UAE Law: Choice of governing law and Jurisdiction

Significant growth in the international trade and commerce
has appended eminence to clauses of dispute resolution in the private
international law. In a globalized world, everything is believed to be moving
at a speed of knot. New innovative techniques have
enormously affected the manner in which
business is conducted. 

This is especially obvious with
regards to worldwide business transactions. Contracts are closed between two
parties sitting in two different parts of the world and without meeting each
other vis-à-vis. In view of that, more accentuation ought to be placed on the private international legal framework of the
states, guaranteeing that they don’t stale and are up to international
guidelines in managing issues that constantly emerge in International
businesses.

As cross-border transactions constantly arise, a pertinent issue naming “choice
of law” holds significant importance
in the private international law applicable to international commercial
agreements. Contracts are mere pieces of paper without any legitimate impact unless a specific reference
to some private law is given which characterizes the commitments expected by the
parties to the agreement and the recommends the way of redress through the appropriate court system in case of failure to
perform contractual obligations.

A governing law provision in any commercial
contract defines the law which will govern or regulate the contract in the event of a dispute, as opposed, jurisdiction clause
specifies the courts or international institution that will have exclusive
jurisdiction to try the matter or resolve disputes. These clauses are though
equally important as that of the
commercial arrangements between the parties;
they are yet neglected amid
drafting the general terms of the contract and are considered as standard boiler plates at the end of the contract.

It is vital that these conditions
gain as much importance as the substantive arrangements of the agreement.
Failure of parties to agree on the governing law can lead to expensive and
massive suits deciding the relevant law
and jurisdiction to be applied to the agreement.
Corporate Lawyers of Dubai assist numerous multi-billionaire
companies to have tailor-made commercial
contracts prior to entering into an
agreement which suits the requirements of both the parties.

Choice of Law Provision

The decision of governing law for the contract is
one arrangement in the contract where the
parties assign the law of a particular
jurisdiction to oversee and regulate the disputes merging between the parties.
A such, the parties indicate or stipulate that any
claim arising out of the contract will be resolved by the law of a concerned
jurisdiction. This decision generally becomes binding on the parties
when the parties refer the matter to arbitration.

A significant number of parties,
according to statistics of the International
Chamber of Commerce, involves governing law in their contract. A standard
governing law clause states that “ this law of
this country shall govern the agreement”. There are several
preconditions which must be considered prior to choosing a particular which are
detailed as below:

A.     Worthiness of
the Law for resolving dispute:

International law has authorized
parties to adopt any law which might
govern their contract, ergo, parties mustn’t focus on choosing their home
country law for purpose of avoiding additional expenses, but must evaluate the
worthiness of law in different jurisdiction
which will be appropriate for their commercial arrangements. There are numerous
jurisdictions which have an offer importance to case laws and precedents,
whereas several jurisdiction are silent
on such matters and they not even recognize certain notions of the contract.

B.      Jurisdiction issues

Parties generally consider the law of
a particular jurisdiction wherein they wish to resolve the dispute. However,
this standard can be amended as numerous courts are willing to apply foreign
law for resolving the matter if the parties have specifically agreed. Yet, parties should be careful while drafting the contract, as it
will often be burdensome for parties to decide what foreign law should be
applicable, should the dispute arise. They must also be careful as certain jurisdiction does not apply the foreign choice of law and must also consider
the manner in which the court will apply
the foreign law. On the contrary, most international arbitration institution is readily acceptable on the foreign choice of law and have arbitrators who
can easily understand the foreign law to ease the procedure.

C.      Affinity to
the law

Given the vast cases, parties choose the law
which they are familiar to rather than opting a more neutral law. Also, the
latter can bring unaccepted surprises which parties are not aware of
considering dissimilar procedural
aspects.

Jurisdiction Provision

Another most common uncertain clause
is to determine the jurisdiction where the word “may” and “shall” can bring
unwanted confusion. Importantly, if parties which to have a non-exclusive
jurisdiction the word “may” can be utilized,
on the contrary for an exclusive jurisdiction the word “shall” should be used. An
ideal jurisdiction clause states that “the parties shall/may submit their
dispute emerging out of or in connection with the concerned agreement to (court
/arbitration) of this country.”

A bare review of the foregoing
standard jurisdiction clause we note that the first step is to determine which
institution shall be given authority to resolve the dispute that is either
courts or arbitration institute. Both the system have their pros and cons,
hence parties should beforehand determine what should be appropriate for the
said matter. It most certainly believed that arbitration offers wide variety of
options and advantages over courts which are outlined as below:

a.      Choice of
arbitrators expert in such matter;

b.      Private
proceedings;

c.       Binding
decisions;

d.      Choice of
governing law;

e.      Choice of
enforcing judgments in different territory;

f.       
Common language of arbitration.

UAE Law and Choice of Law

In UAE international parties may face
needless issues regarding the application
of foreign law to govern the contract. As in certain
cases, courts inherit the jurisdiction and governs it according to the UAE local laws such as Civil
Transactions Law or Civil Procedure Code. In
addition, the courts of UAE will
not let go jurisdiction to another court over a matter where UAE courts will in
all case have the jurisdiction. This is
can be witnessed in the following
disputes:

a.      Disputes pertaining to real-estate situated in UAE;

b.      Contract finalized in UAE;

c.       Happening of an
event in UAE;

d.      Matters
regarding the employment of a resident in
UAE;

e.      Issues regarding
UAE Commercial agencies;

f.       
Property matters related to UAE.

 In accordance with the above, if the UAE courts
will inherit the jurisdiction, the governing law will be the law of UAE itself.
Accordingly, the court will strike down
the governing law and jurisdiction clause in the agreement.

What
do we learn?

What
if there is no governing law and jurisdiction clause in a particular contract? Before
the parties get an opportunity to
determine the dispute on merits, the parties will have to exclusively determine the courts or law that will govern
the contract, which is an expensive and cumbersome decision. The non-presence
of governing law and jurisdiction clause confuses the parties to determine if there is a dispute or not and leads to unfavourable decisions.