Why Inking Handshakes Should be Norm in UAE


January 26, 2018 Facebook Twitter LinkedIn Google+ Useful Articles


The Middle East has a long tradition of trade conducted on the basis of nothing more than verbal promises or agreements (having someone’s ‘word’) and perhaps a handshake. If popular reports are to be believed, some of Dubai’s most iconic structures were built on a gentlemen’s agreement with no written contracts in place until projects were well underway.

For many in the Middle East, concluding high value deals without written contracts remains an acceptable every-day way of doing business. While it is perfectly possible to conclude a binding and enforceable oral agreement under UAE law, there are risks associated with it that might not be in the mind of the parties at the time they are “doing the deal”.

The thought of not having a detailed written contract for a deal would likely send shivers down the spine of risk managers in the corporate world.

In a modern economy of high-value, fast-paced deals with significant sums of money at stake, if things go wrong, recording contracts in writing is paramount to protecting (and proving) your rights.  When problems arise under an oral contract or one that does not accurately record the terms agreed, costly litigation can ensue that might otherwise be avoided.

WORD WAR

Two recent international court cases have attracted media attention for involving prominent Middle Eastern businessmen in separate high value disputes over alleged oral agreements.

In the first case, Prince Al Waleed bin Talal, a nephew of Saudi Arabia’s King Abdullah, is being sued in the English High Court by a Jordanian businesswoman, Daad Sharab.

The plaintiff claims she was not paid a USD 10 million commission allegedly promised to her orally by Prince Al Waleed for her part in brokering the USD 120 million sale of one of his private jets.  Prince Al Waleed denies the claim.

With no document recording the terms of the alleged agreement, the outcome of the case is likely to turn on the personal witness evidence of Prince Al Waleed and Sharab about who said what to whom and what may or may not have been promised.

Last week saw the rare occasion of Prince Al Waleed taking the witness stand in the public court hearing of the case in London. The risk to litigants is high in a case where heavy reliance is placed on oral evidence to prove (or disprove) an agreement and a judge will be asked to decide whose evidence is to be preferred over the other’s. Things would likely have taken a different track if the agreement alleged by Sharab had been documented in a written contract. The case is ongoing.

The second case concerns a claim brought by Sheikh Meshal Jarah Al-Sabah, a member of Kuwait’s ruling family, in the DIFC Courts in Dubai against a branch of the Swiss bank UBS.

Sheikh Al-Sabah claims UBS failed to pay him USD 20 million advisory fee that he alleges was orally promised to him in relation to the USD 11 billion purchase of the African telecommunications assets of Kuwait’s Zain Telecom by India’s Bharti Airtel Ltd in 2010.

UBS denies there was an agreement and insists that the meeting between the parties at a Dubai hotel, where it is alleged an agreement was concluded, was simply a ‘meet and greet’. The case is ongoing.

PROVING A CASE

Both cases highlight the difficulties litigants can face in proving their case when disputes arise around (the alleged) oral agreements. Both cases are being heard in common law jurisdictions where witness evidence is a key element in civil court proceedings.

Even so, proving a legal case by witness evidence alone often is not easy (i.e. the word of one witness is pitched against another) and it can increase the uncertainty of outcome.

Not all courts will permit witness evidence to be submitted in civil cases. Those that do may severely limit the circumstances where it is permitted. The latter is true of the UAE and many other Middle East countries where witness evidence is admissible in limited circumstances in civil cases.

Documentary evidence is of paramount importance for proving a legal case in the courts of these countries.  The claimants in the two cases mentioned above would be likely to face particular difficulties proving their alleged oral agreements in the UAE courts, for example, where it is unlikely that witness testimony would be admitted to prove a contract of significant monetary value.

UAE LAWS

In the UAE, there is generally freedom over how parties may contract, subject to the provisions of the law. UAE law relating to contracts recognizes that binding and enforceable agreements can be concluded orally or in writing.

However, the laws that govern how evidence is presented in UAE court proceedings restrict the circumstances where witness evidence is admissible. Typically, the strength of a contractual claim will depend heavily on the documents submitted in evidence and the parties’ written legal argument.

It will be difficult for a party alleging an oral contract to prove the existence of the contract or its terms. It is generally difficult to prove any fact in the UAE courts that cannot be established by the submission of documents.

Even where witness evidence is heard, and admitted to prove a contract, the probative value of the evidence given is not as persuasive as documentary evidence.

Parties are free to enter into oral agreements in the UAE and many will continue to do so. While the informality and apparent efficacy of oral agreements can seem attractive for getting deals done, these perceived benefits can come at a high cost if a dispute arises and an aggrieved party is put to proof of alleged contractual rights and obligations.

Ask any risk manager in a global corporate if the time, effort and cost involved in recording an agreement in writing is worth it to avoid the risks otherwise posed by oral agreements and the answer will invariably be ‘yes’.

The authors would like to think that the answer will increasingly be ‘yes’ for all businesses in the Middle East and that lessons learned will encourage recording the agreed terms adequately.

Nassif BouMalhab is partner at the Dubai office of Clyde & Co, where he has advised a wide range of businesses on the legal aspects of commercial dispute resolution and represented parties in court and arbitration proceedings since 2003.

Keith Hutchison is senior associate of Clyde & Co and a senior member of the company’s Middle East Debt Recovery Team. He has a wide range of commercial dispute resolution work including commodities, shipbuilding, telecommunications and banking, among others.

Rhys Monahan is an associate of Clyde & Co and a dispute resolution lawyer based in Dubai. As well as general commercial matters, he acts for a broad range of clients advising on marine, insurance and construction disputes.

© Zawya 2013

By Nassif BouMalhab, Keith Hutchison and Rhys Monahan of Clyde & Co

25 July 2013

Comments