFAS is the largest study union of the University of Amsterdam. JFAS stands for Juridische Faculteit der Amsterdamse Studenten which translates as the Law Faculty of Amsterdam Students. JFAS regularly organises lectures for students covering a diversity of legal issues. These lectures often include visits to law rms and companies, both local and international. An international study trip is organised for the students each year and this year the chosen destination was Dubai. The focus for the Dubai study trip concentrated primarily on all the various aspects of real estate law and litigation in the UAE. Al Tamimi & Company were delighted to host a half day seminar and a lunch for the students as well as a tour around the newly opened DIFC Courts. Lisa Dale, Head of Al Tamimis Property Practice presented to the students on the issues and major developments surrounding property law in the UAE, while Hasan Arab, Head of Litigation and Dispute Resolution gave an overview of Litigation in the UAE. Its wonderful to meet with a group of dedicated students with such a passion for the law commented Lisa Dale. It was a pleasure to speak with them about our experience in The UAE and we really hope that they were able to take with them some useful and interesting information to assist them with their studies.
Events
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Events
For further information please contact Sami Houerbi, Director for Middle East and Africa, ICC Dispute Resolution Services Telephone: 00 216 71 840 297 Fax: 00 216 71 286 917 Mobile: 00 216 20 216 216 Email: shi@iccwbo.org
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CONSTRUCTION
FIDIC
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CONSTRUCTION
By Edward Sunna Head of Construction and Engineering Department & Omar Al Saadoon Senior lawyer of Construction and Engineering Department
There is an expression which goes the road to success is always under construction. This expression appropriately captures the current and foreseeable surge in the construction industries of Arab countries (particularly in the Gulf) and the prevailing attitude of public, private and foreign stakeholders. This article will provide a brief overview of the emergence and applicability of FIDIC contracts in the Gulf given their historic and widespread use internationally, particularly in the public sector.
FIDIC forms of contract have been in use in the Middle East since the 1970s. It is paradoxical that although the FIDIC conditions of contract have been drafted on the basis of English common law principles, the public and private sectors in Gulf countries who source their law from a mixture of civil law and shariah law such as the UAE, The Kingdom of Saudi Arabia, Kuwait and Oman, have based their conditions of contract on the FIDIC form. Historically, the public sector in those countries have led the way for FIDIC to be adopted or used in response to the national tendering laws and the corresponding requirements of various government ministries. It is worth noting from our previous articles on FIDIC that although the Emirate of Abu Dhabi has recently and ofcially adopted the FIDIC form, the Emirate of Dubai (particualrly the Dubai Municipality) has yet to follow the same lead. Lawyers who have trained in civil law jurisdictions in the Middle East often do not appreciate the English legal concepts underpinning those conditions. Conversely the same could be said of lawyers who have trained in common law jurisdictions but are unfamiliar with the applicability of governing civil code articles in Middle Eastern jurisdictions, which will have the practical effect of overriding the FIDIC conditions of contract. Parties to a contract and their advisers should therefore be aware of trying to reconcile the conditions with civil code provisions when negotiating FIDIC contracts. The issue of language to be adopted in a FIDIC contract is critical and not to be underestimated. The FIDIC forms of contract give parties the option to choose the governing language to be used in the contract and the primary language in the event of an issue of interpretation or construction (particularly with reference to proceedings or arbitration). Whilst there has been a historic trend in countries such as Saudi Arabia and Iraq to adopt Arabic as both the governing and interpretative language, the increasing involvement of foreign contractors and consultants in construction projects in Arab countries, particularly since the 1980s, has led to English being the preferred language. Whilst this trend may be understood in the context of arbitration proceedings, it
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CONSTRUCTION
is difcult to establish the extent to which this contractual arrangement makes practical sense in the local courts of Arab countries. The 1987 FIDIC conditions of contract have been adopted and modied to some extent by the public sectors in countries including Iraq, Oman, Saudi Arabia, and Kuwait. Furthermore, international institutions such as the World Bank have adopted the FIDIC conditions of contract when entering into contracts with Arabic governments to fund engineering or infrastructure projects. The cost of the works under the FIDIC conditions of contract is generally treated on the basis of a remeasurement contract i.e. the price of the works are recalculated on the work that is actually carried out rather than the price originally estimated at the time the contract was entered into. An Employer, in theory, therefore carries the risk of changes to the quantities of material used in the works and accordingly the cost of the works. Public sector employers in the Middle East, similar to those internationally, tend to prefer lump sum xed price contracts. The Ministry of Public Works in Kuwait, for example, has historically issued its own set of contractual conditions based on FIDIC conditions. But where such conditions have been heavily amended to reect a lump sum xed price requirement primarily driven by local public tender laws.
a Kuwaiti government ministry or public body must obtain governmental consent before it decides to award a variation which affects the contract price by more or less than 5 %. It is important for anyone advising Employers to be aware of the distinction between a lump sum contract, where there is greater scope for cost variations, and a lump sum contract xed price contract which presupposes lesser scope. According to Law 6 of 1997, the Dubai government departments are entitled to increase the stated quantities in the contract by up to 30% of the original contract price without allowing for any increase in the original contract price. In other words, an increase of up to 30% will be deemed to be within the contract price and will supersede any corresponding conditions of the FIDIC contract. Essentially, the Contractor bears the risk of the discrepancy, so that it may not be likely to succeed in a claim for additional payment. In considering the role of the Engineer under the FIDIC contract conditions, it is important to appreciate the inherent dichotomy in its role. The Engineer is supposed to be independent in that they generally administer the contract between the parties, certify works in accordance with the contract and act as the adjudicator in the event of a dispute. Furthermore the Engineer acts as the Employers agent so that in receiving payment for his services to the Employer, he owes the Employer a duty of care. This dichotomy which may have been unintended by the FIDIC drafting committee at the time, has been addressed to the extent that public authorities in Arab countries such as the Emirate of Abu Dhabi, and Kuwait, give themselves sole discretion in ordering
variations including the costs associated with risks which are not attributable to the Contractor or the Employer. The standard conditions of contract issued by the Dubai Municipality (the main public body in Dubai involved in procuring public sector projects) departs from the FIDIC standard conditions in that the Engineer is obliged to seek the prior approval of the Employer on matters including the contractors programme and expenditure of monies pursuant to the contract sum and the issuing of certicates for completion or non completion of the works. It may be viewed as a relief to Employers in Arab countries, who are uncertain as to whether to adopt the 1999 FIDIC Red and Yellow contracts, that this dichotomy has apparently been resolved by the FIDIC drafting committee. These conditions do not require the Engineer to be impartial and he shall be deemed to act for the Employer except where fair determinations are required, or unless the contract conditions express otherwise. This may perhaps encourage the wider use of the 1999 FIDIC contracts which is increasingly being used in Arab countries, particularly given the increase in project nance and BOT type transactions. The Contractors overall liability for the works under the FIDIC contract are based on English common law principles e.g. contractor to carry out works using reasonable skill and care. The Contractors liability is considered satised under the FIDIC conditions when a certicate (defects liability certicate) is issued by the Engineer conrming that all defects in the works, which are apparent after the works have been substantially completed, are remedied. However the civil codes of countries such as Bahrain, Kuwait, Iraq, Jordan, Egypt
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It is interesting that the Public Housing Authority of Kuwait stipulate in their standard conditions of contract (based on the FIDIC conditions) that any discrepancy between items or materials or work in the document which refers to the same (Bills of Quantities) is dealt with in favour of the Employer. However, it is worth noting that
CONSTRUCTION
and Lebanon contain articles extending the contractual liability of the Contractor, under FIDIC contract conditions, beyond the issue of the defects liability certicate. Basically, these provisions impose what amounts to strict liability on a Contractor in favour of an Employer for any defects affecting the integrity of a structure or a collapse of any part of it. Such liability is co-extensive with an Architect or a consultant beyond the defects liability period specied in the contract (10 years in the case of the UAE) whereby the Architect or consultant is responsible for the design of the structure. It is important to note that this provision, imposing strict liablity, is an implied term in the contract which cannot be modied or excluded by the parties. However, Contractors should note when defending a claim under this provision, they are entitled to raise arguments (if applicable) based on force majeure provisions and or default by or on behalf of the Employer e.g. Engineer failing to perform his obligations under the Contract. Similarly under Omani law, the Contractor can show a separate contributing factor for the collapse of a structure which it has built as a defence to a claim under this type of provision. In Bahrain, the law stipulates that a Contractor and a consultant are jointly liable for the construction of a structure and for the structures safety for a period of 5 years. In respect of design, the FIDIC conditions generally oblige the Contractor to be responsible for design in carrying out the Works. The FIDIC conditions go further in that the Contractor is obliged to notify the Employer (via the Engineer) of any defect or mistake in the design at the time of tender or when carrying out the Works (post contract). Whilst
there is no corresponding obligation under the civil codes of countries in the Middle East, such as the UAE, for the Contractor to notify the Employer of defects, it is submitted, Contractors do owe a general duty of care to notify under the civil law doctrine of good faith. This would make practical sense in respect of the application of the strict liability provision (referred to above), even if the negligence in design was not, in real terms, the Contractors fault. Notwithstanding the points made in the preceding paragraph, the conditions of contract currently issued by the Dubai Municipality unusually do not appear in effect to impose strict liability on the Contractors under this strict liability provision preferring instead to rely on the concept of negligence. The FIDIC conditions allow the parties to agree xed damages for the Contractors delay in completing the Works. In assessing the nature and level of damages under common law, an Employer should be mindful of agreeing to a sum which represents a genuine pre-estimate of its losses at the time the contract was entered into as a result of the contractors delay and not a penalty or a sum of money that is disproportionate to the Employers actual loss. In the UAE however, there is a local practice of imposing a limit of ten percent of the contract value for any delays on the part of the Contractor in failing to complete the Works by an express completion date (subject to extensions of time) notwithstanding any xed damages which may have been agreed to by the parties and inserted in the FIDIC contract. This local practice was ignored by the local Court of Cassation in a local case which held that local courts had the authority to x a level of damages (in order to balance the equities between the contracting parties) should it become
evident the damages actually suffered were either higher or lower than the contractual amount originally envisaged and agreed upon. Despite the complexities and barriers associated with applying an international standard form contract to the construction market in the Middle East, it is fair to conclude that FIDIC has demonstrated a level of exibility beyond arguably any other form of contract across the Middle East. The need to adapt to changes in legal systems, language or construction types has not inhibited the emergence and continued growth of FIDIC in the Middle East.
LAW UPDATE
23
PROPERTY
As the Emirate of Dubai and the Dubai International Financial Centre await the introduction of their respective strata title law, we thought it might be useful to share with our readers some of the potential benets of having community and strata title law, from the perspective of New South Wales, Australia. This paper aims to discuss only the concepts of community and strata schemes and not other more complicated schemes that exist in Australias property market.
24
PROPERTY
Estate
In Australia, it is now a common trend for property developers to develop a residential estate concept which is similar to the mixed-use communities in Dubai. Such estates generally encompass the following features: (a) single houses; (b) a few mixed-used multi-storied buildings (where the ground oors lots are designated for commercial and retail use and the higher oors lots are for residential use); (c) outdoor swimming pool, outdoor tennis courts, outdoor barbeque area and a community hall for use by all the residents within the estate; (d) a gym within each multi-storied buildings for use by the residents living within such building only.
Such estate concept means the residents do not have to travel a great distance to access recreational facilities and shops such as hairdresser, laundromat, video/DVD store, convenient store, supermarket and so forth. In such estate, the strata scheme is within the community scheme and where such strata scheme is concerned, a two tiered management system will be in place. The strata scheme will have its own owners corporation and the strata scheme will also come under the management of the community association. Whereas the owners of the single houses within the community scheme will only come under the management of the community association. It is possible for a strata scheme to exist by itself, eg, where a single multi-storied building is constructed on a plot of land.
LAW UPDATE
25
PROPERTY
(d) the easement instrument. Documents that are generally required for a strata scheme are: (e) strata plan showing the location (and exact measurements) of each lot within the strata scheme including the common property; (f) a unit entitlement schedule of each strata lot (excluding the common property) within the strata scheme; (g) the by-law agreement for the strata scheme; and (h) the easement instrument. Once the development is registered by the Department of Lands, these documents will be scanned into the departments computer records and are available to the public for a fee and new certicates of title for the community lots and strata lots will be issued to the developer. A certicate of title for the community property will also be issued to the community association and the certicate of title for the common property issued to the owners corporation.
to a managing agent, which includes: (a) delegating the managing agents functions to others; and (b) setting levies.
3. What are the responsibilities of the community association and the owners corporation?
As the legal requirements for the community association and the owners corporation are similar, from here on, the community association and the owners corporation will be referred to simply as the association. The law sets out the basic responsibilities of an association and these responsibilities include: (a) arranging an annual general meeting; (b) recording all details of notices and orders served on the association and these records must be kept for at least 7 years; (c) keeping a record of minutes of meetings including details of motions passed for at least 7 years; (d) keeping accounting records and nancial statements of the association for at least 7 years; (e) keeping a roll of the owners including contact details, when a person became owner or ceased to become an owner within the scheme; A managing agent (licensed by law) may carry out some of the functions, duties or powers of the association. For a large estate, it is common for the association to appoint a managing agent to carry out its functions, duties or powers. However the law prohibits certain power to be given
LAW UPDATE
26
are part of the associations property and for other capital expenses. The association must prepare nancial statements and present them at the annual general meeting. The statements must include income and expenditure for the administrative fund and sinking fund. At this annual general meeting, the following years levies must also be decided by a majority vote. When the levies are to be decided at a meeting, a budget must be presented showing the exiting nancial situation and an estimate of next years receipts and payments. After the decision is made on the following years levies, the association must write to the members to advise them the amount to pay and the date to pay. The association may decide to allow payments by installments. If the association has to pay other expenses that were not budgeted for in the administrative or sinking fund estimates, a special levy must be set at a general meeting and the amount collected paid to a fund to meet those extra expenses. The law prescribes that unpaid levies will attract a penalty at the rate of 10% per annum if not paid within a month after it is due. Unpaid levies, including the penalty, can be recovered by the association as a debt in Court.
Similar law applies to the owners corporation. The owners corporation must insure the building. The building includes the owners xtures and ttings such as carpets in the common areas, hot water systems, light ttings, toilet bowls, sinks and cupboards. Public Liability Insurance The association must insure against damage to property, death or injury for which the association may become responsible and the minimum amount of cover must be AUD$10million. Workers Compensation Insurance If required by law, the association must take out workers compensation insurance. Voluntary Workers Insurance The association must insure against any damage that it may become responsible for because of work done by a voluntary worker for the association and for accidental injury or accidental death of a voluntary worker.
initial period, it will end at the rst annual general meeting unless it is disclosed in the community management statement or the by-law agreement, before any lots are sold, or the contract is ratied at the rst annual general meeting.
Conclusion
In Dubai, developers have relied on Article 1188 of the Federal Civil Code for the development of mixed-used communities. This Article provides in simple terms that if there are several owners of storeys in a building or of different apartments, these owners will be deemed to be co-owners of the land and of the parts of the building intended for common use by all of them. The Australian concept of the community scheme is not legislated in the Federal Civil Code or anywhere else. Accordingly, in Dubai, where a master community exists, the master developer remains the owner of the community property. Once the development of the master community is completed, the master developer may wish to withdraw from the on-going management and administration of the community property and hand such duties to the owners within the master community. At this stage, the transfer of such duties from the master developer to the owners within the master development is not possible in Dubai. Hopefully, the soon to be introduced strata title law in the Emirate of Dubai will make provisions similar to the Australian concept of the community scheme which will permit the formation of the community association to manage and administer the community property. Further, for the sake of consistency in Dubais property development, it would be useful for the strata title law to legislate on the issues of service charges and insurances or alternatively legislate that the Master Community Declaration and the Constitution of the Co-Owners Association must include prescribed information such as service charges and insurances.
LAW UPDATE
27
On February 15, 2007 the Federal Law no (6) of 2007 In Respect of Forming an Insurance Association and Organizing Its Activities (the new Law) has been passed in the UAE, in which the current operating insurance companies have to reorganize its activities in line with its provisions and regulations. The new Law which will be applied within 6 months from its date of publication in the ofcial gazette (i.e. February 15, 2007) applies on all local insurance companies in the UAE, foreign insurance companies and agents licensed to carry out insurance activities in the UAE. However, Article (2) of the mentioned Law states that the new Law will not apply to insurance companies incorporated in free zones.
I- Types of Insurance:
A new division for insurance types has been introduced by Article (4) of the new Law which divides insurance activities into three types: 1- Individuals and Assets Insurance. 2- Property Insurance. 3- Liabilities Insurance. An Implementing Regulation for the new Law will be issued at a later stage to determine the types of insurance which falls under each type above.
through monitoring the nancial position of UAE Insurance Companies, to develop the practice of Insurance Companies, to receive applications for licensing new insurance companies, to set types of compulsory insurance and its premiums. The Association will be formed by the following parties: 1- The Board, that is formed according to Article (9) and contains two members from the Ministry of Economy & Trade, one member from the Ministry of Finance, one member from the UAE Central Bank, one member form the Federal Chamber of Commerce and Trade, ve insurance experts members appointed by the Minster of Economy & Trade. 2- The General Manager of the Association who will be appointed by a Federal Decree according to Article (14). 3- The Executive Body.
LAW UPDATE
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The new Law consists of many new articles and revised old articles stipulated in the Insurance Companies and Agents Law. Some of these articles are as follows:
Article (21) of the new Law provides that the assets of the Association shall be considered as Public Assets and that such Association shall enjoy all privileges which are granted to Ministries and other Governmental Departments.
LAW UPDATE
29
LEGISLATIVE UPDATE
Emirate of Abu Dhabi Secretariat-General of the Executive Council 35th Year Issue No. 12 December 2006
OFFICIAL GAZETTE
Laws
21 of 2006 24 of 2006 Regarding construction contracts and agreements related to civil contracting Amending Law No. 3 of 2004 establishing the Higher Corporation for Specialised Economic Zones in the Emirate of Abu Dhabi
Emiri Decrees
19 of 2006 20 of 2006 22 of 2006 23 of 2006 Convening the National Consultative Councils 2nd Ordinary Session of the 16th Legislative Term Reorganising the Ofce of the Rulers Representative in the Eastern and Western Regions Appointing the Chairman of the Executive Council of the Emirate of Abu Dhabi Reappointing the Executive Council of the Emirate of Abu Dhabi
LAW UPDATE
30
60 of 2006 61 of 2006 62 of 2006 63 of 2006 64 of 2006 65 of 2006 66 of 2006 67 of 2006 68 of 2006 69 of 2006 70 of 2006
Decision of the Crown Prince, Chairman of the Executive Council awarding the Order of Abu Dhabi Decision of the Crown Prince, Chairman of the Executive Council awarding the Order of Abu Dhabi Decision of the Crown Prince, Chairman of the Executive Council awarding the Order of Abu Dhabi Decision of the Crown Prince, Chairman of the Executive Council awarding the Order of Abu Dhabi Decision of the Crown Prince, Chairman of the Executive Council awarding the Order of Abu Dhabi Decision of the Crown Prince establishing the Worldwide Fund for Protection of the Houbara Bustard Decision of the Chairman of the Executive Council appointing the Board of Directors of the Higher Corporation for Specialised Economic Zones in the Emirate of Abu Dhabi Decision of the Crown Prince appointing the Members of the Abu Dhabi Education Council Decision of the Chairman of the Executive Council appointing a Member of the Board of Directors of the National Rehabilitation Centre Decision of the Chairman of the Executive Council amending Decision No. 25 of 2005 regarding the National Rehabilitation Centre Decision of the Crown Prince reappointing the Board of Trustees of the Zayed Teacher Award
Resolutions
1 of 2006 Resolution of the Board of Directors of the Abu Dhabi Council for Economic Development appointing the General Manager and Deputy General Manager
GOVERNMENT OF DUBAI 41st Year Issue No. 319 15th February 2007
OFFICIAL GAZETTE
Laws
28 of 2006 29 of 2006 1 of 2007 2 of 2007 3 of 2007 4 of 2007 Establishing the Executive Ofce Attaching Dar Al Buhooth for Islamic Studies & Heritage Revival to the Department of Islamic Affairs & Charity Work Regarding the salaries of expatriate judges in Dubai Regarding the salaries of expatriate judicial inspectors in Dubai Setting up the Financial Audit Department Amending Law No. 5 of 1995 establishing the Finance Department 5 8 10 12 14 25
LAW UPDATE
Decrees
39 of 2006 43 of 2006 On cancelling the Dubai Education Corporation Appointing and replacing members of the Dubai Council for Economic Affairs 29 31
31
1 of 2007 2 of 2007
Promoting judges in the Court of First Instance Regarding increment on the basic salary schedule for employees of the Government of Dubai
32 34
Orders Regarding the authority to x, revise and pay the salaries and benets of Directors General of the Departments of the Government of Dubai, set standards and indicators for their performance and monitor their work and achievement
36
Decisions
1 of 2007 3 of 2007 Appointing an Executive Director of the Mohammed bin Rashid Housing Establishment Fixing the salary of regular students enrolled at the Institute of Advanced Legal and Judicial Studies 37 38
LAW UPDATE
32
ANJA BOLZ Family Business Practice a.bolz@tamimi.com CARLA SALIBA Corporate Commercial c.saliba@tamimi.com EDWARD SUNNA Head of Construction e.sunna@tamimi.com
GARY WATTS Head of Corporate Commercial g.watts@tamimi.com IAIN MCGILLIVRAY Property I.mcgillivray@tamimi.com JABER AL-ANSARI Litigation/ Property j.ansari@tamimi.com
HISHAM IBRAHIM MARWAH Litigation h.marwah@tamimi.com IZAFANIZ KAMIR Banking & Finance i.kamir@tamimi.com JASON MAJID Corporate Commercial j.majid@tamimi.com
IZABELLA SZADKOWSKA Banking & Finance i.szadkowska@tamimi.com JAMES MACCALLUM Corporate Commercial j.maccallum@tamimi.com
JODY GLENN WAUGH Banking & Finance j.waugh@tamimi.com LARA ABABNEH Intellectual Property, IT l.abaneh@tamimi.com MAMOON AHMAD KHAN Banking & Finance m.khan@tamimi.com
KATE SYMONS Corporate Commercial k.symons@tamimi.com LOUISE VUN Property l.vun@tamimi.com MARCUS WALLMAN Corporate Commercial m.wallman@tamimi.com
LYNETTE BROWN Banking & Finance l.brown@tamimi.com MOHAMED KHODEIR Corporate Commercial m.khodeir@tamimi.com
MOHAMMED KAWASMI Property m.kawasmi@tamimi.com NAWAL ABDEL HADI Corporate Commercial n.abdelhadi@tamimi.com OMAR Al SAADOON Construction o.alsaadoon@tamimi.com RAFIQ JAFFER Banking & Finance r.jaffer@tamimi.com
MOHAMMED J KAMAL Property j.kamal@tamimi.com NICHOLAS OCONNELL Intellectual Property, IT n.oconnell@tamimi.com PETER STANSFIELD Corporate Commercial p.stanseld@tamimi.com RAKAN AL SHIYAB Banking & Finance r.shiyab@tamimi.com SAIF ALROUSAN Corporate Commercial s.alrousan@tamimi.com SYDENE HELWICK Property s.helwick@tamimi.com WALID S. CHINIARA Corporate Commercial w.chiniara@tamimi.com ZANE ANANI Corporate Commercial z.anani@tamimi.com
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REEM ABDULLAH Maritime, Aviation & Insurance r.abdullah@tamimi.com SILVIA TESTA Maritime, Trade & Insurance s.testa@tamimi.com WALDO STEYN Intellectual Property, IT w.steyn@tamimi.com ZAFER SHEIKH OGHLI Litigation z.oghli@tamimi.com
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QATAR - ASSOCIATE OFFICE: ADV. MOHAMMED AL-MARRI in association with Al Tamimi & Co.
AHMAD AL JAAFER Litigation a.jaafer@tamimi.com GLENN OBRIEN Corporate Commercial g.obrien@tamimi.com MUSTAFA EL BASHIER Litigation m.elbashier@tamimi.com ALA TAMNEH Intellectual Property, IT a.tamneh@tamimi.com KATRINA WILSON Corporate Commercial k.wilson@tamimi.com NATASHA AGIL Corporate Commercial n.agil@tamimi.com FADI SABSABI Litigation f.sabsabi@tamimi.com MOHAMMED AL MARRI Litigation m.marri@tamimi.com
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NEW STAFF
Iain McGillivray
Iain is a British National. Iain is a qualied lawyer in both Scots Law and English & Welsh Law having obtained a Bachelor of Laws (2002) and a Diploma in Legal Practice (2003), both from the University of Aberdeen, Scotland and also having completed a course of study to become qualied in the English & Welsh jurisdiction (2006). Iain also holds a Masters of Arts Degree from the University of Glasgow, Scotland and a Postgraduate Diploma in Publishing Studies from Robert Gordons University, Aberdeen, Scotland. Before joining Al Tamimi & Company Iain worked for Edinburgh rm Warners where he specialized in all areas of commercial property law. Iain has acted on behalf of clients completing acquisitions, disposals, leasing, nancing and development of both commercial and residential property. Iain also has experience in the transfer of existing businesses and related license transfers.
Joumana Azzam
Joumana Azzam, a Lebanese National lawyer. I hold an LL.B from the faculty of Law Le Political science at the Lebanese University in Beirut (1990), as well as a Bachelor degree of Arts majoring in political science from the Lebanese American University (formerly) Beirut University College (1992). Licensed as a practicing attorney at Law advocating before all courts in Lebanon since 1994, in addition to advising for business rms & setting up Commercial Companies. Prior to joining Al Tamimi, I was an active Lawyer at Jaber Law rm in Beirut since 1991, knowledgeable in the civil and commercial Law through study & long practice. Areas of practice include litigation, contracts, employment, family, commercial and corporate laws. Member of the Beirut Bar, Association (Lebanon) Member of the Legal Woman Committee at the Bar Association dealing and advising on legal women rights.
Raq Jaffer
Raq Jaffer is an Indian National. Raq obtained his LLB (Hons.) in 1997 and LLM (International and Commercial law) in 1998 both from the University of Buckingham. Raq was enrolled as an Advocate in India in 1999 and was admitted as a Solicitor by the Law Society of England and Wales in 2007. From 1999 to 2002 Raq practiced law in India. In 2002 Raq joined as an associate at Abdullah Kh. Al Ayoub & Associates, the largest law rm in Kuwait. His areas of practice included International Business Transactions, Mergers and Acquisition and Arbitration. Raqs most signicant work in Kuwait included registering a foreign investment fund with the Central Bank of Kuwait, participating in arbitration proceedings held at the London Court of International Arbitration and the ICC International Court of Arbitration and advising on government defence contracts. Raq also participated in the Corporate Governance and Shareholder Rights Project prepared in cooperation with Lex Mundi, the International Institute of Corporate Governance at Yale University, Harvard University, and The World Bank.
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