Middle East Perspective on Damage and Penalty Clauses Found In Logistics Services Agreements

Transcription

1 Law and Logistics the Way Forward Antwerp 12 & 13 October 2016 Middle East Perspective on Damage and Penalty Clauses Found In Logistics Services Agreements By Jean-Michel Moriniere Avocat (France) Legal Consultant (UAE)

2 The Context - Newly developed transport infrastructures: - DWC airport : Five parallel Code F runways of 4.5 km each - Khalifa port to handle a capacity to handle 15 million a year by Emerging logistics platforms with Clusters and Corridors - Logistics free zones of all types - Volatility of oil prices and its economic consequences - Impact on development - Economic Visions New taxes

3 Logistics Services Agreements Various types of agreements serving different businesses: - Traditional 3 or 4 PL agreements serving the manufacturing or retail industries - Agreements in support of industrial projects (mainly in the energy sector) - Agreements in support of infrastructures construction - Agreements in support of military activities in the region - Agreements in support of Humanitarian activities International Humanitarian City (IHC): a logistics centre for the distribution of humanitarian aid environments in critical

4 The Issue of LD and P clauses Logistics Services Agreements are often framework agreements in which liability is determined as per quality services (KPIs) rather than as per physical damages which are themselves dealt with under specific insurance schemes. Liquidate Damages Clauses Intended to estimate damages in the event of non-performance or breach of contract. Based on the concept that there has been an actual harm to the claimant. Penalty Clauses Used to establish a penalty to be paid in case of non-performance with the intent to encourage performance. It does not require proof of any real damage There is often a lot of confusion on the way these clauses work as they may not be interpreted in the same way in different jurisdictions.

5 Law Applicable to LD and P clauses What is at stake: - Freedom of contract Autonomy of will - The equitable and just contractual solidarity Middle East Legal Systems - Continental law Islamic Law Conflicts of Law - Reference to foreign law is allowed in theory (art 19 of the UAE civil Code) - Public order and Shariah - Article 28 of UAE Civil Code provides that the law of the United Arab Emirates shall be applied if it is impossible to prove the existence of an applicable law or to determine its effect.

6 Impact of the dispute resolution forum Competence of the local jurisdictions Local Courts may not refuse to accept jurisdiction despite a contractual provision stipulating otherwise. - retain jurisdiction to hear cases brought against a national person (privilege of nationality) - or if the action relates to an obligation entered into or performed, or stipulated to be performed, in the State. Any provision stipulating the contrary is null and void Consequences in terms of exequatur of foreign decisions - article b of the UAE Civil Procedure Code provides that a foreign decision may be enforced provided that the courts of the UAE had no jurisdiction to try the dispute in which decision was made. - Few judicial cooperation treaties have been signed

7 Alternative forums Foreign Type of local courts - DIFC Courts in Dubai The DIFC has laws of its own inspired from UK common law and applies UK law where it has no specific laws. Dubai Law No. 16 of 2011 extended DIFC Court s jurisdiction. DIFC Courts can now hear commercial disputes between any parties which have written the DIFC Courts into their mutual contracts, or which jointly agree to use the DIFC Courts post-dispute. Arbitration - Most Middle East countries have ratified the New York convention - Unlike foreign jurisdiction s clauses, arbitration clauses are upheld

8 LD and P clauses under local laws Saudi Arabia s Islamic jurisdictions - Pacta Sund Servanda - Al Aqd Shari at Al Muta aqdin - Certainty Parties must have perfect knowledge of the counter values intended to be exchanged as a result of their transaction. - Financial penalty shall not amount to interest Continental law based GCC jurisdictions - LD approach with P clause type moderator power of the judge - The Napoleonic heritage - UAE article 390(2) of the Civil Code states that: (1) The contracting parties may fix the amount of compensation in advance by making a provision in the agreement or in a subsequent agreement, subject to the provisions of this law. (2) The judge may in all cases, upon the application of either of the parties, vary such agreement so as to make the compensation equal to the loss and any agreement to the contrary shall be void. - New French Civil Code (article ): When a contract stipulates that a party breaching its obligations must pay a determined amount as damages, it can t be awarded to the other party an amount which is higher or lower. Nonetheless, the judge can, even ex-officio, moderate or increase the agreed penalty amount if it is manifestly excessive or ridiculously low

9 The judge may interfere in case of excess Abu Dhabi Court of cassation 2009: - a stipulation for a penalty clause renders the assessment of harm a matter for the contracting parties, and the obligee does not have to prove it. Rather, the obligor has the burden of proving that it did not take place. There is a presumption that the assessment of compensation agreed is commensurate with the harm suffered by the obligee, and the judge must abide by that clause and give effect to it unless the obligor proves that the agreed compensation is excessive or that the obligee did not suffer any harm at all. Civil law judges seem more likely to interfere than common law judges but this may not remain true.

10 Final Remarks When entering into an international logistics services agreement to be implemented in the Middle East one must carefully pay attention to: - The choice of applicable law and dispute resolution mode; - The drafting of a LP or P clause which is the less likely to fall under the amendment power of the arbitrator or the judge and the addition of other performance incentives tools such as a price determination clause based on quality KPIs. Dr Jean-Michel Moriniere (Mob ) Questions?