The CasehandlerA Newsletter from Clyde & Co in the Middle East September 2005

CONTENT

EDITORIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

SPOTLIGHT ON BANKING & FINANCESukuk - The Billion Dollar Baby . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Qatar Financial Centre . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5New Law Requires Bond Listing Approval from ESCA . . . . . . . . . . . . . . . .6New Laws for DIFC Pave the Way for Global Participation . . . . . . . . . . . . .6

DISPUTE RESOLUTONMediation of Maritime and International Disputes: Getting Started . . . . . . .7

CONSTRUCTIONDubai Courts Consider Arbitration Clauses . . . . . . . . . . . . . . . . . . . . . . . . . 9

COMMERCIALNew Intellectual Property Rights Recordal Procedure for Dubai Customs.10

ABU DHABIAbu Dhabi Issues New Property Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

AVIATIONAircraft Repossession: What Happens When It Goes Wrong? . . . . . . . . . 13Clyde & Co Announces Merger with Beaumont & Son . . . . . . . . . . . . . . . 14

INTERNATIONALFocus on France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 London . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Clyde & Co Opens Moscow Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Spotlighton

Banking & Finance

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EDITORIAL

DistributionThe Casehandler is distributed to clients, friends and staff of Clyde & Co. If you wish to receive The Casehandler,

which is printed on a regular basis, then email joanne.tull@clydeco.ae

EditorialZina Al-Abbasi

Clyde & CoMiddle East Regional Offices

PO Box 7001, 3rd Floor, City Tower 2, Sheikh Zayed Road, Dubai, United Arab EmiratesTel: (971 4) 331 1102, Fax: (971 4) 331 9920, Email: MERO@clydeco.ae

DisclaimerFurther advice should be taken before relying on the contents of The Casehandler. Clyde & Co accept no

responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained inThe Casehandler.

Copyright Notice© Clyde & Co 2005

No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by anymeans electronic or mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co.

Your CommentsWe hope you find The Casehandler informative and we welcome your comments and suggestions.

Zina Al-Abbasi Marketing Manager

Forthcoming Events

The Legal Issues relating to the AbuDhabi Insurance Market:Tuesday, 27 September 2005 09.30 am – 12.30 pm followed bylunch to be held at theIntercontinental Hotel, Abu Dhabi.

Debt Recovery and Collections:Sunday, 6 November 200509.30 am – 11.00 am followed byrefreshments, to be held at theShangri-La, Dubai.

Middle East Forum:Understanding the DevelopingInsurance Markets of the Middle EastWednesday, 16 November 2005 Clyde & Co will be speaking at andsponsoring the all day conferencehosted by Reinsurance Magazine, inLondon.

Initial Public Offerings:Tuesday, 6 December 200510.00 am – 1.30 pm followed bylunch, to be held at theIntercontinental, Abu Dhabi.

For further information or to register for theseevents, please contact Joanne Tull on email: joanne.tull@clydeco.ae.

Welcome to the September 2005 edition of The Casehandler. In this edition, we havecaptured the essential legal issues in the region that affect both local and internationalbusiness.

The region’s legal arena has seen some long awaited developments in the financial andproperty sectors. The Dubai International Financial Exchange is gearing up to be launchedthis month, and the DIFC has announced new laws to create financial security and legalcertainty, heralding a move towards global participation in the Dubai financial markets (page6). The new Abu Dhabi property law sets out a framework for the investment in property fornational and overseas investors (Page 11).

Clyde & Co has also seen significant change over the last three months. We were delightedto announce our recent merger with premier aviation firm Beaumont and Son in July,consolidating our existing aviation expertise to create an unrivalled level of knowledge andexperience in all aspects of international aviation law (Page 14).

The last three months have also seen the opening of our Moscow office to further strengthenour thirteen-year long presence in Russia (Page 15).

In the Middle East, we welcome the arrival of Antony Turton to our Commercial departmentin Dubai and Amrik Sangha to our Corporate / Commercial practice in Abu Dhabi.Mareejoseph Gittany joins our Abu Dhabi office as a solicitor in the Insurance andReinsurance practice. We also welcome Robin Mande and Emily Dix who join our CorporateServices department as paralegals, and Fadi Saba to our Arabic Legal Researchdepartment.

Our 2005 Seminar programme continues this month with a seminar on the ‘Legal IssuesFacing the Abu Dhabi Insurance Market’ on Tuesday 27 September at the IntercontinentalHotel in Abu Dhabi (see Forthcoming Events). As always we welcome feedback from ourclients and contacts on our events and will continue running seminars that are relevant toyour business throughout the year. We also welcome your feedback on this edition and lookforward to receiving your comments on the enclosed feedback forms.

Finally, we are pleased to announce that in the PLC Which lawyer? law firm rankings thisyear, Clyde & Co was one of only three firms sharing the category of Highly RecommendedFirms in the region, with recommendations in five of the six practice areas surveyed;company and corporate transactions, dispute resolution, intellectual property, banking andfinance and energy. We are delighted to be recognised for our achievements this year, andlook forward to continuing to provide our clients with the highest level of expertise.

SPOTLIGHT ON BANKING & FINANCE

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Sukuk - The Billion Dollar Baby

Introduction

Islamic capital markets are booming, demonstrated by the increase in Sukuk (Islamic bond)issues. The current sukuk issuance is at approximately US$10 billion and growing at anunprecedented rate. Recent sukuk issues have been oversubscribed and in some cases by150% which illustrates the potential of this instrument.

What are Sukuk?

Sukuk or “Islamic bond” or investment certificates (sukuk certificates), represent anundivided beneficial ownership of an underlying asset. Sukuk allows Islamic institutions toinvest in compliance with the Shari’a (Islamic law), thereby avoiding payment and receipt ofriba (interest or making unjust enrichments), avoiding gharar (gambling or speculating futureoutcomes) and not investing in haram (forbidden) businesses. It is not an alternative to aninterest based security. The Shari’a encourages trade and lawful return on capital if thecapital provider is prepared to share the risks in the business venture. The Saudi ArabianFiqh Academy ruled (Decision Number 5 of 1988) that assets can be represented in the formof a written note or certificate that can be sold at a market price, however the composition ofthe group of assets, represented by the security, should consist largely of physical assets andfinancial rights, with only a smaller percentage comprising cash and interpersonal debts.This decision, although non-binding, has paved the way for the growth in sukuk.

Market Trends

Recent sukuk issues have been used by Sovereigns and corporates in the Arabian Gulfregion, Pakistan, Malaysia and Germany. Qatar’s sukuk were a ground breaking sovereigndeal in 2003, with an issue of US$700m, being the financially largest sukuk sovereign issueand the first of its kind in a civil-law jurisdiction, only surpassed in 2004 by the DubaiDepartment of Civil Aviation sukuk of US$1 billion. A flow of interesting sukuk transactionsfollowed in 2004 with a US$100m issue for Tabreed, a United Arab Emirates (UAE) companythat provides cooling equipment, and the German State of Saxony-Anhalt sovereign sukukissue for €100m, the first Shari’a complaint transaction for a European borrower. TheGovernment of Bahrain has been proactive with a cumulative sovereign sukuk with a totalcumulative value of US$1.13 billion.

In 2005, the Pakistani Government’s sukuk issue of US$600m to finance the Lahore-Islamabad motorway with a listing on the Luxembourg Stock Exchange was a groundbreaking start to the year. This was followed by another notable corporate sukuk issue bythe Dubai Metals & Commodities Centre for US$200m, with an option for sukuk holders toelect to be paid in gold bullion. The latest Emirates sukuk issue of US$550m is the first airlinesukuk of its kind. The most notable sukuk are summarised in the table at the end of thisarticle. There are many other sukuk issues in the pipeline by sovereigns and corporates inthe Arabian Gulf, Pakistan and Iran.

Sukuk Structures

There are different types of sukuk, each type depending on the nature of the financingstructure of the underlying asset that is linked to the sukuk certificate. For example, thereare sukuk variations on Ijara (leasing), Mudarabah (profit sharing), Musharaka (equityparticipation) and Istisna’a (conditional sale of items to be manufactured). Ijara sukuk havebeen used in the Qatar, Pakistan, and the Bahrain sukuk issues.

This article focuses on the ijara/istisna’a sukuk models, with a summary of the salient Shari’aand legal issues arising from transactions and insights from recent sukuk issues.

Ijara Sukuk

An ijara is similar to a lease for a pre-determined period, where the title of the asset istransferred from the owner to another in exchange for a rental payment. Shari’a providesguidelines for an effective ijara, including the duty to insure, repair and maintain the propertybeing placed on the lessor as owner, and the lessor bearing the risk of any loss of or damageto the property (unless caused by the negligence or the misconduct of the lessee). In theevent of late payment, the Shari’a scholars have allowed provision in the lease under whichthe lessee is obliged to donate an amount of delay penalty to charity to recognise the delayin the rental payments. Rental flow from under an ijara is payable monthly, quarterly orannually and therefore provides an income stream for sukuk.

Bilal Aquil

Bilal Aquil is a casehandler in Clyde & Co’sIslamic Finance Practice, based in Dubai. Bilaljoined the firm in April 2005. Previously, Bilalwas Head of Islamic Finance at a largeinternational UK law firm, as well as a Directorand General Counsel for a major Lloydsinsurance broker.

Bilal has extensive experience in the structuringand documentation of a range of Shari’a financetransactions, takaful Islamic insurance and UKFinancial Services Authority regulation. He alsoadvises on a range of Islamic Finance matterswhich include banking, aviation and ship finance,project finance, Islamic bonds, trusts, Shari’aderivatives and securitisation.

Bilal is a member of the UK HM Treasury IslamicFinance Working party and a member of theInternational Swaps and Derivatives Association(ISDA), Islamic Finance and Middle East Group.He is a contributing author of a number ofprominent Islamic Finance publications.

Bilal’s recent experience includes:

• Advising a shipping investment fund, inrelation to the structuring anddocumentation issues for an IslamicShipping Ijara lease;

• Advising a bank on the development ofdiminishing ownership (musharaka) Islamicmortgage product, to include advice on thetaxation issues of the transaction;

• Advising an investment bank in relation tostructuring of an Istisna for a projectfinancing matter in Iran;

• Acting on behalf of a French bank on theestablishment of metals trading investmentvehicles in relation to commodity Murabahatransactions;

• Advised a French investment bank on theestablishment of an Islamic finance window;

• Advising a New York bank on a shippingfinance lease on the Islamic position of theresidual value element of a Shari’a Ijaralease;

• Advising an International bank on a SaudiArabian investment fund in relation to amulti-million pound re-financing andacquisition of a property portfolio;

• Acting for financiers and ship-owners oncomplex financial and insurancearrangements in relation to the purchase ofnew vessels.

SPOTLIGHT ON BANKING & FINANCE

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In order to comply with the principles of the Shari’a, sukuk must be asset linked if they are tobe tradeable. For instance, it is common for sukuk to be backed by pools of ijara (leasing)contracts – sukuk al-ijara (“ijara sukuk”) under which beneficial ownership of the assets isvested in the sukuk holders. The sukuk (if they are to be tradeable) cannot be linked toIslamic contracts such as murabaha sales as it contravenes the Shari’a principles of debttrading and introduces gharar (uncertainty) to the transaction. However, since ijara sukukrepresent a beneficial ownership of the underlying leased asset, it is possible to trade sukukcertificates in a secondary market at par for a premium or discount.

The diagram below illustrates the structure of a typical ijara sukuk. In this diagram, the Seller,a government or corporate entity, sells certain assets (land, buildings or machinery) to aSpecial Purpose Vehicle (SPV) for a fixed price. To raise the required finance to acquire theasset, the SPV issues sukuk certificates to investors (the sukuk holders) at par value in anamount equal to the purchase price (sukuk proceeds). The sukuk holders therefore acquirea beneficial interest in the SPV’s assets. The SPV is appointed as a Trustee and Agent forthe sukuk holders (pursuant to a Declaration of Trust) and holds the assets on trust for sukukholders. The SPV leases the asset (under an ijara lease) to the corporate (lessee), an entityeither closely affiliated to the seller or the seller itself. The corporate pays periodic leaserentals to the SPV, that are benchmarked to LIBOR plus a profit margin spread. The SPVcollects the lease rentals and distributes the amount to the sukuk holders according to eachholder’s entitlement. On maturity or early dissolution, the SPV sells the asset to the seller ata pre-determined value.

The popularity of Ijara sukuk has encouraged financiers to explore different structures forsukuk, such as the istisna’a sukuk and musharaka sukuk.

Istisna’a Sukuk

Istisna’a is used for project finance, financing industrial equipment and manufacturing ofvarious capital goods. Under istisna’a financing, the bank contracts with a purchaser (usuallyby a SPV) to deliver the contracted items on a determined date, and assumes responsibilityfor project completion (istisna’a), then appoints and supervises sub-contractors to completethe project via a separate contract (parallel istisna’a). On completion, the project assets aredelivered to the original purchaser (or SPV), who is responsible for paying the pre-determined purchase price. The financing for this transaction includes a profit margin in thepurchase price and is usually benchmarked to LIBOR. Sukuk certificates can be issued onthe basis of an expected stream of payments.

In an istisna’a or ijara sukuk structure, the SPV will have a contract for works with either thecontractor or the Seller for the project, and a forward lease with the Seller. The SPV issuessukuk certificates to raise finance for the project under an istisna’a. The sukuk issueproceeds received by the SPV will be used to pay the contractor or company to build anddeliver the future plant or machinery (the asset), which will then become the property of theSPV, so that it can lease this asset to the corporate pursuant to an ijara lease. The corporatewill pay advance rent until the project is completed, and rent from the date of delivery.

Istisna’a or ijara sukuk represent debt obligations, and are therefore not tradeable for cashfor below the par value in a secondary market until the assets are delivered.

Sukuk Holders

SukukCertificates/Payments

Sellers

Sale/transferof assets

Ijara AgreementSPV lease to lessee

Certificateproceeds

Issuer (or lessor)Special Purpose Vehicle

Certificate proceeds

Asset

Corporate(Lessee)

Lease rentals:LIBOR + credit spread

The Team

Jonathan Silver (partner),specialising in banking andcorporate law.

All areas of banking & finance including establishment,inward investment, company law, mergers andacquisitions, joint ventures, private equity and venturecapital agreements, agency and distributionarrangements, franchising, banking, Islamic finance,financial services, employment, oil, gas and energy.

Abhi Jalan (partner), specialising inbanking and corporate law.

Niall O’Toole (partner), based inAbu Dhabi, specialising in bankingand corporate law.

If you want to contact the team please emailMERO@clydeco.ae

Transfer Title to Issuer

Legal Issues

A number of legal issues arise from the transfer of collateral, the priority and enforceability ofsecurity interests provided in relation to the underlying assets, and tax and regulatory issuessuch as foreign ownership of certain assets, in particular in the Gulf Co-operation Council(“GCC”) states. Investors are advised to seek legal opinions on the valid transfer of the asset(as collateral) to the SPV and to ensure that a transfer cannot be re-characterised as asecured loan or avoided on insolvency of the originator. If the originator (the Seller) or theSPV’s shareholder becomes insolvent, it is important that no creditor or liquidator is able toclaim that asset, and that liabilities of the SPV are those of the originator or the SPV’sshareholder. Equally, it is necessary to ensure that the SPV is remote from any potentialbankruptcy or insolvency proceedings. In addition to creditor protection, other legal opinionsare required on the tax implications of an issue as well as the impact of foreign financialservices regulations such as the UK Financial Services and Markets Act 2000 and USRegulation 144.

Conclusion

The sukuk structures above are broadly similar to asset backed securitisation, and sukukremain a popular choice to raise project finance. The ijara sukuk is to date the preferredsukuk structure, but institutions are increasingly looking at different techniques such as themusharaka sukuk, which reflects the progressive development of Islamic finance. Thegrowth in sukuk is confined to the Shari’a rules, but bankers and lawyers are working withcontemporary Shari’a scholars to develop creative solutions as attractive alternatives toconventional interest financing instruments. The innovation is expected to continue to meetgrowing demand from global investors.

This is an edited version of Sukuk - The Billion Dollar Baby published in Islamic Banking and Finance, August 2005.

Issuer Issue date Type Issue Amount Country

Malaysia Global Sukuk Inc. June 2002 Sovereign US$600m Malaysia

Kingdom of Bahrain September 2003 Sovereign US$250m Bahrain

Kingdom of Bahrain November 2004 Sovereign US$250m Bahrain

Solidarity August 2003 Corporate US$400m Saudi Arabia(Islamic Development Bank)

State of Qatar October 2003 Sovereign US$700m Qatar

National Cooling Company January 2004 Corporate US$100m UAE (Tabreed)

Saxony-Anhalt State August 2004 Sovereign €100m Germany

Government of Pakistan January 2005 Sovereign US$600m Pakistan

Durrat al-Bahrain January 2005 Corporate US$152.50m Bahrain

Dubai Metals & Commodities Centre April 2005 Corporate US$200m UAE

Bahrain Financial Harbour May 2005 Sovereign US$134m Bahrain

Emirates June 2005 Corporate US$550m UAE

Islamic Development Bank June 2005 Corporate US$500m Saudi Arabia

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SPOTLIGHT ON BANKING & FINANCE

Qatar Financial Centre

Qatar is one of the world’s fastest growing economies. Its Liquified Natural Gas (LNG)projects and other infrastructure projects alone total more than US$100 billion. Qatar willsoon become the world’s largest distributor of LNG, overtaking Russia and Iran. The countryis using its LNG dollars for infrastructure and investment in other sectors of its economy.Qatar’s focus is to become a regional financial centre and to rank with the Dubai InternationalFinancial Centre and the Bahrain Financial Harbour.

The Qatar Financial Centre (QFC) located in Doha aims to take advantage of the recentgrowth in the region. The QFC has already attracted international financial servicesinstitutions and major multi-national corporations. The QFC is led by a commercial authority(the ‘QFC Authority’) and a regulator (the QFC Regulatory Authority). Both organisations areindependent of each other and from the Government of Qatar. The QFC Authority is theadministrative and legislative body responsible for enacting laws as well as promoting theQFC to the global corporate community and other key institutions both within and outside ofQatar. The QFC Regulatory Authority is a regulatory body which is responsible forauthorising and supervising authorised firms and individuals. The duties and functions of theRegulatory Authority are set out in the Financial Services Regulations (FSR).

A QFC Appeals Body will consider appeals arising from the QFC Regulatory Authoritydecisions, and a QFC Tribunal that will administer and enforce the commercial laws of theQFC. Under the QFC Law the QFC Regulatory Authority, the Appeals Body and the Tribunalhave to operate transparently, objectively and fairly. The QFC also has a companies registry,known as the QFC Companies Registration Office which registers limited liability companies(LLC) and limited liability partnerships (LLP) within the QFC and branches of companiesoperating within the QFC.

Permitted Activity

Carrying out a business in the QFC requires a licence or authorisation by the QFCRegulatory Authority. The QFC Law sets out a range of activities which constitute a“Permitted Activity” which may be carried in or from the QFC. Permitted Activities in or fromthe QFC can only be carried on by legal entities in the QFC by registering a LLC or an LLPwith the QFC companies registry, or by registering a branch of a non-QFC legal entity withthe registry.

There are two types of Permitted Activity which include: (i) Regulated Activity, which requiresauthorisation from the QFC Regulatory Activity; and (ii) Non-Regulated Activities which doesnot require the same kind of supervision or authorisation (but requires a licence).

Regulated Activity

The Regulatory Authority grants firms authorisation to conduct Permitted Activities which areRegulated Activities. The QFC Regulatory Authority oversees the conduct of a firm’sbusiness through supervising Authorised firms and it will take enforcement action againstAuthorised firms where regulatory rules have been breached. Firms undertaking thefollowing sorts of business permitted to be undertaken in the centre are likely to be carryingon Regulated Activities:• Banking, investment business, corporate finance; • Insurance and reinsurance business;• Foreign exchange and commodity trading, trading in and dealing in precious metals,

stocks, bonds, securities;• Asset management, investment funds, project finance;• Islamic banking;• Funds administration, fund advisory work;• Pension funds and credit companies;• Insurance broking, stock broking, and all other financial brokerage business;• Corporate finance advice and investment; and• Financial custodian services.

Non-Regulated Activities

The QFC Authority grants Licences to firms carrying out the following Non-RegulatedActivities (subject to approval):• Ship broking and shipping agents;• Classification services and investment grading (such as Standard & Poor’s);• Company headquarters, management offices and treasury operations for all kinds of

business, and the administration of companies generally;The Casehandler | 5

The Casehandler | 6

• Professional services such as audit, accounting, tax, consulting and legal services;• Holding companies, and the provision, formation, operation and administration of trusts;

and• The formation, operation and administration of companies (corporate agents).

The QFC Law provides the QFC with a wide mandate and offers few restrictions on the typesof product or service that can be provided by financial services firms authorised by the QFCRegulatory Authority.

Regulatory Rules

The QFC Regulatory Authority has a set of rulebooks for authorised firms to comply with.The QFC has a variety of laws covering anti money laundering, dispute resolutions,arbitrations, recognition of enforcement and foreign judgments, security laws, limited liabilitypartnerships, insolvency, companies, trusts, and contract. It is anticipated that the level ofregulation and structure of the QFC will provide an international niche for the QFC and attractfurther growth to Qatar’s booming economy.

Bilal Aquil is a casehandler within Clyde & Co’s Banking and Finance practice. For further information on this article or the practice pleasecontact Bilal on Tel: + 971 4 331 1102 or email: bilal.aquil@clydeco.ae.

New Laws for DIFC Pave the Way for Global Participation

Five new laws have been enacted in relation to operation of the Dubai International FinancialCentre (DIFC). The DIFC regulations relate to the legal, employment and security issueswithin what is being hailed as the new financial hub of the Middle East. The EmploymentLaw, which declares minimum working practices within the organisation, the Law ofObligations deals with negligence, misrepresentation and vicarious liability. The Security lawdeals with security which maybe acceptable in respect of lending and charges over assets.

The new regulations have been formed in collaboration with the world’s leading capitalmarkets (London, New York, Singapore) in order to create financial security and legalcertainty for entities operating within the DIFC. The DIFC will have a variety of businessesrelating to provide asset management, securities trading, Islamic finance and reinsuranceservices as well as the Dubai International Financial Exchange. The new regulations will beadministered by the Board of the DIFC Authority.

The Employment Law No. 4 of 2005• Provides for minimum employment practices comparable to established international

practices.The Law of Obligations No. 5 of 2005• Creates a framework for claimants to seek recovery for non-contractual claims.• Sets out rules for when obligations arise and how disputes are to be resolved.The Implied Terms in Contract and Unfair Terms Law No. 6 of 2005• Provides for fairness and certainty in contracts governed by the conditions of the DIFC by

providing terms not normally included in contracts and a framework for enforcing theseterms.

The Law of Damages and Remedies No. 7 of 2005• Creates the necessary structure for the recovery of damages to claimants within the

DIFC.The Law of Security No. 9 of 2005• Defines which security interests can be defined as collateral for the repayment of debts,

and provides a framework for enforcement.

New Law Requires BondListing Approval from ESCA

The UAE Minister of Economy andPlanning recently decreed a lawrequiring all UAE companies lookingto list bonds, including sukuk, on theUAE stock markets to obtain approvalfrom the Emirates Securities andCommodities Authority (ESCA). Thecompanies will also be required toundertake a credit rating from anESCA recognised credit agency. TheEsSCA Board will retain the authorityto cancel or suspend the listing of anybond at any time, if the issuer violateslisting rules.

It is anticipated that foreign investorswill be attracted to invest in localcompanies because of the creditrating condition and the financialservices regulations. The regulationsare intended to encourage corporatesto raise money through bonds (seearticle on Sukuk) and list them on theexchanges. This is a timelydevelopment in view of the imminentlaunch of the Dubai InternationalFinancial Exchange.

Mediation of Maritime and International Disputes:Getting Started

Formal mediation is still a relatively new concept in the region, but one which is becomingbecome increasingly popular. It is a particularly useful tool for resolving disputes betweenparties with established and ongoing relationships, but lends itself to many differentsituations. This article examines the contractual clauses that can help to promote disputeresolution without the necessity of taking court or arbitration proceedings through to aconclusion and the essential requirements of a mediation agreement. We also examine howthe selection of mediation experts contributes to the success of the process, and considerpotential selection criteria.

What Should Appear in your Contract?

The absence of a particular clause in the contract removes the obligation on the parties toattempt to settle any dispute using a form of mediation. However, the experience of partiesinvolved in mediation has been positive and therefore encourages the inclusion of amediation clause in the contract. This may well increase the prospects of amicably resolvingany dispute that may arise. Equally, the omission of a clause may direct the parties to otherforms of dispute resolution without considering mediation. A well drafted mediation clauseprovides a procedure for exploring settlement, and any perception of “weakness” on the partof the party proposing alternative dispute resolution will be removed and will be a contractualrequirement.

A mediation means that a neutral person will work with the parties engaged in the disputeand act as a conduit for communication between the parties. Inevitably, mediation offerssubstantial savings in legal costs and the parties’ management time.

So, what should appear in the contract? Firstly, the parties need to decide on how a potentialdispute will be dealt with. Those matters should include:

(a) Identifying a person from each party to represent the party during the alternative disputeresolution (ADR) process. Typically, this is a senior employee with decision makingcapability. Specifying this in the contract affords a greater degree of certainty regardingwho would handle the process. Potentially, the clause itself can require a representativeof the party to have full authority to discuss, negotiate, agree and settle any disputes.

(b) Deciding when mediation should be attempted. A clause may determine that a mediationmust be undertaken before any litigation or arbitration proceedings are commenced.Prospects of settling a dispute amicably through mediation may be enhanced if theparties are not already engaged in litigation or arbitration proceedings. That said, it isnever too late to consider mediation and mediations often take place after the partieshave been litigating or arbitrating for some time.

(c) The procedure to be followed and the time allowed for the mediation process. It is notalways the case that mediation will be concluded at the first meeting. It may benecessary for there to be several such meetings. However, the parties may wish toimpose a deadline on how long the mediation process can take so that, on the conclusionof that period of time, the contractual obligation to mediate would lapse. That would not,of course, prevent the parties from agreeing an extension if they felt something usefulmight be gained by continuing the process.

Organisations offering services for mediation disputes have put together a number of modelmediation procedures. For example, if we consider the model clauses from the Centre forEffective Dispute Resolution, a simple mediation clause might read: “If any dispute arises inconnection with this agreement, the parties will attempt to settle it by mediation in accordancewith the CEDR Model Mediation Procedure. Unless otherwise agreed between the parties,the mediator will be nominated by CEDR.” This effectively deals with some of the pointsmentioned above.

This mediation clause can be extended to include some time limits. Taking another CEDRmodel clause, the clause might read: “If any dispute arises in connection with this agreement,the parties will attempt to settle it by mediation in accordance with the CEDR ModelMediation Procedure. Unless otherwise agreed between the parties, the mediator will benominated by CEDR. To initiate the mediation a party must give notice in writing (“ADRnotice”) to the other party to the dispute requesting a mediation. A copy of the request shouldbe sent to CEDR. The mediation will start not later than [ ] days after the date of the ADRnotice.” A reference to prohibiting court or arbitration proceedings until the mediation hasbeen terminated can be used with the CEDR model form, to read: “No party may commence

The Casehandler | 7

DISPUTE RESOLUTION

Christopher MillsPartner, Dispute Resolution

Chris Mills has been at Clyde & Co for 25 yearsand is a partner in the firm specialising in claimsand dispute resolution arising from carriage ofgoods by land, sea and air; salvage, collisionand General Average claims; in insuranceadvice/litigation; charterparty disputes; and indisputes arising from international trade. Chrisalso acts in cases arising from shipconstruction/conversion disputes and aircraftmaintenance disputes and has acted for clientsin non-contentious matters relating tointernational trade contracts; draftingcharterparties; and drafting terms and conditionsof business.

He is currently based in Clyde & Co’s Dubaioffice, where he has been working for over 8years. He also spent 3 years in the firm’s HongKong office in the mid-1980’s.Chris has writtenmany published articles, is a regular speaker onhis areas of practice at conferences andseminars and has been recommended and isdescribed as “well respected” in Legal 500 for hismaritime & shipping expertise, with Clyde & Coidentified as the leading firm in the Middle Eastfor maritime & shipping.

Alec Emmerson (partner),specialising in marine, internationaltrade, insurance and reinsuranceand dispute resolution.

Patrick Murphy (casehandler),specialising in marine, internationaltrade, insurance and reinsuranceand dispute resolution.

Kaashif Basit (casehandler),specialising in international disputesand the Indian sub-continent region.

Kristine Kaleja (casehandler),specialising in shipping,international trade, litigation anddispute resolution.

Ian Goulson (casehandler),specialising in shipping andinternational trade.

The Casehandler | 8

any court proceedings/arbitration in relation to any dispute arising out of this agreement untilit has attempted to settle the dispute by mediation and either the mediation has terminatedor the other party has failed to participate in the mediation, provided that the right to issueproceedings is not prejudiced by a delay.”

It is important to note that when dealing with international contracts ie, contracts betweenparties in different jurisdictions, due consideration should be given to the location andlanguage of the mediation, as well as to the governing law of the jurisdiction. Therefore theclause above may be extended to state that: “If any dispute arises in connection with thisagreement, the parties will attempt to settle it by mediation in accordance with the CEDRModel Mediation Procedure. Unless otherwise agreed between the parties, the mediator willbe nominated by CEDR. The mediation will take place in [city/country of neither/none of theparties] and the language of the mediation will be [specify]. The mediation agreementreferred to in the Model Procedure shall be governed by and construed and take effect inaccordance with [English] law. The courts of [England] shall have exclusive jurisdiction tosettle any claim, dispute or matter of difference which may arise out of, or in connection with,the mediation. If the dispute is not settled by mediation within [number] days ofcommencement of the mediation or within such further period as the parties may agree inwriting, the dispute shall be referred to and finally resolved by [arbitration or courtproceedings specifying the relevant arbitral body, number of arbitrators seat ofarbitration/court which will have jurisdiction].”

What Should Appear in your Mediation Agreement?

Even if your contract does not contain a mediation clause, after a dispute has arisen and byagreement between the parties a matter can be referred to mediation. In order to ensurecertainty of procedure, a Mediation Agreement should be produced at this stage. In fact,even if there is already a mediation clause in the contract, it is often valuable for the partiesto produce a formal Mediation Agreement prior to commencing mediation, so that the mannerin which the mediation is to be conducted is clear to both parties.

If adopting a form of model mediation agreement, this can simply be incorporated into theagreement and that will then set out the basis upon which the mediation will proceed.

An ad hoc Mediation Agreement might include:

(a) A clause dealing with the appointment of the mediator or authority to a mediation serviceprovider to appoint an appropriate mediator;

(b) A clause requiring the representatives of the parties to have full authority (without theneed to refer additional parties) to attend, negotiate and settle;

(c) Provision for an initial exchange of information, including a concise summary of eachparty’s position in the dispute and documents to which the parties wish to refer during themediation. Ordinarily, the parties will exchange this summary and the documents at leasttwo weeks before the mediation and provide a copy of the same to the mediator;

(d) A provision that any settlement reached in the mediation will not be legally binding until ithas been written and signed by the parties;

(e) A clause dealing with when the mediation will terminate (on withdrawal of one party,withdrawal of the mediator, expiry of the time limit or when a settlement is concluded);

(f) A provision allowing the mediator to adjourn so that the mediation can take place overseveral meetings;

(g) A confidentiality clause so that anything that takes place in the mediation is withoutprejudice, privileged and not admissible as evidence or disclosable in any subsequentlitigation (which would not apply to any information or documentation which in any eventwould have been admissible or disclosable in such proceedings);

(h) A provision dealing with fees, expenses and costs – usually each party will bear its owncosts and expenses and each party will jointly bear the costs and expenses of themediator.

Choosing the Right Mediator

The Alaska Judicial Council in the USA in their publication A Consumer’s Guide to Selectinga Mediator (William Cotton and Staff, Alaska Judicial Council; David Tevelin and Staff StateJustice Institute) suggest that following five core steps in choosing a mediator:

• Decide what you want from mediation. Consider your ultimate goal, and whether yourequire a mediator to actively contribute to the agreement process or one that leaves theparties to generate agreement. Consider also your options should mediation fail.

• Get a list of mediators. Localmediation organisations maintaindirectors of member-mediators.

• Look over the mediator’squalifications. This canencompass reviewing training,experience, and asking forsamples of any draft agreementsfrom previous mediations. Cost isalso a consideration.

• Interview the mediators in order toascertain neutrality, integrity andsensitivity as well as goodcommunication skills.

• Evaluate the information andmake a decision.

Additional factors to consider are:

(a) Whether you want the mediator tobe evaluative or facilitative.

(b) Does the dispute involve legal ortechnical issues – pick yourmediator accordingly.

(c) What does the mediator chargeand on what basis?

(d) Can references be provided?(e) Ensure that the mediator does not

have any personal or businessinvolvement with any of thepeople involved in the dispute.

(f) Try to find out how long they havebeen mediating, how many casesand what type of cases they havemediated.

(g) Can they provide a neutrallocation for the mediation sessionand what is the charge for thisservice?

(h) Ask questions about how themediator proposes to conduct themediation.

(i) Check whether the mediatorconducts himself in accordancewith a code of conduct.

(j) Talk to friends and businesscolleagues/competitors. Havethey had experience of anyparticular mediators?

Mediation has established itselfelsewhere as an effective means ofdispute resolution, avoiding thenecessity of, or cutting short existing,litigation or arbitration proceedings. Iam hopeful that it also will catch on inthis region.

This article is an adaptation of a paper deliveredby Chris Mills at the Conference on MaritimeDispute Resolution organised by DubaiInternational Arbitration Centre in June 2005.

Continued in next column

The Casehandler | 9

Dubai Courts Consider Arbitration Clauses

In two recent judgements Dubai’s highest court - the Court of Cassation - considered theapplication and scope of arbitration clauses in the context of construction contracts. Thesejudgements shed some light on some recurring themes in construction disputes.

Incorporation by Reference

The first case involved a contract for the construction of a warehouse and ancillary buildings.The form of agreement itself did not include an arbitration clause. Instead, the agreementrecorded that the applicable general conditions were the FIDIC Conditions, 4th Edition, 1987(the “FIDIC Conditions”), condition 67 of which provides for disputes to be referred toarbitration.

Proceedings were issued in the Dubai Court of First Instance (“CFI”). The Defendant appliedto strike out the proceedings on the basis that, by virtue of the reference in the agreement tothe FIDIC Conditions, it had been agreed that any dispute should be referred to arbitration.The CFI allowed the proceedings to continue, finding that no arbitration clause existed. Thedecision was reversed by the Court of Appeal and the proceedings were struck out.

In its further and final appeal, the Claimant argued, amongst other things, that theconstruction contract was devoid of an arbitration clause. According to Article 203(2) of theCivil Procedure Code an arbitration agreement must be in writing. The Claimant submittedthat mere reference to the FIDIC Conditions did not satisfy this requirement.

In a judgement delivered in January 2004, the Court of Cassation upheld the judgment thatthe proceedings should be struck out. The reference to the FIDIC Conditions was sufficientevidence of the incorporation of an agreement to refer disputes to arbitration without the needto state the details of the arbitration clause in the agreement itself.

No Incorporation by Inference

The second case involved two agreements between the same parties: one for the supply,manufacture and installation of cold storage panels, and a second one for the supply andmanufacture of insulating doors and other similar materials. The second agreementcontained an arbitration clause; the first did not.

Disputes arose and a settlement agreement, which did not contain an arbitration clause, wasentered into in respect of sums owed. No payments were made pursuant to the settlementagreement and proceedings were instituted in the CFI for its enforcement.

The Defendant applied to strike out the proceedings due to the existence of an arbitrationclause in the first of the original agreements. The Defendant also filed a counterclaim fordefects in the materials supplied under the second agreement which the Claimant applied tostrike out due to the existence of an arbitration clause in the second agreement.

In a judgement delivered in June 2004 upholding the decisions of the lower courts, the Courtof Cassation held that the settlement agreement did not contain an arbitration clause. Themain clause was brought in reliance upon the settlement agreement, not upon either of theoriginal agreements and therefore, there was no question of there being an agreement toarbitrate. As the counterclaim was based entirely on the second agreement, which bothparties accepted contained an arbitration clause, it was right that the counterclaim should bereferred to arbitration and, therefore, should be struck out.

Conclusion

The first judgement shows that an arbitration clause can be incorporated by reference to astandard set of conditions containing an arbitration clause. That it was the FIDIC Conditionsin this case will almost certainly have influenced the decision and it would not, therefore, besafe to assume that the result would have been the same if a less ubiquitous set of conditionshad been applied.

Reassuringly, the Court of Cassation in the second case refused to be drawn into treating thecounterclaim as subject to the same contract as the main claim. As a result the arbitrationclause covering the counterclaim was, again, upheld.

CONSTRUCTION

Norris Riley (casehandler),specialising in construction andengineering contracts and disputes.

Michael Grose (partner),specialising in construction andengineering contracts and disputes.

All aspects of construction contracts and disputes.

The Team

For further details on our construction practice, please contact Michael Grose on Tel: +971 4 331 1102or email: michael.grose@clydeco.ae

Laura Whitford (casehandler),specialising in constructioncontracts and disputes.

New Intellectual Property Rights Recordal Procedure for DubaiCustoms

For those interested in enforcing their intellectual property rights (“IPRs”) at the borders ofDubai, something rather interesting has just happened. Without much of a fanfare, DubaiCustoms has just passed Administrative Decision No. 14/2005.

So why would this Decision interest IPR owners, and is this something that merits a fanfare?Well the Decision does seem to be more interesting than its title, as it appears to revampDubai Customs’ approach to the enforcement of IPRs through the introduction of a new IPRtask force to be known as the Intellectual Property Rights Unit, or IPRU. A key element ofthe IPRU is to set up and manage a formal recordal procedure for holders of IPRs and toreport IPR infringements to their designated contacts.

1. The Recordal ProcedureIn order to register with the IPRU, it is necessary to submit:a) A detailed summary of the IPRs to be recorded; b) Documentary evidence of the IPR owner’s rights - for example in relation to trade marks,

a certified copy certificate of registration; c) Full contact details of a representative in the UAE who is capable of receiving and dealing

with any notifications of infringements provided by Dubai Customs. Typically, this partywould be an employee of the IPR owner (if it has a presence in Dubai) or an enforcementagent or lawyer entrusted with protecting the IPR owner’s rights; and

d) A Power of Attorney authorising a local contact to represent the IPR owner in relation tothe recordal and to receive notification of any infringements detected by Dubai Customs.This Power of Attorney must be signed before a notary public and, if executed outside theUAE, it must be authenticated for use in the UAE.

It is important to note that at this early stage the IPRU has not yet introduced any formalapplication procedure and the requirements summarised above may change.

2. FeesThe IPRU anticipates imposing a fee for IPR recordals, but these have not yet been fixed.

3. What IPRs can be Recorded?The IPRU is empowered to record all forms of IPRs, although it has yet to specify whatevidence will be required to confirm subsistence and ownership of IPRs that have not beenregistered (for example, copyright works which have not already been recorded at the UAEMinistry of Information and Culture).

4. The Effect of RecordalIn the event that Customs identify any goods which they suspect infringe any IPRs whichhave been recorded with the IPRU, then the IPRU’s role is to notify the IPR owner’sdesignated local contact. In response, the IPR owner is required to provide the IPRU with areport confirming whether or not the goods are infringing. The IPRU should then undertakefurther checks to confirm that it is satisfied that the IPRs are still subsisting and owned by therecorded owner, which may include, for example, checking the status of any applicable trademark registration(s).

The next step in the procedure is for the IPRU to refer the matter to a specialised laboratorywhich is required to confirm whether or not the goods are genuine. Officials at the laboratoryare to prepare a report confirming whether or not the goods seized are, in their opinion,genuine. This technical report is then passed to the Legal Advisor of Dubai Customs who isempowered to take action in the event that the goods are found by the laboratory not begenuine. There are various options available to Dubai Customs in this regard, the mostobvious of which is to confiscate the goods and to pass the matter to the public prosecutorto initiate a criminal complaint.

The introduction of the IPRU is certainly a positive step and one to be welcomed by IPRowners (and those representing them). However, the true impact will only be seen in time asthe details of the recordal and enforcement procedures become apparent. Only then will weknow whether this new initiative provides IPR owners with a more efficient and effectiveprocedure for enforcing their rights at Dubai’s borders and whether Administrative DecisionNo. 14/2005 really is as interesting as it seems.

For further information on this update or our Intellectual Property practice in the Middle East, please contact Rob Deanson Tel: +971 4 331 1102 or email: rob.deans@clydeco.ae.

The Casehandler | 10

The Team

Anthony Garrod (partner),specialising in commercial law,information technology, intellectualproperty and media.

Amjad Hussain (casehandler),specialising in commercial law,information technology, intellectualproperty and media.

Rob Deans (casehandler),specialising in intellectual property,sports and media.

All general commercial contracts including agency,outsourcing, supply, logistics, sale and purchase, abroad range of advice regarding information technologyagreements including for the aviation industry, andintellectual property advice including anti-counterfeitingand the registration, protection and management of trademarks.

Adam Lovett (casehandler)Specialing in informationtechnology, e-commerce, and dataprotection laws.

Rola Madi (casehandler),specialising in Intellectual Propertyand particularly trade marks.

Fatina Mubarak (casehandler),specialising in commercial law,information technology, intellectualproperty and media.

COMMERCIAL

The Casehandler | 11

Abu Dhabi Issues New Property Law

Abu Dhabi’s eagerly awaited new property law was signed by H. H. Sheikh Khalifa Bin ZayedAl Nahyan, President of the UAE and Ruler of Abu Dhabi, on 10 August 2005. The propertylaw establishes a sound legal basis for the development, sale, leasing and mortgaging ofproperty in Abu Dhabi. The law grants differing rights of land ownership and rights to enjoyland to UAE nationals, GCC citizens and other expatriates.

UAE nationals (or companies wholly owned by UAE nationals) can now own land anywherewithin the Emirate of Abu Dhabi. GCC citizens can own land in designated Investment Areasand lesser rights in land throughout Abu Dhabi. Other expatriates can acquire a Usufruct ofup to 99 years or a Musataha right of up to 50 years renewable within the Investment Areas.The concept of Usufruct and Musataha are set out in the UAE Civil Transactions Law. It canbe misleading to compare Usufruct and Musataha rights to forms of leasehold title foundinternationally. Subject to that warning, both may be considered as forms of leasehold. Theowners of a Usufruct can use and enjoy land provided it remains in its original condition.Terms and conditions may apply in much the same way as for a long term residential lease.A Musataha holder, however, may build or plant on the land in question and can thereforehave more flexibility than a Usufructuary.

Set out below is a summary of the main points of the property law and a commentary onareas where further information or clarification may be required.

Summary of Main Points

• The law was signed on 10 August 2005 but will only come into effect from the datepublished in the Abu Dhabi Government Gazette. We expect publication some time inSeptember.

• Land and interests in land can be held by natural or corporate persons.• UAE nationals can own land and interests in land throughout the Emirate of Abu Dhabi.• The Executive Council shall designate certain areas as Investment Areas within which

GCC citizens can own land and other interests in land and other expatriates can acquirea Usufruct for up to 99 years or a Musataha right for up to 50 years renewable.

• In the future the Executive Council may issue regulations allowing expatriates to haveMusataha rights outside Investment Areas.

• UAE nationals must register their ownership of land.• A person holding a Usufruct or Musataha right for in excess of 10 years may dispose of

that right without the permission of the owner/landlord. Importantly, disposal includesmortgage. Conversely the owner or landlord may not mortgage their interest without theconsent of the owner of a Usufruct/Musataha right (although the parties can agreeotherwise).

• The holder of a Usufruct or Musataha right remains responsible to the owner/landlordfollowing an assignment unless the owner/landlord agrees otherwise.

• The transfer of ownership of land or interests in land must be evidenced by registration.• On death, ownership of property or rights in property will be registered in the names of

the deceased’s heirs as established by a Certificate of Heirs.• Land or interests in land may not be expropriated unless for the public interest and on

payment of fair compensation.• Persons who occupy industrial plots or rent such plots from the Municipalities and

Agriculture Department will not, by virtue of this law, become the owner of those plotsalthough they may subsequently purchase those plots.

• Residential, commercial, investment or agricultural plots of land or buildings which havebeen allocated for a particular purpose may be sold provided that the permitted usecannot be changed.

• Detailed regulations are to follow for multi story and common hold developments. This isparticularly welcome.

• The law specifically repeals Emiri Decree No. 33 of 1966 and any other provisions of AbuDhabi law which are contrary to it.

The Team

Wayne Jones (partner),specialising in contentious andcorporate insurance andreinsurance along with generalcommercial litigation.

A broad range of advice on issues relating to maritime,shipping, transport including aviation, international trade,contentious and corporate insurance and reinsurance,general commercial litigation, arbitration and disputeresolution and commercial debt collections.

Niall O’Toole (partner), based inAbu Dhabi, specialising incorporate law.

Amrik Sangha (casehandler),specialising in corporate andcommercial property law.

Mohammed Ali (casehandler),specialising in corporate law.

ABU DHABI

The Casehandler | 12

What To Expect in the Future

A number of additional regulations and rules will need to be issued. Most importantly theExecutive Council will need to specify which areas are to be Investment Areas. Rules andregulations will also be issued to clarify:

• The rules for transfer of ownership of properties allocated to UAE nationals prior to thedate of the property law.

• By-laws for Investment Areas, which should deal with how services are provided to suchareas.

• Specific requirements are to be issued by the Abu Dhabi Executive Council dealing withhow UAE nationals can acquire industrial plots or plots which are currently rented fromthe Municipalities and Agriculture Department.

• Regulations are to follow for the establishment and management of ownershipassociations for developments of more than ten units. These regulations should also dealwith the ownership, management, maintenance, operation and financing of commonareas and facilities, the powers of the manager of common areas and facilities and thefinancial obligations of the owners, occupants and owners of Usufructs.

The new law does not clearly state that a mortgage must be registered. We would expect anybank or other financial institution accepting a mortgage property in Abu Dhabi to requireregistration as a matter of good practice. Abu Dhabi’s new property law is of course anEmirati law. As such, all applicable Federal Laws (most notably the Civil Transactions Lawand the Civil Procedure Code) continue to apply. It will be interesting to see how thesevarious laws interact with each other and how, in practice, a mortgagee (such as a bank orfinancial institution) can enforce their rights. It will also be interesting to watch how marketpractice evolves in terms of Usufructary rights and Musataha rights for expatriates inInvestment Areas.

Key elements of Musatahas

• A right of Musataha is defined as the right to build a building or to planton the land of another.

• It is also a right in rem and can be passed onto the heirs of the lessee.• The right of a Musataha may be acquired by agreement or by the

passage of time. In addition the right can be transferred by inheritance.• The right of a Musataha may not exceed 50 years but it is renewable and

can be assigned at any time.• The holder of the Musataha right owns any buildings/plants placed upon

the land which he can sell with his right of Musataha.• A right of Musataha ceases:

(a) At the end of the agreed term; (b) Upon 2 years notice by either party in the absence of an

agreed term;(c) Upon the landowner and the holder of the Musataha right

becoming the same person; or(d) Upon the owner of the Musataha right failing to pay the landowner

the agreed consideration for a period of 2 years or such other period as agreed by the parties.

• Upon termination of the right of Musataha, unless the parties haveagreed otherwise, the landowner may require the holder of the right ofMusataha to:(i) Demolish any building; (ii) Take ownership of the building upon paying the holder of the

Musataha right an agreed sum of money;(iii) If practical, the holder of the Musataha right may remove the

building from the land.

Key elements of Usufructs

• A Usufructary contract can be granted over land by a property owner andis a right in rem. Which is stronger than a form of lease as it can bepassed onto the lessee’s heirs.

• The terms of a Usufructary contract are governed by the Civil Code andcertain terms will be implied into a Usufructary contract over land.

• A Usufructary contract is a grant of a right to the enjoyment and use ofproperty for a specified period in consideration of an agreed sum of rent.

• The Civil Code does not set a maximum period for which a Usufructarycontract can be granted although Abu Dhabi law confirms thatUsufructary contracts over land within Investment Areas can last for upto 99 years.

• The property owner has an implied obligation to repair defects on theland/property.

• The lessee can only use the property for the agreed purpose and if thisis not set out in the Usufructary contract the property can only be usedfor which it is intended and in a manner which is not contrary to custom.

• No alterations can be made to the property without the consent of theproperty owner. The lessee has an implied duty to repair the property inrespect of agreed matters and for such matters that would be consideredas custom for the lessee to repair on that particular property.

• The lessee can cancel the Usufructary contract if enjoyment of theproperty is disturbed.

• The lessee cannot sublease or assign all/part of the property without theproperty owner’s consent.

• The Usufructary contract does not terminate on the lessee’s deathunless the lessee’s heirs consider that the Usufructary contract isonerous and that they do not wish to continue with it.

Comparison Table

Recent developments

The new Abu Dhabi law has introduced a couple of additional rights and allows Usufructary contracts and Musataha rights in respect of land within InvestmentAreas to be assigned without consent if there is more than 10 years left to run under the contract or right.

It also allows foreign nationals to register their rights under Usufructary contracts and Musataha rights in designated Investment Areas. So far Al Raha Beachand Reem Island have been announced as Investment Areas in Abu Dhabi although more are expected to follow.

Due to the number of implied terms which will form part of any Usufructary contract or right of Musataha pursuant to the Civil Code, it is important to ensurethat an appropriate written agreement is entered into between the property owner and the lessee. Any party entering into such agreements should take legaladvice in order to understand the implications of the implied terms of the Civil Code and additional obligations that the property owner may seek from thelessee.

UK

Colin has been a partner in Clyde & Co since 1979 andhas spent his entire career practising in the field ofaviation insurance/reinsurance and commercial litigationand arbitration with an aviation bias. He hasconsiderable experience of advising on a wide range ofinsurance issues and of resolving disputes in manyforeign jurisdictions as well as in the UK. Areas ofpractice include general aviation, insurance andreinsurance, airports, cargo, passengers, subrogation,space and multi-jurisdictional.

Roger is a partner who is qualified as a solicitor inEngland and Wales and as a barrister and solicitor of theHigh Court of New Zealand. His main areas of practiceare asset and project finance, leasing and generalbanking. He has particular expertise in the Middle East.

Gavin has been a partner in Clyde & Co since 2004 withresponsibility for the aviation finance practice. He has abroad range of experience within the asset financesector including: export credit financing (European, USand other), multi-option facilities, tax leasing in the UK,Germany, Japan and other jurisdictions, pre-deliverypayments financing, operating leases, secured andunsecured loan and lease financing, sale and purchase,other structured financing and merger/acquisition relatedtransactions.

Middle East

Aircraft Repossession: What Happens When it Goes Wrong?

There is no such thing as a typical aircraft repossession. Every default situation will have itsown legal, and more importantly, practical problems and considerations. In this note weconsider the steps to be taken to repossess an aircraft when confronted with a lease default,and the precautions that can be taken now to limit the difficulties that might be encountered.In a default situation the latter will only be half the battle. A lessor will need to act quickly andbe prepared to be flexible and adaptable to the circumstances.

Has there been a default?

The starting point is to ask whether there has been an event of default under the leasedocuments. The lease will usually contain a comprehensive set of event of default clausesspanning straightforward non-payment of lease rentals, through to technical provisionsconcerning the condition of the aircraft and the more subjective material adverse changeclauses.

The lease will usually provide that none of the events of default will occur during the leaseperiod but, if one does, this will constitute a repudiatory breach of the agreement. Once anevent of default does occur, the next step is to ensure that a properly worded notice,terminating the lease and setting out the specific events of default, is served in accordancewith the notice provisions in the agreement.

The lessee’s rights, title and interest in the aircraft are thereby terminated and the lessor iscontractually entitled as a result to take possession of the aircraft and enter into the lessee’spremises in order to do so. Generally, the lessee will be obliged to pay all amountsoutstanding under the lease, all of the lessor’s losses incurred as a result of the leasetermination (including legal costs), all losses incurred as a result of the lessee being unableto lease the aircraft on equally favourable terms and, finally, the cost of returning the aircraftto an airport of the lessor’s choice. The aircraft may be returned by the lessee at this stagefollowing negotiations with the lessor, although subsequent litigation to recover outstandinglease rentals is not uncommon.

Can you help yourself?

The lessee may decide not to return the aircraft voluntarily. In these circumstancesimmediate action will be required, especially if there is a risk that the aircraft will be flown toan unfavourable jurisdiction or other creditors are waiting in the wings.

In the UK, a lessor can take advantage of self-help remedies in order to repossess theaircraft. It is not necessary to obtain a court order, give a bond or seek the assistance of acourt bailiff. The English courts treat these circumstances as a matter of contract and thelessor, in exercising self-help, is enforcing the strict contractual provisions of the leaseagreement. Therefore the lessor may enter the lessee’s premises (without the use of force)and repossess the aircraft.

Repossessing an aircraft in the UAE (and indeed elsewhere in the Gulf) is not quite sostraightforward. In common with many civil code jurisdictions the UAE does not recognisethe so called “self-help” remedies and the owner/lessor will need a court order if the lesseeis being unhelpful. If the court in the relevant Emirate is persuaded that there is a risk of theaircraft being removed from the jurisdiction then it may grant a prejudgment attachment ordersimilar to an injunction in the UK. Such an injunction will only be granted if there is a risk thatthe aircraft will be removed from the jurisdiction and will not return. This may be difficult toprove if, for example, the aircraft is operating on a regular schedule. The courts take a strictapproach in deciding whether to grant such orders. The lessor must satisfy the court that ithas a good arguable case against the lessee, that damages would not be an adequateremedy and that, on the balance of convenience, an injunction should be granted. The lessorwill be required to make full and frank disclosure of all material facts and, most importantly,to give a cross undertaking as to damages, i.e. a guarantee to the court and its opponentsthat the lessor will be responsible for any damages caused by the injunction should theinjunction subsequently be found to be unjustified. Finally, an injunction cannot be grantedin a vacuum – proceedings must be issued by the lessor against the lessee within eight daysafter the injunction is granted.

Lessor steps

In practice there may be a whole host of other problems that will need to be dealt with in ashort space of time. Many of these problems can be pre-empted and addressed by having

AVIATION

The Casehandler | 13

The Team

Colin Franke

Roger Clarke

Gavin Hill

Abhi Jalan (partner), specialising incorporate law.

Niall O’Toole (partner), based inAbu Dhabi, specialising incorporate law.

Christopher Mills (partner),specialising in marine, aviation,international trade, insurance andreinsurance and dispute resolution.

Anthony Garrod (partner),specialising in commercial law,information technology, intellectualproperty and media.

The Casehandler | 14

procedures in place at the outset. These systems and procedures include:

• Monitoring the lessee’s covenants (financial and otherwise);

• locating the aircraft. If it is on scheduled operations, have a copy of the schedule;

• Determining the legal position regarding repossession in the jurisdictions where theaircraft operates;

• Having details of lawyers in these jurisdictions;

• Knowing the aircraft’s maintenance status;

• Knowing if the aircraft is insured at all times, especially when the lease has beenterminated.

Finally

Aircraft repossessions in the UAE are rare enough but because the process is notstraightforward, lessors should ensure that proper anticipatory systems are in place shouldthe worst occur.

Roger Clarke is a partner at in Clyde & Co’s newly merged aviation practice. For further details on this article pleasecontact Roger on email: roger.clarke@beaumontclydeco.ae.

Clyde & Co Announces Merger with Beaumont and Son

The partners of Clyde & Co and Beaumont and Son were delighted to announce theproposed merger of our two firms from 1st July 2005. The merged firm will be known asClyde & Co.

Beaumont and Son has been the recognised global market leader for legal services to theaviation sector and combines with the existing recognised aviation expertise at Clyde & Co.Our aim is to be the leading specialist aviation practice.

The merged firm has unrivalled depth of knowledge and experience in all aspects ofinternational aviation law, and will provide a one-stop service to the aviation and aerospaceindustry.

It will be ‘business as usual, only better’ . The main benefits of the merger are:

• The ability to offer an enhanced service attracting leading aviation businesses by beingable to offer clients a better service;

• A diversified range of services;

• Greater depth of resources to ensure that we can provide skills at the right level;

• High quality dedicated partner resources;

• Access to an extensive international network in the aviation sector covering Asia, Russia,Europe, Latin America and the Middle East;

• The ability to retain and recruit the best legal talent for the aviation sector.

Clyde & Co’s Strategy

Clyde & Co’s aim is to be the premier law firm in corporate/commercial, transportation,insurance, trade and natural resources, providing a full service to an international client basefrom key strategic locations.

For further information, please contact Zina Al-Abbasi on Tel: +971 4 331 1102 or email: zina.alabbasi@cydeco.ae

INTERNATIONAL

Focus on France

Key FactsNantes : 3 AvocatsParis: 11 Partners (10 avocats and 1 solicitor)

29 Associates (avocats)2 Consultants Among the associates, one is also qualified in US and another is qualified in Argentina.

• Denys Duprey is a consultant and is a retired avocat, active as an arbitrator and a pre-eminent member of the Paris bar.

• Pierre Lellouche is a consultant and a member of Parliament, as well as the chairman ofthe NATO Assembly.

• Clyde & Co in France is the largest product liability specialist in the country. • The French offices also specialise in marine and non-marine insurance and reinsurance

matters, and have a strong aviation presence complemented by the recent merger withBeaumont and Son.

Since its inception, the French firm has been dedicated to insurance, risk management(product liability, industrial risks, maritime, transport, aviation, space, construction, E & O,professional liability (civil and penal), D & O, reinsurance, hotel trade, medical andpharmaceutical liability, energy, oil gas, environment, political risk, and credit insurance andreinsurance. Our lawyers speak French, English, German, Italian, Spanish and Russian,and our partners are recognised at both the national and international level. Partners GerardHonig and Bernard Mettetal are registered as arbitrers on the list of the French Committeeof the International Chamber of Commerce. Gildas Rostain is one of the most pre-eminentlawyers in marine, and Jean-Marie Preel is well-known in product liability and constructioncases.

Recent cases include:• The Concorde crash;• The collapse of the Terminal 2E of the Airport of Paris (Roissy);• The fire Tunnel of the Mont Blanc;• The explosion of the AZF Factory in Toulouse.

“ The law firm is the most predominant firm in France in every area of industrial activity.We are in a good position to increasingly develop our synergy with other Clyde & Co offices,worldwide.” Gerard Honig and Bernard Mettetal, Partners : Clyde & Co’s French offices. For further information contacy Anne-Marie Boyer on email: anne-marie.boyer@clydeco.fr.

London

The London Business Administration Unit has extensive experience in the legalisation andauthentication of documentation for use in any jurisdiction with an efficient and dedicatedteam of professionals and excellent chains of communication with the Foreign andCommonwealth Office (FCO) or its equivalent elsewhere and various embassies/consulatesaround the world.

Once documentation has been legalised, documentation is presented to the FCO orequivalent for authentication, and then to the relevant embassy/consulate for furtherauthentication. Foreign language documentation requires an English translation, which mustbe legalised. We endeavour to process the documentation quickly and return the dulyexecuted documentation by courier or as requested.

We have registered signatories present at our London Office who can legalise documents forpresentation to the FCO in the same way as a notary.

We also also provide the following services:• Company incorporation in any jurisdiction including but not limited to LLP’s (for non UK

incorporations we use our extensive network of correspondent incorporation agents);• Nominee shareholder, company secretary and registered office services;• Agent for service of process; and• Provision of maintenance of Statutory Books and full company secretarial services.

For more information on this service and details of our competitive rates please contact your Clyde & Co contact, oralternatively contact Kelly Millar on Tel: + 44 (0)207 648 1783, email: kelly.millar@clydeco.com.

Clyde & Co OpensMoscow Office

Clyde & Co has further strengthenedits Russian capability with theopening of an office in Moscow. Theestablishment of this office follows a13 year presence in Russia throughits associated office Musin & Partnersin St Petersburg. The office will tradeas CLSI LLP (Clydes Legal ServicesInternational LLP), which is a whollyowned subsidiary of Clyde & Co, andwill be run locally by Dmitry Zavidov,an experienced Russian lawyer whohas worked with Clyde & Co for manyyears. Dmitry will be assisted inMoscow by Igor Orlov who is a seniorlawyer specialising in all forms ofcorporate matters. Two lawyers havebeen recruited and it is aimed that inthe initial phase there will be fivelawyers.

The office will focus on generalcorporate work, as well as the firm’score sectors of transportation(including shipping and aviation)insurance, trade and energy anddispute resolution.

The launch of the Moscow office is adirect response to the needs of ourinternational clients conductingbusiness from Moscow, and ourMoscow based clients operatinginternationally and locally. OurMoscow office will work closely withour St. Petersburg operations and ourexperienced London based Russianand Central Asian team, headed byPartner, John Whittaker.

For further information on our presence inMoscow, please contact Zina Al-Abbasi on Tel: +971 4 331 1102 or email: zina.alabbasi@clydeco.ae.

www.clydeco.com

London Guildford Cardiff Paris Nantes Belgrade* Piraeus Moscow* St. Petersburg* Dubai Abu Dhabi Singapore Hong Kong Caracas Rio de Janeiro* Associate office