HAS Law Firm

A Comparative Analysis of Legal Frameworks, Principles and Practices in Court Systems and International Arbitrations I. Introduction 1. Costs on an indemnity basis is a feature observed in common law jurisprudence, and enables a party to secure compensation to as full an extent as possible for the outlay and trouble of litigation. 2. Jurisdictions which are based on a common law system i.e., England and Wales, the Dubai International Financial Centre (“DIFC”), Singapore, Hong Kong, etc., have mechanisms which inter alia govern costs on an indemnity basis and how these are applied. 3. This article shall consider how indemnity costs are dealt with by court systems in England and Wales, the DIFC, but also the trend in international arbitrations. II. Rule of Indemnity Costs 4. Usually when making an order of costs, the basic rule is that the successful party is entitled to costs on the standard basis; however, the successful party can secure a different order which is that costs will be assessed on an indemnity basis. 5. An indemnity costs order cannot be construed as a penal costs order, it allows costs to be assessed on the basis of what has been reasonably incurred rather than the default standard basis of what is reasonable and proportionate both in amount and work done. 6. Therefore, one of the major differentiating factors between indemnity costs and standard costs is that where in a case of standard costs, the party will receive only costs which are proportionate, this requirement of proportionality does not exist in relation to an order of costs made on an indemnity basis. 7. However, while proportionality is not the cornerstone for an order of costs on an indemnity basis, it is often perceived that indemnity costs are punitive in nature. On the contrary, the basis for indemnity costs is not to punish the paying party but to arrive at a fair result for the party in whose favour costs are issued. III. Statutory Framework Adopted by the Courts for Awarding Costs on Indemnity Basis 8. The basis for awarding indemnity costs is prevalent across several common law judicial systems. 9. Some of the key jurisdictions i.e., England & Wales and the DIFC Courts are highlighted for the purpose of this article, below. 10. In England & Wales, Part 36 of the Civil Procedure Rules (“CPR”) provides a structured settlement mechanism which is designed to encourage parties to resolve their disputes before trial. 11. Under Part 36 of the CPR, either party can make an offer to settle a claim or a portion of the claim/counter-claim, in writing, specifying a ‘relevant period’ of at least twenty-one (21) days during which the other party can accept or refuse the offer. 12. For the purpose of this article, the costs consequences of a Part 36 offer is relevant inasmuch as it allows the offering party to seek costs from the Court on an indemnity basis from the date on which the relevant period expired. 13. While awarding costs on an indemnity basis, the Court needs to adopt the following basis of assessing costs: (a) disallow any costs which it finds to have been unreasonably incurred; or (b) disallow any costs which it considers to be unreasonable in amount. 14. Further, the Court needs to ensure to resolve any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount in favour of the receiving party. 15. It is noteworthy that the Court’s discretion in awarding indemnity costs is wide, and it will exercise this by considering all circumstances and considering matters complained of in the context of the overall litigation. In one instance, the Court awarded indemnity costs in cases subject to fixed costs, where a claimant beat his own Part 36 offer. 16. In recent times, the Court has been strict in its application of indemnity costs, considering even £1 settlement offers genuine and awarding indemnity costs after the claimant was able to achieve a better outcome at trial. 17. Even in arbitration claims, the Court has considered the application of indemnity costs arising due to discontinued proceedings seeking to challenge two arbitral awards. 18. The DIFC Courts modelled on common law system, has adopted a similar pattern, bringing the concept of indemnity costs to the United Arab Emirates and the Middle East. 19. Part 32 of the Rules of the DIFC Courts (“RDC”) also incentivizes early settlement of disputes by imposing cost consequences when a 20. Similar to the CPR, the RDC also requires the offer to be in writing, specify a period of not less than twenty-one (21) days and state whether it relates to the whole or part of the claim/counter-claim. 21. Further, the DIFC Court also has power to and will order costs on the indemnity basis from the date on which the relevant period expired, unless it considers it unjust to do so. 22. Meanwhile, Part 38 of the RDC also adopts a mechanism similar to Part 44 of the CPR, inasmuch as where costs are to be assessed on an indemnity basis, the Court will resolve the doubt as to whether costs were reasonably incurred or were reasonable in amount, in favour of the receiving party. 23. Therefore, the Court will also consider the following factors while assessing costs on the indemnity basis i.e., costs unreasonably incurred or unreasonable in amount. 24. The DIFC Courts’ Cost Regime, also stipulates factors to be considered by the Courts, in determining whether costs are to be issued on a standard basis or indemnity basis: (a) circumstance where the facts of the case and/or the conduct of the paying party are/is such as to take the situation away from the nor; for example, where the Court has found deliberate misconduct in breach of a direction of the Court or unreasonable conduct to a high degree in connection with the litigation; or (b) otherwise inappropriate conduct in its wider sense in relation to a paying party’s pre-litigation dealings with the receiving party, or in relation to the commencement or conduct of the litigation itself; or (c) where the Court considers the paying party’s conduct to be an abuse of process. 25. It is also open to the DIFC Court to award costs on the indemnity basis in relation to specific portions of the trial or hearings which have led to unnecessary costs being incurred by a party. However, an order for indemnity costs will not enable a party to receive more costs than what they have incurred. 26. The DIFC Courts have also ordered costs on an indemnity basis based on the principle under RDC 32.49(b) that the party’s offer was at least as advantageous to them as the proposals contained in the party’s Part 32 offer. 27. In 2017, the DIFC Courts introduced an administrative direction empowering the Court to order costs on an indemnity basis for failed challenges to set aside arbitral awards or applications for removal of arbitrators, before the DIFC Courts. The DIFC Courts have applied this administrative direction inter alia noting that a category of circumstances justifying an order for indemnity costs is where an unsuccessful Article 41(2) challenge is made which has been found not to have real prospects of success. 28. Meanwhile, several other jurisdictions i.e., Singapore and Hongkong also have similar provisions. 29. In Singapore, the rules follow similar procedure for issuing costs on the indemnity basis. It is however pertinent to point out that in offers to settle, the ‘relevant period’ is lesser i.e., fourteen (14) days, with similar cost consequences of indemnity costs if a party fails to settle from the date of the offer unless the Court orders otherwise. 30. Singapore Courts have been careful in imposing indemnity costs and have held that if there is no genuine or serious effort to compromise, an insincere offer will not trigger issuance of costs on an indemnity basis. 31. In a recent decision, the Singapore High Court has also set down categories of conduct that may provide good reason to order indemnity costs: (a) where the action is brought in bad faith, as a means of oppression or for other improper purposes; (b) where the action is speculative, hypothetical or clearly without basis; (c) where a party’s conduct in the course of proceedings is dishonest, abusive or improper; and (d) where the action amounts to wasteful or duplicative litigation or is otherwise an abuse of process. 32. The rules of the Court in Hongkong also allow for Court’s to impose cost consequences on an indemnity basis where a party fails to do better than the sanctioned offer or sanctioned payment. 33. Moreover, the Courts in Hongkong have adopted a default rule that when an award is unsuccessfully challenged, indemnity costs will be granted in the absence of special circumstances. IV. Indemnity Costs and its Application in International Arbitrations 34. Unlike court systems, the issue of costs in international arbitrations is usually reserved for the tribunal’s assessment and determination. Several arbitral institutions like UNCITRAL , DIAC , ICC , SIAC simply reserve the issue of costs to the tribunal, without in any manner expanding on the issue of costs. 35. On the other hand, the rules of the LCIA provide some much-needed clarity as to the general principle of costs being followed by tribunals i.e., costs should reflect the parties’ relative success and failure in the award or arbitration or under different issues, except where it appears to the tribunal that in the circumstances the application of such a general principle would be inappropriate under the arbitration agreement or otherwise. 36. Interestingly, the LCIA also adopts a different methodology as compared to other arbitral institutions, with a rebuttable presumption that tribunals shall not be required to apply the rates or procedure for assessing such costs practised by any state court or other legal authority. 37. The English Arbitration Act, 1996 (“English Arbitration Act”) also provides that the Tribunal shall award costs on the general principle that costs follow the event except where it appears to the Tribunal that in the circumstances this is not appropriate in relation to the whole or part of the costs. Thus, sufficient autonomy is placed in the hands of the Tribunal insofar as it relates to the issue of costs. 38. However, the DIFC Arbitration Law (DIFC Law No.1 of 2008) (“DIFC Arbitration Law”), does not provide the same clarity as the English Arbitration Act, but on the contrary only provides the heads of costs a Tribunal can fix in its award. 39. Therefore, the DIFC Arbitration Law fails to provide as much autonomy as provided under the English Arbitration Act. While there have been no challenges before the DIFC Courts thus far relating to the issue of awarding indemnity costs, it will be interesting to see whether Tribunals seated in DIFC award indemnity costs which are challenged before the DIFC Courts. V. Conclusion 40. While costs on an indemnity basis is a general rule in a common law court system and has been enforced time and again by the courts, it may not as straightforward in international arbitrations, with varying permutations and combinations being applied by both arbitral institutions and Tribunals alike, insofar as it relates to fixing costs. 41. Although arbitral institutions have generally kept the door open insofar as it concerns costs, it does not specifically address indemnity costs. Nevertheless, while Tribunals may be empowered to order costs on an indemnity basis, it is by and large an issue which is reserved for the Tribunals determination and assessment. 42. Therefore, even though common law courts are now increasingly open to issuing costs on an indemnity basis inter alia for unsuccessful challenges to arbitral awards, it will be interesting to see how this area of law evolves further and whether we see more challenges being filed before the Courts as a result of Tribunals fixing costs on an indemnity basis. Author:  Adhiraj Malhotra, Senior Associate, [email protected],    

The Dubai International Financial Centre (the “DIFC”) is a global financial hub that has positioned itself as a leading destination for financial services, international trade, and investment. The DIFC Courts offer a robust legal and regulatory environment, which includes an advanced insolvency framework. DIFC Law No. 1 of 2019 (the “DIFC Insolvency Law”) and the DIFC Insolvency Regulations 2019 (the “DIFC Insolvency Regulations”) are designed to regulate the financial restructuring and insolvency proceedings of companies operating within the DIFC jurisdiction. Rooted in transparency and fairness, the law aims to balance the interests of creditors, shareholders, and companies, to ensure financial stability while offering businesses the opportunity to recover from distressing circumstances. A critical element is the Rehabilitation Process, which provides companies with a structured approach to restore their financial health and avoid liquidation. Rehabilitation under DIFC Insolvency Law Part 3 of the DIFC Insolvency Law contains provisions which establishes a court-supervised debtor-in-possession system known as “Rehabilitation”, which effectively allows a debtor to save its company by presenting a rehabilitation plan to its Creditors and Shareholders for approval. A company is eligible for rehabilitation under Article 13 of the DIFC Insolvency Law, where it is or is likely to become unable to pay its debts and there is a reasonable likelihood of a successful rehabilitation plan being reached between the Company, its Creditors, and Shareholders. Process of Rehabilitation The DIFC Rehabilitation Process follows a series of clearly defined steps aimed at achieving recovery while ensuring accountability and involvement of all stakeholders of the Company. Stage 1: Proposal of the Rehabilitation Plan[1] The Directors of the Company are responsible for proposing a Rehabilitation Plan to its Shareholders and Creditors. This plan forms the foundation for restructuring and recovery. Stage 2: Notification to the Court The Company’s Board of Directors must notify the DIFC Courts of the Rehabilitation Plan in writing, accompanied by relevant documents. If the Company is an Authorised Person, the Directors must also obtain the Dubai Financial Services Authority’s (the “DFSA”) consent before submitting the Rehabilitation Plan to the DIFC Courts. An Authorised Person, under the laws of the DFSA, is defined as an Authorised Firm or an Authorised Market Institution which has a license granted by the DFSA. Stage 3: Automatic Moratorium[3] Upon notification of the Rehabilitation Plan, the DIFC Courts shall grant an automatic moratorium for 120 days, halting any actions by creditors (secured and unsecured) without their consent. The moratorium begins on the day the DIFC Courts are notified by the Company of its Rehabilitation Plan (the “Notification Date”), which allows the Company sufficient time to implement the Rehabilitation Plan. Stage 4: Appointment of Rehabilitation Nominee[4] The Company’s Board of Directors must appoint one or more Rehabilitation Nominee(s), i.e., a registered insolvency practitioner, immediately before the Notification Date. The Rehabilitation Nominee’s name and qualifications should be outlined in the Rehabilitation Plan that shall be sent to the DIFC Courts. Stage 5: Relief from Moratorium[5] Creditors of the Company can file an application to the DIFC Courts for relief from the moratorium period under Article 19 of the DIFC Insolvency Law. When granting the relief, the DIFC Courts shall consider whether there is any “imminent irreparable harm” to the Company in the absence of a moratorium, and whether the Creditor would suffer any “significant loss” which the Company cannot compensate the Creditor for, and the balance of harm to the Creditor outweighs the interest of the Company. If the conditions are satisfied, the DIFC Courts shall grant the relief after a notice of 10 days to the Company. Stage 6: Appointment of an Administrator[6] If the Directors of the Company are guilty of any fraud or mismanagement offences, the DIFC Courts shall appoint an Administrator to manage the affairs of the Company. In such a scenario, the remuneration paid to the Administrator and the Rehabilitation Nominee, and their expenses are prioritised over any unsecured debts at the time of payments. Stage 7: Termination of Moratorium Period[7] The DIFC Courts can terminate the moratorium period prior to its expiration upon the request of any Creditor of the Company by providing a notice and hearing for cause shown including bad faith. Stage 8: Post-Moratorium Period Actions by the Company[8] Upon the termination or expiration of the moratorium period, the Company must: Seek directions[9], or Accept any of the alternative Rehabilitation Plans proposed by the Creditors and Shareholders of the Company, or Apply to the DIFC Courts to terminate the process of the Rehabilitation Plan and wind up the Company. Stage 9: Directions under Article 24[10] Once the Rehabilitation Plan is ready to be proposed and considered by the Creditors and the Shareholders, the Company should notify the same to the DIFC Courts and submit the voting procedures for approval. These procedures classify the secured Creditors, unsecured Creditors, and Shareholders into groups, ensuring equitable representation in the voting process. The Rehabilitation Nominee or the Administrator must file a statement to the DIFC Courts in their opinion which considers the prospects of the Rehabilitation Plan being approved, the funds that are available with the Company, and the meetings conducted between the Company and its Creditors and Shareholders to consider the Rehabilitation Plan. Stage 10: Directions Hearing[11] The DIFC Courts shall hold a Directions Hearing at which the Creditors and Shareholders of the Company will be able to voice their opinions on the Rehabilitation Plan, upon a 10 days' notice, and may approve or reject the proposed notice and voting procedures or may approve it after modifying the procedures. The DIFC Courts may also extend the moratorium period to accommodate further discussions on the proposed plan. Stage 11: Voting Process by the Creditors and Shareholders[12] The Creditors and the Shareholders will receive a notice for the voting in writing along with a copy of the proposed Rehabilitation Plan. The Rehabilitation Plan needs at least 75% of the Creditors of each class to support the Rehabilitation Plan to get it approved. Stage 12: Challenges to the Rehabilitation Plan[13] The Creditors and the Shareholders may challenge the Rehabilitation Plan if they consider the arrangement to be unfairly prejudicial, or that the Rehabilitation Plan was not proposed in good faith, or that there had been a material violation of the notice and voting procedures approved by the DIFC Courts at the Directions Hearing. Subsequently, the Creditor or the Shareholder can file a written application to the DIFC Courts stating their objection anytime until 10 days prior to the Post-Plan Hearing. Stage 13: Post-Plan Hearing[14] At the Post-Plan Hearing, the DIFC Courts shall sanction the Rehabilitation Plan if the 7 conditions set out under Article 27 of the DIFC Insolvency Law are satisfied. These are namely to ensure that the Rehabilitation Plan has been proposed in good faith; that it complies with Part 3 of the DIFC Insolvency Law; that the arrangement is not unfairly prejudicial; that there is no material violation of the notice and voting procedures approved by the DIFC Courts; and so forth. If the DIFC Courts sanction the Rehabilitation Plan, it shall be binding upon all persons who have a claim and hold an interest in the Company; however, if the DIFC Courts do not sanction the Rehabilitation Plan at the hearing, the DIFC Courts shall then immediately proceed to take steps to wind up the Company. Stage 14: Application for Discretionary Relief[15] The Company can file an application to the DIFC Courts after providing a 10-day notice to the Creditors and Shareholders, seeking any relief, which may be authorised upon the DIFC Courts’ discretion. Stage 15 – Completion of the Rehabilitation Plan[16] Upon completion or termination of the Rehabilitation Plan, the Company must notify the same to the Creditors and Shareholders within 28 days of the completion or termination of the Rehabilitation Plan. A copy of the notice should also be sent to the Registrar of Companies and the DIFC Courts. Summary The Rehabilitation Process under the DIFC Insolvency Law and the DIFC Insolvency Regulations offers a sophisticated approach to corporate recovery, balancing creditor protection with business rehabilitation opportunities. Through its structured 15-stage process, the framework ensures transparency and fairness whilst providing distressed companies with a viable path to recovery. The incorporation of key features such as the automatic moratorium, qualified supervision, and robust voting procedures, all under careful judicial oversight, demonstrates the DIFC's commitment to international best practices in insolvency regulation. Notably, the entire process takes approximately 7-8 months from the proposal of the Rehabilitation Plan, offering a relatively swift resolution timeframe. This comprehensive framework not only enhances the DIFC's standing as a global financial centre but also provides businesses with a clear and efficient mechanism for addressing financial distress, ultimately promoting market stability and sustainable business practices. Authors Robert Whitehead – Partner I Head of DIFC & International Arbitration E: [email protected] Fahad Khalid – Associate E: [email protected] Payal Jain - Intern Footnotes [1] Article 15(1) of the DIFC Insolvency Law [2] Article 15(2) of the DIFC Insolvency Law [3] Article 16 of the DIFC Insolvency Law [4] Article 20 of the DIFC Insolvency Law [5] Article 19 of the DIFC Insolvency Law [6] Article 22 of the DIFC Insolvency Law [7] Article 23 of the DIFC Insolvency Law [8] Article 23 of the DIFC Insolvency Law [9] under Article 24 of the DIFC Insolvency Law [10] Article 24 of the DIFC Insolvency Law [11] Article 24 of the DIFC Insolvency Law [12] Article 25 of the DIFC Insolvency Law [13] Article 26 of the DIFC Insolvency Law [14] Article 27 of the DIFC Insolvency Law [15] Article 30 of the DIFC Insolvency Law [16] Article 3.2 of the DIFC Insolvency Regulations 2019  

Mergers and Acquisitions (M&A) involve the consolidation of companies or assets through various financial transactions, aiming mainly to enhance business growth, competitiveness, or market presence. To ensure a successful transaction, it requires careful consideration of numerous factors, including but not limited to financial valuation, regulatory compliance, market dynamics, potential risks, warranties, guaranties, covenants, indemnities, exit clauses, and others. Valuation in M&A refers to the process of determining the economic worth of a business, its assets, or its shares. Although valuation methods are primarily financial in nature, it is equally important to address the legal implications associated with the valuation, as set out below. Payment terms, especially when structured as installments, introduce additional legal complexities that must be addressed to safeguard the interests of the parties involved, particularly in cases of default. Definition of Valuation Valuation serves as the monetary benchmark for negotiations, influencing (i) the purchase price and (ii) the structure of the transaction. Beyond financial relevance, it ensures legal compliance with fiduciary duties, regulatory standards, and stakeholder protections. Legal Perspective on Valuation From a legal standpoint, accurate valuation plays a crucial role in ensuring fairness, transparency, and enforceability in M&A transactions. For the Buyer, it guarantees that upon payment of the agreed consideration, ownership of the target shares or assets will be transferred. For the Seller, it provides assurance that if the purchase price is not paid, they retain the right to either recover the payment or regain possession and ownership of the shares or assets, as the case may be. It also involves: Fiduciary Duties: Directors and officers must ensure valuation accuracy to protect the interests of all stakeholders, particularly minority shareholders. Regulatory Compliance: Valuation processes must align with statutory requirements, such as the UAE Commercial Companies Law, ensuring (i) lawful disclosure, (ii) safeguards against unauthorized disclosure, and (iii) appropriate actions to prevent unlawful non-disclosure. Judicial Review: Courts may scrutinize valuation processes in disputes, particularly in case of fraud or claims concerning shareholder dissent or alleged misrepresentation. Payment Terms in M&A Transactions Payment terms outline the financial structure of the transaction, directly reflecting the agreed valuation. These terms are crucial in defining how the purchase price will be settled and may include provisions such as the payment schedule, method of payment (e.g., cash, stock, credit-notes, or a combination), any earn-out arrangements, contingencies, and the handling of potential adjustments based on future performance or specific conditions. Other important elements may include interest rates, penalties for late payment, and any security interests or guarantees required to ensure payment. These terms may include, but are not limited to, the following provisions, which are among the most commonly encountered.  One-Time Payment: A one-time payment whereby the buyer is required to pay the entire purchase price either upfront or on the closing date of the transaction. This structure is straightforward and often preferred for its simplicity, as it eliminates the need for ongoing negotiations or adjustments. For the seller, it reduces complexities and risks, offering immediate liquidity and certainty regarding the final amount received. This payment method also avoids potential delays or contingencies, providing a clear and definitive conclusion to the transaction. However, it may limit the buyer's flexibility, as they are required to pay the full price at once. Deferred Payments: Deferred payments, on the other hand, involve spreading the total purchase price over an agreed timeline. This payment structure is designed to provide flexibility to the buyer, allowing them to manage cash flow or reduce the immediate financial burden. It may involve installment payments over months or years, potentially with interest, depending on the terms agreed upon. In many cases, a down payment is required upfront as part of this arrangement, which serves as a form of security for the seller and demonstrates the buyer's commitment to the transaction. While the deferred payments make the overall transaction more accessible to the buyer, the down payment helps reduce the seller's risk by securing part of the purchase price early on. Despite this, deferred payments still introduce an element of risk for the seller, as they may not receive the full payment until later. Provisions like guarantees or security interests can be included to mitigate this risk. Earn-Outs: Performance-based payments depending on the achievement of specific metrics. Earn-outs can be incorporated into the valuation or considered separately, often added to the total valuation. While they are commonly included in such transactions, the terms, conditions and clear legal definitions and remedies for disputes are crucial in these arrangements and must be carefully defined to avoid potential conflicts. Escrow Arrangements: Escrow arrangements are commonly used to protect either all or part of the consideration payment in a transaction. This structure involves a third-party holding funds or assets until certain pre-defined conditions are met, typically related to the fulfillment of specific obligations, the resolution or settlement of certain designated liabilities, the completion of agreed-upon milestones, or the verification of financial performance. By holding the payment in escrow, both parties are provided with added security, ensuring that the buyer’s funds are only released when the seller has satisfied the agreed-upon terms, and for the seller, securing payment once the specified conditions are fulfilled. Clearly defined conditions for the release of the escrowed funds are critical, as they prevent disputes and provide a clear path for resolving any outstanding issues. Escrow arrangements offer a balanced approach by minimizing risk for both parties, ensuring that the transaction proceeds smoothly and that any contingencies are addressed in a controlled manner. Installment Payments and Legal Consequences of Default  When payments are structured in installments, it is essential to establish strong legal provisions to protect the seller in the event of non-payment or delayed payments. These provisions help ensure that the seller's interests are safeguarded and provide a clear course of action in case of default. Such provisions may include: Acceleration Clauses: An acceleration clause allows the seller to demand immediate payment of the remaining balance if the buyer fails to pay an installment. This protects the seller from extended delays and mitigates financial risk. Interest and Penalties: Agreements may stipulate interest or penalties for late payments to incentivize timely compliance and compensate the seller for any delays. These terms should be carefully crafted to ensure that they comply with applicable laws, such as interest rate caps or restrictions on penalty amounts, and are enforceable in court or arbitration proceedings. The legal framework provides clarity on how these penalties are calculated and ensures that they are not deemed excessive or unconscionable, thus maintaining their validity and effectiveness in safeguarding the seller's interests. Termination Rights: In some cases of non-payment or default on payment, the seller may retain the right to terminate the purchase agreement and reclaim ownership of the business or assets, should they have already been transferred. It is essential that these provisions are clearly outlined in the contract to prevent potential disputes. Retention of Title Clauses: These clauses allow the seller to retain legal ownership of the transferred shares or assets until the buyer has completed all installment payments, ensuring that the seller maintains control over the property until full payment is made. These provisions offer an added layer of protection for the seller, reducing the risk of financial loss if the buyer defaults on their payment obligations. However, it is important to note that in the UAE, such clauses must comply with local property and contract laws, including those governing the transfer of ownership and the enforcement of security interests. Aligning these clauses with legal requirements is crucial for their validity and enforceability; failure to do so could lead to disputes or prevent the agreement from being upheld in court or arbitration. Dispute Resolution Mechanisms: Dispute resolution mechanisms are essential in agreements to address potential payment disputes effectively. Including provisions for arbitration or litigation ensures that both parties have a clear, agreed-upon process for resolving conflicts. In M&A transactions, arbitration is often preferred due to its efficiency, speed, and the expertise of arbitrators, especially in complex technical areas where traditional judges may lack familiarity (such as communications, AI, and other specialized fields). Additionally, arbitration ensures confidentiality and provides a neutral third-party decision-maker to resolve disputes outside the court system. However, agreements may also outline the option for litigation, particularly when legal precedents or public judgments are required. These mechanisms help avoid protracted negotiations, provide enforceable solutions, and ensure that both parties understand their rights and obligations, thus reducing the risk of lengthy and costly legal battles. By clearly defining the process for resolving payment disputes, agreements offer greater certainty and protection for all involved parties. Security Arrangements: Sellers may also require the buyer to provide collateral or guarantees, ensuring recourse in case of default. This can include personal guarantees from directors or liens on company or personal assets. Conclusion Valuation and payment terms, including installment structures, are critical components of M&A transactions and have significant legal implications. It is essential to address potential default scenarios with clear, enforceable clauses in the transaction agreement to safeguard both parties' interests and ensure the stability of the deal. A well-structured legal framework that promotes transparency, fairness, and compliance is key to ensuring the success of the transaction. Author:    Ziad Chebli

Liabilities and warranties, especially in construction contracts are very fluid, and it ebbs and flows depending on the nature of the project and more importantly, the type of contract. One such contract, which we shall deliberate upon in this article is the Design and Build Contract. As the name suggests, a design and build contract is where a contractor assumes the role of both designer and contractor for the purposes of a project. In doing so, all the responsibilities of the design and all the responsibilities of the project execution fall on one legal entity i.e., the contractor. The reverse of this is more commonplace, where there is a separate design consultant (usually appointed by the employer/client) and a separate contractor builds the project based on the design provided by the design consultant. Therefore, there are significant legal implications for a design and build contract, which are discussed below. A design and build contract is essentially a one-stop-shop for a client, where the contractor does everything in a project right from the design phase to the build phase, and even until the expiry of the defect’s liability period. Therefore, in terms of liability, there is typically only one stop, and that is at the contractor’s doorstep. For a client, the legal implication is that since liability rests with one person, any dispute may be brought against that one person, which is a contractor. Courts have held contractors accountable for failures even in cases where fulfilling contractual obligations became commercially impractical. A notable U.S. case Lockheed Martin Idaho Technologies Co. v EG&G Idaho Inc. involved a turnkey environmental remediation contract with strict performance specifications. Despite significant expenditures, the contractor failed to meet its obligations and was terminated for default. The contractor argued that the cost of compliance exceeded $100 million beyond the contract price, claiming commercial impossibility. The court rejected this defence, emphasizing that the contractor had assumed the risk of performance and ordered it to repay over $50 million received under the contract. Thus, the courts reinforced the legal principle that underpins Design and Build Contracts. Moreover, liability in these contracts extends beyond performance issues to include the quality of design. The case of IBA v EMI Electronics Limited and BICC Construction Limited (1980) 14 BLR 1 illustrates this point, where IBA contracted with EMI for the design and construction of a television mast, and EMI then sub-contracted the works to BICC. The mast subsequently collapsed due to defective design. The House of Lords held that EMI must have warranted that BICC’s design would not be negligent, hence, EMI are liable to IBA. The Courts looked at the level of duty which was implied in the absence of express terms. The standard forms of design and build contract do, however, expressly state the extent of the design obligations of contractor. Effectively, this means that contractor’s responsibility for design is limited to the reasonable skill and care test, and the absence of express terms does not absolve the contractor from implied obligations. Yet, liability can also extend to clients, particularly when design assumptions are made. Many owners assert that their designs are preliminary and should not be relied upon, placing the responsibility solely on the contractor. However, this perspective can lead to disputes, as contractors may argue that they are entitled to rely on the accuracy of the client’s provided designs. The case of Donahue Electric INC. (2002) (VABCA No 6618) exemplifies this tension. The issue involved problems that resulted when a boiler prescribed by the government in the bidding documents turned out undersized and could not operate a piece of government furnished equipment. The Veterans Administration argued that the design-builder was obligated to properly size the boiler and could not rely on the bidding documents. However, this was disagreed by the U.S. Department of Veterans Affairs Board of Contract Appeals. Specific requirements such as the quantities and sizes are set forth in the specifications provided by the client, which were included in a design/build contract. This places the risk of design deficiencies on the owner. Thus, the VA reassumed the risk and warranted the accuracy of the specifications regarding the boiler that it specified, thus, emphasising the importance of clarity in design specifications. As a contractor carries out both the design and the actual construction, they also carry the liability for these scopes. The most striking example to give will be situations where a contractor is seeking an extension of time claim, specifically for delays caused due to defect in the design. The way this situation would transpire in a design and build contract is very different from a traditional construction contract. In the latter, the contractor can claim extension of time and the related prolongation costs, as the design is not within their scope. However, in a design and build contract, the contractor effectively relinquishes this right to claim delay due to defective designs. If a contractor were to agitate such a claim in a design and build contract, they would in reality be blaming themselves for the delay! The case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar (2015) EWCA Civ 712 illustrates this point. Here, the dispute arose from a construction contract between GOG and OHL. OHL claimed that the amount and location of contaminated materials required redesigning the work after the original contract period has expired. GOG terminated the contract due to delays and issues with cost of removing the contaminated materials. OHL opposed the validity of the termination since the redesign is necessary due to unforeseeable contamination levels. The England and Wales High Court (Technology and Construction Court) determined that the termination of contract is valid, and the contamination levels were not unforeseeable, holding that the amount of contaminated soil that OHL had encountered was not more than an experienced contractor should have foreseen. The case, thus, highlights the contractor’s comprehensive responsibility for both design and execution in these types of contracts. Another legal implication arises in respect of variations. Typically, variations are claimed by contractors when they are required (at the behest of the client) to perform works that are out of their scope. Therefore, under traditional construction contracts, if a contractor is involved in rectifying a defect in the design, this may be claimed as a variation. However, in a design and build contract, any works on design will not be viewed as a ‘variation’ as this will arguably still be within a contractors’ scope. Considering this, it is very important to properly and strictly define the design scope and specify that anything over and above the scope may be claimed as a variation. Any open-ended clauses may be interpreted against a contractor (considering the original liability lies with them). Another important legal implication is in respect of the duty of skill and care required for the design. A contractor is held to the same standards as a designer, as they assume the responsibility and for design and any liability in its defects. This would entail the contractor to carry out the design scope with not only the reasonable skill and care, but also to submit designs that the compliant with ongoing standards and that are “fit for purpose” (which is a much higher duty of care). The FIDIC Yellow Book contract (which is typically used as a standard for design and build contracts) also specifies that works when completed by the contractor must also be fit for purpose, which   The discussion on design standard and skill brings us to the next important aspect, which is warranty. The case of Trebor Bassett Holdings Ltd and the Cadbury UK Partnerships v ADT Fire and Security plc (2012) EWCA Civ 1158 has raised the thorny question of implied fitness for purpose obligations in construction contracts. However, the decision has further clouded the waters rather than clarifying matters. Until this case, the law pointed to contractors being under an implied obligation to design and build complete products and systems that are reasonably fit for purpose. ADT signed an agreement with Trebor to develop and implement a custom fire suppression system for Trebor's facility. The factory caught fire and burned down, indicating that the fire suppression system had failed. Trebor successfully sued ADT for negligence in both its design and its conduct. Nevertheless, the court determined that Trebor was also negligent, and Trebor's damages were cut by 75%. Trebor contended that the system constituted a supply of goods and hence required an implied fitness for purpose under the Sale of Goods and Services Act 1982. Not so according to the England and Wales Court of Appeal. The court held that primarily what ADT was supplying was not “goods” but the supply of design services, so the SGSA did not apply. The components that were used in the system were of an acceptable quality, it was the design that was negligent. This ruling indicates the nuanced distinctions that can arise in warranty claims, reinforcing the need for clear contract definitions. A contractor typically warrants the completion of the project within the particular time and pursuant to a particular standard. However, in traditional construction contracts, this warranty is subject to various factors such as correct design, supply of materials and operation and maintenance, to name a few. Therefore, if the project is not completed as per the warranties provided by the contractor, a contractor has the liberty to cite various factors (as listed above), to mitigate their liability for breach of warranty. However, in the case of a design and build contractor, the contractor's warranty also includes the design, i.e. that the design will meet the requirements and be fit for purpose, and that it will be effectively executed in the project. This is due to the fact that the distinctions between designer and contractor often become blurred. Furthermore, because the contractor is accountable for the majority of the project's stages, it becomes difficult to exclude any warranties that would not apply to a contractor. For this reason, it is crucial that the agreement clearly identifies these boundaries. Certain warranties, such as operation and maintenance, should be retained by the client. To conclude, contractors and clients alike must be extra vigilant when entering into a design and build contract. For a client, it may be a one-stop-shop for all of its requirements for the project, however, this is a double-edged sword. Clients often relinquish a lot of the control they would typically possess over such projects, if they enter a design and build contract, as most of the work is essentially within the purview of one person i.e., the contractor. There is also a possibility of there being a compromise on the innovation in design. When a designer and the contractor are one, it is often difficult to treat each role in a vacuum and the contractor’s considerations such as mitigation of risk often seeps into the mind when working on the design. However, there is no denying the benefits of entering into such a contract. Often times design consultants and contractors can be at loggerheads on various issues throughout the project. These types of contracts can almost eliminate such issues, and one might even argue that this will reduce the delays. At the end of the day, it depends on the type and scale of project and the requirements of the client. From a contractor’s perspective, their best and strongest defence is a robust contract. Each and every term needs to be properly defined. The scope of work needs to be properly itemized and more importantly, it should expressly be stated that anything over and above the scope will be excluded. This will ensure that the contractor is not saddled with work or obligations by implication. For design and build contracts, it all comes down to what is on paper and agreed. The contract is king and can determine whether a project is a success or whether it crumbles into litigation. Authors: Robert Whitehead and Rachel Mannam   

Re-domiciliation, also known as corporate migration or transfer of incorporation, is an increasingly popular strategic process that allows companies to shift their seat of incorporation from one jurisdiction to another.This maneuver offers a seamless transition, and the United Arab Emirates (UAE) has emerged as a premier destination for such transitions. The UAE’s numerous free zones and well-established legal frameworks make it an attractive locale for re-domiciliation. Diverse Motivations for Re-Domiciliation  Companies pursue re-domiciliation for various reasons, including commercial, practical, taxation, and legal considerations. Key considerations include: Tax Efficiency: Companies seek favorable tax regimes to optimize their tax liabilities. Regulatory Environment: Operating within a more lenient regulatory framework can enhance operational flexibility. Market Access: Better access to key markets can drive business growth. Stability: Enhanced legal and political stability offers a more secure business environment. Operational Efficiency: Improved infrastructure and resources can streamline operations. Investment Opportunities: Access to new investment avenues can foster expansion. Skilled Labor: A skilled workforce can bolster business capabilities. Brand Reputation: A UAE base can enhance a company’s global brand image. Industry-Specific Advantages: Legal and operational advantages tailored to specific industries. Importantly, re-domiciliation does not disrupt a company's operations or affect the validity of its existing agreements, ensuring business continuity during the transition. The UAE’s Appeal for Re-Domiciliation  The UAE offers a range of compelling advantages for companies considering re-domiciliation, making it a highly attractive destination for corporate migration. By re-registering as a UAE entity, companies can ensure a smooth and uninterrupted continuation of their existing rights and obligations, safeguarding their operational integrity and business continuity. The UAE’s business-friendly environment is characterized by its tax-efficient framework, which includes low corporate tax rates and numerous incentives that can significantly reduce operational costs. Additionally, the UAE boasts an extensive network of double tax treaties with numerous countries, which helps prevent double taxation and provides further financial benefits, making it an economically advantageous location for international business. Beyond the financial incentives, re-domiciling to the UAE positions a company strategically within a dynamic and rapidly growing market. The UAE serves as a regional hub with unparalleled access to emerging markets across the Middle East, North Africa, and South Asia. This strategic location not only enhances the company’s regional influence but also demonstrates its commitment to leveraging the UAE’s robust economic opportunities and fostering growth in the broader Middle Eastern market. Moreover, the UAE’s regulatory environment is designed to support and encourage foreign investment, offering various free zones with specialized facilities and services tailored to diverse industry needs. This supportive infrastructure, combined with the UAE’s stable political and economic climate, makes it an ideal environment for companies seeking to enhance their global footprint while capitalizing on the region’s growth potential. Criteria for Re-Domiciliation Eligibility  Companies must verify their eligibility before re-domiciliation to the UAE free zones such as the Dubai International Financial Centre (DIFC) or the Abu Dhabi Global Market (ADGM). Essential criteria include compliance with the specific regulations outlined in Article 8 and subsequent articles of the DIFC Companies Regulations and Section 100 and subsequent sections of the ADGM Companies Regulations. This includes meeting legal requirements related to corporate governance, and regulatory compliance to ensure a smooth and successful transition to these jurisdictions. Essential criteria include: Compliance with Original Jurisdiction: Adherence to the legal requirements of the original jurisdiction is fundamental. Valid Purpose: Companies must demonstrate a legitimate business purpose for re-domiciliation. Legal Framework: The original jurisdiction’s laws must permit the transfer of incorporation. Navigating the Re-Domiciliation Process in the UAE  Given its relatively novel status in the UAE, businesses contemplating re-domiciliation must fully understand eligibility requirements and procedural nuances. Engaging with legal and tax professionals familiar with both the original and UAE jurisdictions is crucial.  Re-domiciliation involves a complex process distinct from establishing foreign branches or subsidiaries. Key considerations include: Legal Compliance: The re-domiciled company must comply with UAE law and relevant free zone regulations. Operational and Tax Implications: The process impacts various operational and tax aspects. Free Zone Selection: Choosing the appropriate free zone requires careful consideration of business activities, residency requirements, and compliance obligations. Conclusion  Re-domiciliation presents a powerful strategic tool for companies, offering the advantage of retaining their legal identity while adapting to new regulatory and tax environments. With its diverse options and substantial potential, the UAE stands out as an appealing destination for re-domiciliation. However, businesses must approach the process with diligence, conducting thorough due diligence and seeking expert guidance to ensure a smooth and successful transition. Author:   Ziad  Chebli Partner – Corporate Department , Hamdan AlShamsi Lawyers & Legal Consultants