Internationally, the Middle East is often seen – at least in a commercial sense – to revolve around the United Arab Emirates. In many ways, it does. For a combination of reasons – mostly financial – the country’s business environment has matured at a speed far beyond its neighbours. That the UAE largely shares a legal history with the rest of the Middle East makes the country a fascinating case study: why has the UAE managed to position itself as a hub for international commerce, when many of its neighbours have not?
Big brother UAE
‘As in-house counsel for this region, you’re operating in an environment which Transparency International will tell you is some of the most challenging,’ describes Bruce McAlister, general counsel for GE’s Global Growth Organization. ‘The UAE, obviously not. The UAE is far more mature and the ease of doing business, and business conduct, is very good.’
It’s this maturity that has allowed the UAE to become the region’s business paragon, with the commercial certainty that follows. For a company looking to invest capital in the region, a jurisdiction in which avenues of dispute resolution are clear and plentiful, and in which the legal system is accessible and, above all, fair – is critical.
‘For the region, it is very much on a jurisdictional basis. In the UAE, you have a good judiciary here. You’ve got a good, competent judiciary, and you’ve got good arbitration and mediation forums. So you have the ability to predict the outcome,’ says McAlister.
‘The UAE obviously have spent a lot of time training up their judiciary and spending a lot of money and resources on it.’
This maturity isn’t by accident, and it extends to nearly all facets of business life in the UAE. Seeing the opportunity and knowing what a barrier uncertainty can be, the UAE has made a concerted effort to develop its business and legal infrastructure to encourage businesses, both local and international, to set up in the country – and stay there. While vestiges of older times still exist in this respect, the UAE has moved fast – and continues to do so – to achieve its goals.
‘The UAE is highly regulated,’ continues McAlister. ‘It has looked to best practices around the world in terms of regulation. So for example, for nuclear, the regulations of creating a nuclear authority and nuclear regulatory bodies were all taken from best practice and from regulations that have been permeating throughout the world.’
For instance, the bones of UAE’s labour laws have been in place since 1980 – a time vastly different from the current era of towering skyscrapers and hundred-million dollar super yachts. It is no surprise then that these have been a priority for the governments in UAE, and this year. The last 24 months have seen a slew of proposed and enacted regulations, as well as decrees to flesh out the underlying law – bringing in concepts such as multiculturalism and anti-discrimination. This is part of a wider push by the government to sell the country as a tolerant one – in fact, 2019 has been designated by the government as the ‘Year of Tolerance’. This interplay between the definition of a goal and the willingness by the arms of government to enact meaningful change in order to achieve it has been characteristic of the UAE, and goes a long way towards explaining the country’s meteoric rise on the world business stage.
Paved without gold
Today, the UAE’s reputation precedes it. However, the legal infrastructure supporting the country and its towering skylines began life further afield in Egypt. This, say general counsel, has informed the legal development of the Emirates and Dubai in particular – and still colours business today, as the country sources best practice from all over the world to build a haven most compatible with international investment.
‘The Gulf Cooperation Council (GCC) legal systems are mostly based on Egyptian systems,’ explains Fady Zedan, senior counsel at Kuehne + Nagel. ‘When the Gulf was coming up, they hired Egyptian law professors to put the constitutions, the legal systems in place. Some countries actually developed to the point that they ran faster than Egypt – for instance, Dubai – and some stayed in the same position they were in 40 years ago.’
Because of this quirk of history, the UAE’s constitution prescribes a civil law jurisdiction, and distinguishes between two sources of law – those at the local level (passed by the individual emirates that make up the UAE) and those at the federal one (passed by the federal government and applicable across the Emirates). As in other civil law jurisdictions, the legal principles on which the country is governed are codified as opposed to sourced eclectically as in common law. When the UAE constitution was enacted in 1971, it was inheriting the civil code of Egypt, which itself was largely built even earlier, at the start of the 20th century.
‘If you look at this civil law for example, they have a civil procedural law, which talks about procedure. And you have the civil law itself, which talks about the rules and the substance of the law. Now, for the whole of the GCC – let’s say Qatar, Saudi, Kuwait, the UAE – take the Egyptian law, and you’ll find the exact same article but with a different number,’ Zedan explains.
‘If you compare the dates, you’ll find that the Egyptian law was put in when the British were in Egypt in the 20s and 30s. Here, it’s the 70s, but it’s pretty much the same thing. Whenever I am faced with a legal issue in the Middle East, I know that whatever I know in one country will be reflected in the law of another country, but under a different article.’
This combination of the rigidity of civil law and the inheritance of Egypt’s ageing legislation is not conducive to a bustling destination for international business. But, despite similar beginnings, experiences of these legal systems differ greatly between each country in the Gulf. This, Zedan says, is because of innovation and, in particular, the UAE’s willingness to modernise.
‘Take Kuwait, for example. If you go to Kuwait, you will find that the legal system and the government regulatory environment is similar to Egypt – it’s like a photocopy. Here in the UAE, it started like this, but then they developed. I think innovation plays a big part in this – the e-courts, the e-filing systems – these help a lot in terms of efficiency,’ he says.
‘In Egypt, you can have a labour case go up to seven years, and then you get a final verdict. Here in the UAE, you can get it in a year, maximum.’
The efficiency comes at a cost – quite literally. Whereas filing a dispute with courts in Egypt will cost very little, in the UAE, things are more expensive. This may deter would-be litigants to a degree, but the efficiencies that courts in the UAE have been able to achieve have changed the perception of dispute resolution when compared to Egypt, where the threat of a multi-year court battle is real, and enough to make parties consider other, more amicable resolutions.
‘Dubai made a more efficient system – how the cases get assigned to the judges, how the judges manage their time. Yes, some people still complain about how slow the justice system is in Dubai and in the UAE. But, in the UAE especially, I think compared to the rest of the region, it’s very developed.’
Position of general counsel
What results from all of the legal history, rapidly expanding infrastructure and ferocious desire by government to be seen as a suitable business destination, is an environment in which in-house counsel are critical – and one in which the top stakeholders recognise their value.
‘I would say there has been some maturity and understanding of legal’s role,’ explains Zedan. ‘You see this in companies which were outsourcing everything to the law firms – now they are hiring general counsel.’
Like the rest of the Gulf, the UAE suffered during the global financial crisis. As a newly developed nation, the tumult of that time forced business to confront issues it had largely managed to avoid during its prosperity.
‘There were lots of disputes about collections – companies not paying each other. And at this point, I think they realised the problem – you know, are contracts in place? What safeguards do we have? It wasn’t like the good old days where the money was flowing all around the GCC and everyone was happy, and everyone was being paid on time,’ explains McAlister.
‘I think that from [the UK], there was clearly a push by the in-house legal team to get recognition, to get onto the board. Here, it’s a pull. The board, having to deal with the types of issues [that you deal with in this region], have pulled the general counsel onto the board, pulled to place senior counsel into leadership positions and realised very quickly that they needed competent lawyers to be able to handle it.’
Local hospitality
The history of the UAE – and the same is true of much of the wider region – is such that, regardless of the dispute resolution infrastructure in place, business tends to lean away from disputes. While this was easier pre-financial crisis, a culture of relationship preservation has remained.
‘When I look back in terms of our major disputes in the region, it’s always none – I mean, there’s very few. I don’t know if that’s just a reflection of the folks that we deal with or the nature of the specific industry we’re in,’ says Dzul Bakar, vice president and general counsel at Shelf Drilling.
‘In our business, I think there is this view, from a service contractor point of view, that we are interested in long-term work with the client. Invariably, there will be some disputes, but we try and resolve it as amicably as possible. No doubt, sometimes, from a contractual point of view, you feel strongly that you are entitled to something, but in the interests of future work, you compromise.’
International hospitality
The UAE and, in particular, Dubai, have never seen the need to eschew their local jurisdiction entirely in order to attract foreign investment. It has shown there that the two are not mutually exclusive. An often negotiated point in any cross- border deal is choice of jurisdiction and law, and Dubai has recognised this and created a way to make life easier for those doing business within its borders. The city of Dubai built the Dubai International Financial Centre in 2004 as a special economic zone. Operating as an independent jurisdiction, the DIFC has its own civil and commercial laws, which are codified in English and default to English law in the case of any uncertainty.
‘This is where Dubai played it smart, because they made the DIFC. If you are coming from the UK, or coming from another common law jurisdiction and you’re establishing a company, you might be hesitant to go through the local legal system; you still have the choice to use common law. You don’t have to be based in the DIFC to submit to the law of England and Wales,’ explains Zedan.
The DIFC is an answer to those wanting to do business in the region, but who are unable or unwilling to submit to the civil system, with its rigid and often outdated (having been inherited from the Egyptian system) laws. It is being used to great effect too, growing in popularity each year. In 2018, the DIFC reported a record-high 437 new company registrations, a 15% increase in active registered companies to 2,137, a 15% increase in financial-related firms registering with the DIFC to 625 (including over 80 registered fintech companies), and an increase in net profit of 11%, raising the profit to USD$88m. These numbers put the DIFC squarely on track to meet its ambitious goal to triple in size by 2024. The global appeal of a zone such as the DIFC is also apparent in the diversity of the businesses it houses: the Centre reported that at the end of 2018, the DIFC’s resident companies are 36% Middle Eastern, 33% European, 11% from Asia and 10% American, with the remaining 10% from other countries.
GC abroad
Despite the lengths to which the Emirates has gone to ensure a comfortable business environment, it’s still an adjustment for the flock of legal personnel that find themselves serving in the UAE. The differences are still there. But, after all, it isn’t homogeneity with the rest of the world that draws expat general counsel to Dubai and the UAE. It is the challenge of difference.
‘One of the reasons why I wanted to move was that I was very much a Swiss product, and I knew that at some point people would potentially challenge me in my ability to adapt,’ explains Joanne Fischlin, head of corporate, external and legal affairs for Microsoft’s Gulf operations. After spending the first years of her in-house career in various Swiss companies, she made the move to Dubai as the senior legal counsel for Firmenich in 2013.
‘You know, as a female, if you go to the Middle East and you’re successful, it pretty much clears that question out of any line of questions in your future career.’
‘I think the big difference when I moved to Dubai is more the cultural sensitivity; understanding the codes and things like not taking offense if you have to get out of the room for the males to make the compromise because they just won’t do it in front of a female. You have to understand that sometimes you’ll be confronted with situations where you’re just going to have to accept that it’s not the way it’s done In your country, and it’s nothing against you, it’s just culturally different.’ n