Lawyers are warning that the powers of a new tribunal governing disputes linked to the restructuring of Dubai World's debt may lead to conflict with international treaty obligations on arbitration.
Lawyers warn tribunal may go against treaties
Lawyers are warning that the powers of a new tribunal governing disputes linked to the restructuring of Dubai World's debt may lead to conflict with international treaty obligations on arbitration. Many of Dubai World's largest trade creditors have clauses in their contracts that allow them to take disputes with the Dubai Government-controlled company and its subsidiaries to international arbitration.
Those agreements may have been thrown into uncertainly after the Dubai Government issued a law on Monday establishing a special tribunal of Dubai International Financial Centre (DIFC) Court judges to preside over negotiations between the company and its creditors. "The intention of the law is that arbitration clauses will be dealt with by the tribunal, once established," said Michael Grose, a partner at the law firm Clyde and Company in Dubai. "But the UAE has federal laws that protect arbitration agreements as well as international treaty obligations. These cannot just be swept away."
Dubai World was provided with US$10 billion (Dh36.73bn) in financing on Monday by the Abu Dhabi Government to help pay the conglomerate's creditors after years of debt-fuelled growth led by its property arm Nakheel. Nakheel developed ambitious projects such as the Palm islands and The World. Part of the $10bn was used to pay a $3.5bn Islamic bond owed by Nakheel. Creditors seeking a resolution on a dispute with a company have traditionally made claims through the Dubai International Arbitration Centre (DIAC), the rulings of which are recognised under international law.
But a creditor in dispute with a Dubai World entity will no longer be able to pursue claims through the DIAC or other international tribunals if that entity seeks help from the new body. A Dubai World company can call on the tribunal to rule on whether it can protect its assets from creditors if it files for insolvency, or if it requires assistance in restructuring its debts. The rulings of the tribunal may lead to a conflict with the country's international treaty obligations, said Tom Canning, a litigation and arbitration partner with the law firm DLA Piper Middle East in Dubai.
"It will be complicated as the UAE has entered into certain international treaties which it cannot readily opt out of," said Mr Canning. "This is one of the difficult issues that the tribunal will have to consider and decide upon, but I'm confident that a tribunal of this stature will be able to handle these issues appropriately and efficiently." The new law strengthens existing DIFC insolvency regulations, considered more comprehensive than bankruptcy legislation elsewhere in the UAE.
The law is an amalgamation of UK and US insolvency regulations and is designed to provide Dubai World and its subsidiaries breathing space to draw up debt restructuring proposals, while also improving the rights of creditors. "If a contractor has a claim that has been before the Dubai arbitration process for a number of months, this could provide the possibility of an alternative mechanism," said Jonathon Davidson, the managing partner of the law firm MAC Davidson.
"The supposition seems to be that this tribunal will be quick and effective and not drawn out." Officials say the framework provides a more satisfactory mechanism for handling the restructuring than using legal systems in the US or UK, or managing the process through Dubai courts. The final decision of the three-judge tribunal, led by Sir Anthony Evans, a former high court judge in England and Wales, is final and not subject to appeal.
Dubai World, the emirate's largest government-owned company, announced last month it was seeking a delay on payment of $26bn in debt until at least May as it worked on a restructuring effort. DIAC has experienced a rise in the number of trade claims it has handled this year as the financial crisis hit, leading to a slowdown in the construction, property and financial sectors. Many of those cases involve late payment or non-payment on contracts.
Mr Davidson said his firm was advising clients owed money by Dubai World, including suppliers, engineers, infrastructure companies and architects, as they prepare their claims for the Dubai World tribunal. Officials at the DIFC and DIAC could not be reached for comment. @Email:firstname.lastname@example.org