Covid–19/United Arab Emirates: Implications for business

By Mustafa Muayad - Head of Baghdad office in Salt & Associates - m.ridha@saltandassociates.com - 00964 78 050 10222

Salt & Associates and SDAC Law
Member of Grimaldi Alliance for United Arab Emirates

Overview

The United Arab Emirates Federal Government, as well as the governments of the seven Emirates which form the Union, have implemented a number of increasingly firm measures to reduce the potential impact of Covid-19 on the health and welfare of the general public. As it currently stands, the most impactful of these measures are as follows:

  • Distance learning and e-learning to take place across all schools and educational institutes of the United Arab Emirates, both public and private, until the end of the current academic school year in June 2020.
  • Closure of all malls, shopping centers and markets from 25 March 2020 for a period of two weeks, with the option to extend such closure.
  • Closure of all entertainment facilities, cafes, bars, restaurants and tourism-related businesses from 25 March 2020 for a period of two weeks, with the option to extend such closure.
  • Suspension of all international flights by all UAE-based carriers from 25 March 2020 for a period of two weeks, with the option to extend such suspension.
  • Night-time curfews in place from 8 PM to 6 AM with all residents to stay at home and strict penalties for breaching such curfew until 5 April 2020, with the option to extend.
  • Extensive “Stay at Home” campaigns.
  • Mandatory implementation of remote working for a minimum of 80% of employees of all private sector companies and commercial establishments until 9 April 2020, with the exception of sectors deemed essential.
  • Postponement of all judicial hearings for the Dubai Court of Cassation, the Dubai Court of Appeal, and the Dubai First Instance Courts, and suspending testimonies and documentation of personal status from 22 March 2020 until 16 April 2020.
  • Moratorium on the execution of any judgments in the Emirate of Abu Dhabi in respect of any new civil or commercial judgments for a period of two months from 24 March 2020, except for judgments relating to labor dues and alimony payments.
  • Postponement of Expo 2020 in Dubai until at least 2021.

 

Government support to the economy

To counter some of the side-effects of the above actions, the Central Bank of the UAE launched an AED 100 billion stimulus scheme to contain the economic repercussions of the Covid-19 pandemic and the slowdown of economic activity in the UAE. The scheme comprises two elements: AED 50 billion  from Central Bank funds through collateralized loans at zero cost to all banks operating in the UAE and AED 50 billion of funds freed from banks’ mandatory capital buffers.

In addition, Dubai government announced a separate AED 1.5 billion economic stimulus package for the next three months to support companies and the business sector in Dubai as well as measures specific to Dubai free zones to postpone rent payments by a period of 6 months; facilitate installments for payments; refund security deposits and guarantees; cancel fines for both companies and individuals; and permit temporary contracts that allow the free movement of labor between companies operating in Dubai free zones for the rest of the year.

In keeping with the Central Bank of the UAE and the Dubai government’s measures, the government of the Emirate of Abu Dhabi has rolled out its own stimulus package for Abu Dhabi-based businesses, allocating AED 5 billion to subsidize water and electricity for commercial and industrial activities; settling all approved government payables and invoices within 15 working days; allocating AED 3 billion to the SME credit guarantee scheme managed by Abu Dhabi Investment Office to stimulate financing by local banks and enhance SMEs’ ability to navigate the current market environment; allocating AED 1 billion to establish a market maker fund; reducing industrial land leasing fees by 25 per cent on new contracts; waiving current commercial and industrial penalties; offering up to 20 per cent rebate on rental values for restaurants and tourism and entertainment sectors; and continuing all approved capital expenditure and development projects in the Emirate of Abu Dhabi.

 

Force majeure-related issues

It should come as no surprise that a number of clients are seeking guidance on force majeure and what this entails under UAE law. The primary legal source for force majeure under UAE law is the UAE Civil Code. Specifically, Article 273 of the Code provides as follows:

1. In bilateral contracts, if a force majeure arises that makes the performance of the obligation impossible, the corresponding obligation shall, be extinguished and the contract ipso facto rescinded.

2. If the impossibility is partial, the consideration for the impossible part shall be extinguished. This shall also apply on the provisional impossibility in continuous contracts. In both instances the obligor may rescind the contract provided the oblige has knowledge thereof.”

The key word in the above quoted text is “impossible”. UAE law does not provide for an exhaustive list of force majeure events but it is clear that it may only be established on the grounds of impossibility, be it physical (such as a natural disaster) or legal (such as a change in law). Hardship in carrying out an obligation would not count as force majeure.

In light of the above, any potential force majeure event must be studied on a case-by-case basis in light of the governing contract’s provisions and UAE legal principles. In any case, we are advising clients to devise a strategy on how to approach creditors, lenders, suppliers and other obligors to put into place a plan to deal with potential upcoming liabilities. Such discussions need to be open, honest and frank.

 

Recent labour law developments

As mentioned above, the government of Dubai has directed all private sector companies and commercial establishments (excluding pharmacies, cooperative societies and grocery stores) to implement remote work system for 80% of their employees from 26 March 2020 until 9 April 2020. The federal authorities of the UAE followed suit on 29 March 2020, with the issuance of

UAE Ministry of Human Resources and Emiratization (“MOHRE”) Ministerial Resolution 281 of 2020 on remote working for the private sector. Under the resolution, private sector companies (excluding certain key industries) can have no more than 30% of their workforce physically present at a workplace, among other precautionary requirements. This has resulted in the overwhelming majority of private companies across the UAE introducing remote working systems.

Furthermore, the long-term viability and stability of employment in the private sector is being heavily tested and MOHRE issued Ministerial Resolution 279 of 2020 on 30 March 2020 granting employers the ability to grant paid or unpaid leaves as well as permanent or temporary salary reduction to their non-UAE national staff (subject to agreement between the employer and employee). In light of this new development, it would be advisable for businesses to discuss the current market situation with their employees clearly, openly and honestly.

 

Salt & Associates