The Risks of Using Out-of-Date English Law Template Agreements on Deals in the Middle East
Despite Brexit, English law currently still remains a common compromise for the choice of governing law for many commercial agreements in the Middle East. Too often here in the region we see old English law templates being ‘dusted down’ and used on regional deals without stopping to consider:
whether the template still complies with the latest developments in English law; and
what amendments need to be made to actually make it work here in the Middle East.
Is Your English Law Template Up To Date?
Unfortunately template agreements don’t have a ‘use by date’ on them and you need to monitor developments in the law on a regular basis. Some ‘red flags’ to look out for include references to now repealed legislation. Just this week we have seen commercial agreements still being used which include references to the following obsolete English statute definitions:
“Connected Persons” (previous defined in Section 839 of the Income and Corporation Taxes Act 1988 but now covered in Section 1122 of the Corporation Tax Act 2010);
“Control” (previous defined in Section 840 of the Income and Corporation Taxes Act 1988 but now covered in Section 1124 of the Corporation Tax Act 2010);
“Holding Company” (previous defined in Section 736 of the Companies Act 1985 but now covered in Section 1159 of the Companies Act 2006); and
“Subsidiary” (previous defined in Section 736 of the Companies Act 1985 but now covered in Section 1159 of the Companies Act 2006).
Safe to say that if your template has references to legislation that is 10 years out of date, the whole agreement could do with a refresh. Another clue that your English law template may not be as up to date as it should is the omission of a ‘third party rights clause’, which made an appearance post the Contracts (Rights of Third Parties) Act 1999.
There have also been recent developments in English case law (e.g. in relation to best endeavours, good faith, penalties, damages, restraint of trade etc.), which can have an impact on the drafting of your template.
The risks of using a dated agreement include ambiguity, potential for disputes and even the risk of unenforceability so it is definitely worthwhile carrying out a regular review.
Modifications for the Middle East
Once your English law template has been updated for the latest developments in English law, you then need to assess whether it will actually work for your particular deal in the Middle East. This is not as simple (as some have suggested) as changing the definition of “Business Day” from Monday to Friday to Sunday to Thursday and deleting the interest clause.
Most countries in the GCC generally respect the rights of commercial parties to choose the governing law of the contract (e.g. Article 19 of the UAE Civil Code). This is however subject to certain exceptions (e.g. Article 27 of the UAE Civil Code which states a court may refuse to give effect to a transaction or enforce a judgement where this would be inconsistent with UAE public order/morals or Islamic Sharia). You therefore need to review your template for any issues that may fall foul of these provisions.
In terms of the dispute resolution forum, arbitration is often a favoured approach over English courts due to the fact that most Middle East countries are members of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (www.newyorkconvention.org). It is however worth considering a locally based arbitration institution such as the DIFC-LCIA Arbitration Centre (www.difc-lcia.org) for ease of enforcement of arbitration awards.
Even if your choice of governing law and dispute resolution is held enforceable, you will still need to consider the mandatory laws of the country in which the relevant obligations are being carried out. For example, when providing services on the ground in the Middle East certain elements of the following laws are likely to apply: employment, corporate, consumer protection, intellectual property, data privacy, media, competition laws etc. Some of these local mandatory laws can be ‘dove tailed’ into your English law contract e.g. provisions dealing with visas for your employees, commercial agency laws and registration (or a restriction on registration) or handling local trademark prosecution or registration of licences (or a restriction on these).
If you would like a refresh of any of your English law agreements for use in the Middle East please let us know. The Bench has a team of English law qualified lawyers who have been working in the Middle East region for 15+ years and have assisted numerous international clients to successfully enter the region.