Entering any new market (the UAE included) brings with it multiple challenges for businesses and entrepreneurs, not least getting to grips with the legal framework governing that market, whether it be from the point of view of structuring a company and its ownership involving local partners, entering into contractual arrangements with customers and/or suppliers, employing people or resolving disputes.
Clearly, as with all challenges, businesses need to adapt to their new surroundings and understand the market that they are looking to operate in- and this applies equally to understanding the legal framework that will govern operations going forward. To ignore this is to ultimately do your business a significant disservice. Consequently, it is with this backdrop that we present an overview of the civil law framework in the UAE.
The UAE Legal Framework
The foundation of the UAE legal system provides the backbone to the rules and regulations applied by the UAE and its various authorities, which businesses encounter on a day-to-day basis when working in the UAE. Consequently, to understand the same will assist barriers to be overcome and for businesses to be structured in such a way as to best utilize the legal framework.
The UAE is essentially a civil law jurisdiction (under the UAE Constitution). The constitution itself, as with many other Middle Eastern jurisdictions, has been heavily influenced by French and Egyptian law. The UAE Constitution provides the legal framework for the federation. It creates a division of power between the federation as a whole and each individual Emirate, which can be seen as follows:
- Federal laws and regulations are applicable across all of the Emirates. The federal government has exclusive jurisdiction over certain areas including defense, foreign affairs, employment and company law.
- Local laws and regulations can be passed by the government of each individual Emirate in relation to matters not covered by the Federal Laws.
As a result of the above, you must not only be mindful of federal laws in the UAE, but also of local laws and regulations passed by each individual Emirate. For example, just because you are licensed to undertake a particular business activity in Dubai does not mean that license automatically permits the same business to be undertaken in Abu Dhabi. With this in mind, having good legal counsel by your side to help you through this process is valuable.
The Constitution also established a federal legal system and the Supreme Court. At present, all of the Emirates except Dubai and Ras Al Khaimah follow the federal legal system. The Dubai legal system has its own First Instance Courts (which is made up of different Judicial Circuits: civil court, commercial court, personal status court, labor court, and real estate court), Court of Appeal, and the Court of Cassation, which acts as the highest court in the Emirate.
Understanding the courts system and the role of the judiciary (a topic for another day), together with understanding the interface between the UAE courts with organizations such as the Dubai International Financial Centre courts is, again, an important area to get properly advised on. Simply entering into contracts governed by the law of your home country and the courts of that jurisdiction (because that is what you are used to) may prove harmful to your position in the event of disputes occurring.
Civil Vs. Common Law
A civil law jurisdiction is quite different to a common law jurisdiction, which you would find in the US or the UK, for example.
Civil law jurisdictions exhibit codified systems of law, meaning that when you look at a particular legal principle, such legal principle is as written rather than in a common law jurisdiction where such legal principle is not based on a single codified piece of law, but instead a mixture of legislation passed by a legislature and the judicial interpretation of the judiciary. This latter point, means that in common law jurisdictions the judiciary have a significant role in shaping the way in which the law is interpreted, whereas in civil law jurisdictions the judiciary is there to establish facts and apply them to the specific law relevant to that dispute.
There are definite “pluses and minuses” to both systems, which can be seen below. Civil law has the following characteristics:
- Based on codified laws (statutes, regulations).
- Strict interpretation of statutes.
- No binding precedent, i.e., if a case has exactly the same facts as a previous case, there is no requirement for that precedent to be followed- albeit in certain instances such precedents are followed.
And common law has the following features:
- Based on a combination of statutes, case law and judicial opinion.
- Significant room for interpretation of statutes by judges.
- Binding precedent, i.e. if a case has exactly the same facts as a previous case, that case must follow the judicial precedent.
Given the importance of the UAE as a global trading hub, it was recognized that businesses (particularly those from a common law background) may wish to have flexibility to enter into contractual arrangements governing their UAE dealings, which are governed other than by UAE law and the jurisdiction of the UAE courts. Consequently, whilst the UAE is a civil law jurisdiction, it also recognizes the right of freedom of contract, which means that many contractual arrangements (which are not prohibited from being governed other than by UAE law, i.e. on shore employment law, real estate and registered commercial agency agreements by way of example) entered into between parties in the UAE are often governed by English law (which can best been seen as the law of default for many international transactions) with disputes heard not before the local UAE courts, but through international arbitration or the common law courts of the Dubai International Financial Centre, where proceedings broadly follow the English Civil Procedure Rules.
Application of Shari’a Law
Many businesses are concerned about how Shari’a law affects doing business in the UAE and the contractual arrangements that they make in the UAE.
Shari’a law is derived from the Holy Quran and the Sunnah (the teachings, deeds and sayings of the Prophet Muhammad (peace be upon him)). It provides a set of rules and guidance to govern all aspects of life including personal matters, morality and even business relationships and trading.
Notwithstanding the importance of Shari’s Law, it is important to note that Shari’a Law is only “a” source of law in the UAE, and not “the” source of law. Its application in practice in the UAE is limited to:
- being used as a guide by the courts when there is no specific legislation on an issue;
- personal matters / disputes such as divorce, wills and inheritance (particularly when the individuals involved are Muslims);
- commercial matters expressly covered by the Shari’a e.g. Islamic banking.
Getting to grips with all of the foregoing issues, and having awareness of the same in your future business dealings will ultimately be of benefit, particularly when coupled with pragmatic, commercial legal advice.