International Fraud & Asset Tracing 2024 Comparisons

The UAE is a federation of seven different emirates and operates a civil legal system. The UAE operates a system of federal laws which apply across the UAE, as well as laws that apply in specific emirates only. Each emirate has the power to retain its own judicial system, with jurisdiction over all matters not assigned to the UAE federal courts under the Constitution.

In addition, there are over 40 multidisciplinary free zones (“Free Zones”) in the UAE, which offer various advantages to businesses incorporated within them. The Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), each with its own standalone (offshore) common law legal system, are among the most well known. English common law directly applies in, and forms part of the law of, the ADGM. The Free Zones apply different laws and regulations to those applied in the rest of the UAE, although, crucially, UAE criminal law still applies to them.

There is close interaction between the civil and criminal justice systems, and this is particularly the case in relation to matters involving fraud. A victim of fraud may choose whether to bring a standalone civil claim for damages arising from the fraudulent conduct before the civil courts, or to report the fraud to the police and later join a civil claim to any criminal proceedings which may have been commenced before the criminal court. However, even standalone civil lawsuits will usually be stayed pending any criminal proceedings. In the absence of a criminal conviction of the defendant, the victim is unlikely to succeed in obtaining compensation through the civil route.

The UAE Public Prosecution has exclusive jurisdiction to pursue criminal cases. It should be noted that a private prosecution – a criminal prosecution started by a private individual or body, who is not acting on behalf of the police or any other prosecuting authority – cannot be brought in the UAE.

Criminal Liability

Fraud

Fraud is primarily treated as a criminal offence and there are fewer provisions specifically dealing with it under civil law. The crime of fraud is codified in the UAE’s penal code, Federal Decree Law No 31 of 2021 which was later amended by Federal Decree Law No 36 of 2022 (the “New Penal Code”). There is a requirement of a physical element and a mental element. The physical element of a crime consists of a criminal act committed or an omission in violation of a law forbidding or requiring it. The mental element of the crime consists of the intention or the error.

Article 451 of the New Penal Code provides punishment for a company which:

• uses fraudulent practices and assumes a false name;
• takes possession for itself or for others of any movable property or written instrument; or
• obtains any signature upon such instrument, its revocation or amendment, whenever the intention is to deceive a victim and bring them to surrender the instrument.

In addition, a company, or any of its representatives, will be punished if they transfer or dispose of any real or movable property in the following circumstances:

• being fully aware that it is not owned by the company;
• being fully aware that they have no right to dispose of the property; and
• disposing of the property with the knowledge that another person has already disposed of it, or contracted to dispose of it, which operates to injure others.

Merely making false statements is not sufficient to constitute the crime of fraud. The false statements must be accompanied by material acts.

Cyberfraud

A crime of fraud can also arise under Federal Decree Law No 34 of 2021 (the “Cybercrimes Law”). The offences under the Cybercrimes Law include:

• forgery of an electronic document (including modifying its contents on an electronic site);
• using a forged electronic document with knowledge of the forgery;
• using an IT system to obtain for oneself or for a third party, without any right, an asset, benefit, document or a signature by using any fraudulent method; and
• accessing IT systems without permission.

Commercial fraud

Federal Law No 19 of 2016 on Commercial Fraud (the “Commercial Fraud Law”) criminalises commercial fraud, being any of the following acts:

• the import, export, re-export, manufacturing, sale, display or acquisition for the purpose of sale, storage, lease, marketing or trading, fake, corrupt or counterfeit commodities;
• advertising fake or unreal prizes or reductions;
• exploiting commercials, submitting the same or promising to submit the same in misleading promotions or promoting adulterated, corrupted or counterfeit commodities; or
• offering, submitting, promoting or advertising adulterated commercial services.

Bribery

UAE law distinguishes between bribery of a public official and that of a private individual. The New Penal Code prohibits a person or company from directly or indirectly promising, offering or granting any grant, undue gift or benefit (a “bribe”) to a public servant, a person assigned to a public service, or an employee of an international organisation for the following purposes:

• in return for performing or not performing an act which is in violation of the duties of their job;
• to incite any such person to use their actual or assumed power for the purpose of obtaining an undeserved advantage in favour of the principal inciter, or in favour of any other person in a public department or authority; or
• to use their actual or assumed power for the purpose of obtaining an undeserved advantage from a public department or authority.

Facilitation payment – a small bribe made to a public official with the intention of expediting a government administration process – would constitute a bribe under the New Penal Code and is therefore prohibited.

Under Federal Decree-Law No 49 of 2022 on Human Resources in the Federal Government (the “UAE Human Resources Law”), public sector employees are prohibited from accepting gifts unless they are symbolic, marked with the name of the gift bearer, and provided through an assigned government unit.

Similarly, it is prohibited for managers of any private sector entity or establishment, or individuals employed by such persons in any capacity, to solicit or accept a bribe, directly or indirectly, for themselves or for other persons, in return for the following:

• the performance, or refraining from the performance, of an act of their duties; or
• defaulting on the duties of their job, even if they do not intend to carry out the act or not refrain from it, or if the demand, acceptance or promise comes subsequent to the performance of the act or the refraining from its performance.

There are also some individual emirate-level provisions. Under Abu Dhabi Law No 6 of 2016 Concerning Human Resources in the Emirate of Abu Dhabi (the “Abu Dhabi Human Resources Law”), it is an offence for public officials to abuse their official position in return for a service or benefit of any kind.

There are also specific rules under Dubai Law No 1 of 1970, as amended, (the “Dubai Penal Code”) relating to the crime of bribery. Under the Dubai Penal Code, both receiving bribes as a public official and influencing public officials to perform or refrain from performing their duties constitute criminal offences.

Conspiracy

Under Articles 45 and 46 of the New Penal Code, individuals who conduct the following acts will be deemed to be accomplices to the crime:

• committing a crime in association with others;
• committing one of a series of acts which constitute a crime;
• making use of another person for the perpetration of an act constituting a crime;
• instigating or agreeing with the offender to commit a crime;
• giving the offender the necessary tools knowing they will be used in the commission of a crime; or
• intentionally aiding the offender in any other way in the preparation, facilitation or completion of a crime.

Misappropriation

Article 454 of the New Penal Code provides that an individual who knowingly misappropriates, with the intention to own, lost property owned by someone else or property in their possession by mistake or by force majeure, can be subject to a jail sentence not exceeding two years or to a fine not less than AED20,000.

Civil Liability

Civil liability for fraud onshore arises under Federal Law No 5 of 1985 Concerning Civil Transactions, as amended (the “Civil Code”).

Fraudulent misrepresentation (deceit)

A claim for fraudulent misrepresentation is available under Articles 185 to 192 of the Civil Code. Fraudulent misrepresentation arises when one of the contracting parties deceives the other by means of fraud by word or deed, leading the other to consent to what they would not otherwise have consented to. Deliberate silence concerning a fact or set of circumstances can also be considered a fraudulent misrepresentation if it is proved that the person misled the victim to enter into the contract by virtue of that omission.

Tort

Articles 282 to 298 of the Civil Code provide that a person causing harm, or a person deceiving another, must make good the harm resulting from that deception. Harm may be direct or consequential. If the harm is direct, it must unconditionally be made good, and if it is consequential there must be a wrongful or deliberate element and the act must have led to the damage, which will typically be the case in fraud matters.

In all cases the compensation will be assessed on the basis of the amount of harm suffered by the victim, together with loss of profit, provided that it was caused by the harmful act.

Misappropriation

Articles 304 to 312 of the Civil Code include provisions which give rise to liability as a result of misappropriation of property. Whoever misappropriates property belonging to another must restore it and/or repay any losses.

The wrongdoer must also hand over any benefits or increase they have obtained from such property.

Criminal Claims

A complaint/police report can be made against the briber and/or the bribe-taker who has committed any of the bribery offences set out above in 1.1 General Characteristics of Fraud Claims. Any federal government employee who has requested or received a bribe will also be referred to the judicial authorities.

Onshore UAE – Civil Claims

There are a number of civil claims which can be brought against persons involved in bribery.

Under Federal Decree Law No 32 of 2021 on Commercial Companies (the “CCL”) each manager of a limited liability company is liable to the company, shareholders and third parties for any fraudulent acts (the terms “managers” and “directors” are used interchangeably under UAE law). Further, managers will be required to compensate the company for any losses or expenses incurred due to abuse of power or violation of the provisions of any law in force, the company’s memorandum of association or their contract of appointment, or due to gross error by the manager.

Similarly, under the CCL, the directors and executive management are responsible towards the company, the shareholders and the third parties for all acts of fraud, misuse of power, and violation of the provisions of the CCL and the articles of association of the company.

A director who has breached the CCL may be subject to financial penalties and/or criminal sanctions.

DIFC and ADGM – Civil Claims

In the DIFC and ADGM, a director of a company cannot accept a benefit from a third party where the benefit is conferred on them due to their position as a director of the company for them doing (or not doing) anything as a director, unless the acceptance of such benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

Any breach of these duties may result in disqualification, personal civil liability and damages payable to the company in respect of losses suffered, in addition to the criminal liability already discussed in 1.1 General Characteristics of Fraud Claims.

In onshore UAE and the DIFC/ADGM, it would likely be possible to establish that an act of bribery gives rise to a cause of action under general tort/harmful act principles.

Criminal Liability

Accomplices, or individuals who assist or facilitate fraudulent acts, will be subject to the same punishment as imposed on the principal offender.

The provisions of Articles 45 and 46 of the New Penal Code apply when determining whether an individual is an accomplice.

Limitation Periods Under the Criminal Procedures Law

Federal Law No 35 of 1992 (the “Criminal Procedures Law”) provides that the limitation period – starting from the date on which the crime was committed – is:

• 20 years for felonies;
• five years for misdemeanours; and
• one year for contraventions.

The applicable limitation period, for felony or misdemeanour, is determined by the seriousness of the fraud.

Limitation Periods Under the Civil Code

Article 298 of the Civil Code provides that the general limitation period for such claims arising is three years from the date on which the victim became aware of the harmful event and the identity of the perpetrator, subject to a maximum of 15 years from the date on which the harmful act occurred. If criminal proceedings in relation to the relevant events are pending at the time the three-year period expires, the limitation period is extended.

ADGM and DIFC

In the ADGM, the limitation period for civil claims is six years from when the fraud was discovered, or when it could have been discovered, with reasonable diligence. In the DIFC, where a cause of action arises as a result of fraud by the defendant, there is no time limit before an action must be commenced for fraud. In relation to other tort claims such as negligence, or misrepresentation not arising out of fraud, a claim can be brought no later than 15 years from the date on which the cause of action arose. A cause of action is held to arise on the earliest date on which the claimant knew or ought reasonably to have known about the loss that gives rise to the cause of action.

A claim for contribution from a third party must be brought within three years of the judgment or settlement.

Onshore UAE – Criminal

Article 83 of the New Penal Code provides that once the commission of a criminal offence has been established:

• property (including money and assets) caught and connected with, or acquired as a result of, the offence may be confiscated if such confiscation does not prejudice the rights of bona fide third parties;
• if the production, use, possession, sale or offer for sale of the property by a bona fide third party constitutes a separate offence to the primary offence (ie, the property is a proceed of crime), then the property must be confiscated regardless of the rights of the bona fide third party; and
• if it is impossible to confiscate the property due to the rights of bona fide third parties, then the courts will impose a fine equal to the property’s value at the time the crime was committed.

If the assets recovered in connection with the crime are returned to the court, they are then managed by the public prosecutor at their discretion, so there is no certainty that confiscation will benefit the victim. In such a scenario, recourse through a civil claim may be envisaged instead.

Onshore UAE – Civil

A proprietary remedy (or proprietary claim) is one which attaches to specific property (or its proceeds). The civil courts in onshore UAE will not generally recognise proprietary claims brought by victims in connection with property obtained as a result of fraud, and interim (temporary) remedies such as search orders and freezing orders (as known, for example, to the English courts) are not available.

An attachment order can be obtained over assets in the civil courts, to prevent dealing with specified assets to ensure they are available for judgment, although this is an interim remedy and does not provide a proprietary interest in the specified assets.

DIFC and ADGM

The common law principles of knowing receipt and dishonest assistance are likely to be recognised by the DIFC and ADGM courts. The mechanisms often seen in common law jurisdictions such as injunctions, freezing orders and property preservation orders can also be obtained as discussed further in 1.7 Prevention of Defendants Dissipating or Secreting Assets.

There are no pre-action conduct rules specifically applicable to fraud claims. Pre-action letters are not generally a legal requirement in the UAE before commencing proceedings, although relevant (statutory) notice provisions will need to be complied with. The legal concept of “without prejudice” is not recognised under onshore UAE law.

Onshore UAE

As discussed in 1.5 Proprietary Claims Against Property, while there is no concept of an “injunction” in the onshore UAE, Article 111 of Cabinet Decision No 57 of 2018 (issuing the implementing regulations of UAE Civil Procedure Law No 11 of 1992) provides that a claimant may apply to the court for a precautionary attachment order, the effect of which is to seize or attach the defendant’s property that is specified in the application, in order to preserve it pending trial. The defendant can still deal with unspecified assets. Attachment orders may also be made over assets that are in the possession of third parties (eg, bank accounts). For an order to be made, it must be apparent from the documents submitted to the judge that there is a serious question to be tried.

Article 111 provides that a person can apply for such an order in any circumstance in which it is feared that an asset may be lost and a claim may go unsatisfied as a result, such as in the following circumstances:

• where the obligor has no permanent residence in the state;
• where the obligee fears that the obligor may abscond, remove or conceal their property; or
• where the assets or securities for the debt are at risk of dissipation.

Such an attachment order must be accompanied with a signed undertaking to indemnify the defendant in the event that the order was obtained on fraudulent grounds.

An application for a precautionary attachment order may be made without notice to the defendant, but it must be followed by a substantive claim filed at court within eight days from the date that the order is made. The substantive claim will address the validity of the precautionary attachment and allow the defendant an opportunity to raise objections. Failure to comply with the court order may lead to fines.

Article 188 provides that, under certain conditions, a travel ban may be requested against the defendant. However, the court must be satisfied with the following conditions before imposing a travel ban:

• there must be serious reasons to believe that the defendant will flee the country;
• the debt must not be less than AED1,000 where a substantive case has been filed, or AED10,000 where a substantive case has not yet been filed; and
• the debt must be known, due for payment and unconditional, or if an unspecified amount, the claim must be based on written evidence and accompanied by a guarantee for any damages caused by the travel ban if not rightfully imposed.

DIFC and ADGM

Both the DIFC and ADGM courts have the power to grant interim orders prior to the commencement of proceedings and without notice to the defendant. In the DIFC and ADGM, a victim of fraud may be able to apply for injunctions, property preservation orders and freezing orders.

It is necessary to prove the following elements before a freezing injunction can be granted:

• the existence of assets in the jurisdiction and the real risk of the dissipation of assets;
• a good arguable case;
• whether there is a serious question to be tried;
• whether damages would be an adequate remedy; and
• the balance of convenience between the parties.

A claimant is generally required to provide a cross-undertaking in damages when applying for freezing orders in the DIFC. Court fees are generally paid by the claimant and vary depending on the nature and type of case.

UAE Onshore

There is no regime in the UAE courts requiring a defendant to disclose its assets or any other documents pre-judgment. In onshore UAE courts, the onus of proof rests on the plaintiff and there is no requirement to disclose adverse documents. There is no compulsory document production process akin to the standard “disclosure” procedure in common law jurisdictions, although a party can make specific disclosure requests for documents to be disclosed in limited circumstances, as set out in the Evidence Law.

DIFC and ADGM

Article 25.1 of the Rules of the DIFC courts (the “DIFC Rules”) and Rule 71 of the ADGM Court Procedure Rules 2016 (the “ADGM Rules”) set out a number of interim remedies that the DIFC and ADGM courts can order.

Under Article 25.1(6) of the DIFC Rules and Rule 71.1(f) of the ADGM Rules, a claimant can obtain a freezing order which either restrains a party from:

• removing from the jurisdiction assets located there; or
• dealing with any assets, whether or not located within the jurisdiction.

Related to the ability of the claimant to obtain a freezing order, the courts, under Article 25.1(7) of the DIFC Rules and Rule 71.1(g) of the ADGM Rules, may direct a party to provide information about the location of relevant property or assets or to provide information about relevant property or assets which are or may be the subject of an application for a freezing order.

Onshore – Criminal

The public prosecutor has broad powers when conducting a criminal investigation. These powers include the ability to enter a place to determine the status of the persons, places and objects related to the crime and to search the place and seize anything which may likely be used in the perpetration of the crime.

Onshore – Civil

The procedures available for preserving evidence are similar to those described in 1.7 Prevention of Defendants Dissipating or Secreting Assets.

A party will not be permitted to conduct a physical search of documents at the defendant’s residence or place of business (pursuant to a “search order”).

In arbitration, pursuant to Federal Law No 6 of 2018 (the “UAE Federal Arbitration Law”), the UAE courts may enforce an order from an arbitral tribunal to preserve evidence that may be relevant and material to the resolution of the dispute. Under Article 21(2), the party requesting the order for this conservatory measure may be required by the arbitral tribunal to provide appropriate security to cover the costs of the measures, and, further, to bear the damages arising in connection with enforcement in the event that it is decided that such party is not entitled to such measures.

DIFC and ADGM

As outlined in 2.1 Disclosure of Defendants’ Assets, the DIFC Rules and ADGM Rules provide for interim remedies which may be ordered by the DIFC courts and the ADGM courts, respectively.

Where it is feared that important evidence might be destroyed or suppressed, parties may seek – under Article 25.1(3)(a) of the DIFC Rules and Rule 71(1)(c)(i) of the ADGM Rules – the detention, custody or preservation of relevant property. Rule 71(1)(c)(i) of the ADGM Rules goes one step further and also provides for an order permitting the inspection of the relevant property. To assist the party in possession of a preservation order, Article 25.1(4) of the DIFC Rules and Rule 71(1)(d) of the ADGM Rules allow a party in possession of that order to enter any land or building for the purposes of carrying it out. Under Rule 71(1)(d) of the ADGM Rules, the party in possession of a preservation order may also enter any real property, with an officer of the court supervising, for the purposes of carrying out that order.

Parties may also apply for a search order, under Rule 25.1(8) of the DIFC Rules and Rule 71(1)(h) of the ADGM Rules, for the purpose of preserving evidence. These applications must be supported by affidavit evidence in both the DIFC and ADGM courts. Under the court’s powers to grant search orders, imaging orders – closely related to search orders – which allow the applicant to take a screenshot of the respondent’s electronic evidence, may also be available.

Onshore – Criminal

Federal Law No 35 of 1992 (the “Criminal Procedures Law”) provides the judicial police with broad powers to obtain evidence. Under Article 30, they are given the ability to “inquire about crimes, search for their perpetrators and collect the necessary information and evidence for investigation and indictment”.

Onshore – Civil

The UAE courts have broad and general powers to compel parties to produce documents in their possession. A court may, in the course of examination of the case, give permission to join a third party to the proceedings in order to compel them to prepare and produce a written instrument or provide information that is in their possession or under their control. A court may also order any administrative entity to join, to produce or furnish any written instrument or information that lies in its possession and which is deemed necessary for proceeding with the case.

DIFC and ADGM

In the DIFC, an application for production of documents by a person who is not a party to the proceedings, can be made before or after court proceedings have commenced and must be supported by evidence.

The court may make an order under this rule only where:

• the documents sought to be produced are likely to support the case of the applicant or adversely affect the case of one of the other parties to the proceedings; and
• production is necessary in order to dispose fairly of the claim or to save costs.

Such an order may specify the time and place for production.

Similarly, in the ADGM, where an application is made to the court under any ADGM enactment for disclosure by a person who is not a party to the proceedings, the application must be supported by evidence and served according to practice directions.

There are no standard restrictions placed on the use of such materials and any relevant restrictions will be contained in the court order.

Onshore – Criminal

See 1.7 Prevention of Defendants Dissipating or Secreting Assets.

DIFC and ADGM

Under Article 25.8 of the DIFC Rules and Rule 64 of the ADGM Rules, application for interim relief may be made on an ex parte basis or by giving notice. The permission of the DIFC and ADGM courts is required in instances where the application is to be made without service of an application notice to the respondent. Permission will only be granted where there is exceptional urgency or where there are good reasons for making the application without notice – for example, because notice would or might defeat the object of the application. For the DIFC courts, permission for a without-notice application will also be granted in cases where the overriding objective is best furthered by doing so.

For all applications made without notice, it is the duty of the applicant and those representing them to make full disclosure of all matters relevant to the application including, in particular, disclosure of any possible defences that may be available to the respondent to the application.

Onshore – Criminal

A victim of a crime may request that a claim for compensation be annexed to the criminal charges and considered by the criminal court, which would be determined when criminal liability has been established.

The pursuit of criminal proceedings in fraud cases is common in the UAE since the criminal courts have wide powers, such as to prevent a suspected wrongdoer from travelling abroad pending conclusion of an investigation.

Onshore – Civil

Where there is a parallel civil claim by the victim, the criminal court will generally transfer the civil claim to the civil court for investigation in accordance with Article 27 of the Criminal Procedures Law. The civil court will assess the quantum of damages, as the fact of the conviction allows the civil court to assume the liability of the defendant and therefore the only remaining issue left for the civil court to determine is ordinarily the quantum of damages.

Onshore UAE

The UAE courts may pass a default judgment if the defendant has been duly served and fails to attend without providing an acceptable excuse.

DIFC and ADGM

Similar rules apply in the DIFC and ADGM courts, wherein a claimant may apply for default judgment if the defendant has failed to acknowledge the claim or has acknowledged the claim but failed to file a defence in time.

A defendant will then have the option to either seek to set aside or vary the court’s ruling. However, they will not be able to appeal the judgment.

The DIFC and ADGM courts may give summary judgment (known as “immediate judgment” in the DIFC courts) against the claimant or defendant on the whole of a claim, part of a claim or on a particular issue if it considers that the claimant has no real prospect of succeeding on the claim or issue or if the defendant has no real prospect of defending the claim or issue and there is no other compelling reason why the case or issue should be disposed of at trial. Summary judgment is rare in fraud cases given that such serious allegations must typically be proven with clear, cogent and convincing evidence and because the court will want to examine the case fully.

The DIFC and ADGM courts are also empowered to strike out (parts of) pleadings where there are no reasonable grounds for bringing/defending the claim, it is an abuse of the court’ process, or there has been a failure to comply with court rules.

There are no special rules or professional conduct considerations for pleading fraud. However, under the code of ethics and professional conduct of the legal profession in the UAE, there is a requirement for a lawyer to maintain integrity.

Further, in the DIFC and ADGM a legal practitioner has a duty to never knowingly or recklessly make any incorrect or misleading statement of fact or law to the court.

Onshore UAE

There are no special rules to deal with claims against unknown fraudsters. A claimant may commence a criminal claim and the prosecution authority may then be able to assist using the broad powers given to them to identify unknown fraudsters as they are investigating the claim. However, there is no right to such assistance.

DIFC and ADGM

A Norwich Pharmacal order may also be made under the ADGM and DIFC courts’ jurisdiction in instances where the party knows that a fraud has taken place against it, does not know the identity of the wrongdoer, but is able to identify a third party who has this information (regardless of whether this third party is itself innocent). This order enables a party to plead its case against the wrongdoer, to trace assets or to bring proprietary claims.

A party can bring an application for disclosure or inspection of property against non-parties, including a bank for documents relating to the account of a customer (known in English common law as a “Bankers Trust” order).       

Onshore – Criminal

If a witness is summoned to appear before the public prosecution and fails to attend without a legitimate excuse, the witness can be fined, and in certain cases, arrested on order of the court (see Criminal Procedures Law).

Onshore – Civil

Federal Decree Law No 35 of 2022 (the “Civil Evidence Law”) provides measures (including fines) which can be taken in respect of witnesses who fail to appear before the court when summoned. If the witness fails to appear on two occasions, the witness can be arrested on order of the court.

However, the witness may be exempt from the fine if they appear on the next occasion and provide an acceptable reason regarding their failure to appear previously.

DIFC and ADGM

In the DIFC and ADGM, a witness summons may be issued by the court. Failure to comply with such summons may result in contempt of court, which typically results in a referral to a prosecuting authority.

Onshore UAE

The CCL provides for a company to “acquire a legal personality” upon incorporation.

Article 66 of the New Penal Code also provides that persons with legal personality (eg, corporations), with the exception of government agencies, are responsible for any criminal act committed on their account or in their name by their representative, director or agent. Therefore, a limited liability company or other corporate entity may be liable in such circumstances.

The penalty that may be imposed against a convicted corporation is limited to a maximum fine of AED5 million. However, the Civil Procedures Law also allows the victim to make a claim against the company for civil compensation.

DIFC and ADGM

Under DIFC Law No 5 of 2018 (the “DIFC Companies Law”), a company incorporated in the DIFC will have a separate legal personality from that of its shareholders. The liabilities of a company, whether arising in contract, tort or otherwise, are the company’s liabilities and not the personal liabilities of any shareholder or officer of the company.

Under DIFC Law No 5 of 2005 (the “DIFC Law of Obligations”), a principal is jointly liable with their agent in respect of liability of the agent arising in the course of the agency, provided that the act or omission of the agent which gives rise to such liability is within the authority of the agent. Accordingly, an individual corporate director’s or officer’s knowledge can be attributed to the company they represent, and such person may be held jointly liable together with the company if their actions arise out of the ordinary course of the agency.

In the ADGM, if any business of a company is carried on with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, a contravention is committed by every person who is knowingly a party to running the business in that manner.

Onshore UAE

The CCL provides for a company to “acquire a legal personality” upon incorporation. There is a corporate veil between the company and its shareholders which can only be pierced/lifted in limited circumstances. This means that the company itself generally incurs debts and obligations on its own account and a shareholder’s debt, for most corporations, is generally limited to its share in the company’s capital (Federal Supreme Court 669/2014).

The corporate veil can be pierced to bring claims against the shareholders in relation to company activities in rare circumstances. The Dubai Court of Cassation has held that the corporate veil can be pierced when there has been fraud or trickery (cheating) or gross error from the shareholders.

DIFC and ADGM

As previously stated, under the DIFC Companies Law, a company incorporated in the DIFC will have a separate legal personality from that of its shareholders. The liabilities of a company, whether arising in contract, tort or otherwise, are the company’s liabilities and not the personal liabilities of any shareholder or officer of the company. Following common law generally and English law precedents, there are limited circumstances where the liability can be attributed to a shareholder through the piercing of the veil. This requires clear evidence of fraud, dishonesty or evasiveness in relation to existing liabilities through the misuse/abuse of corporate structures.

Under the legal framework of the ADGM, English common law directly applies, subject to the effect of any contrary provision of an ADGM enactment or “Applicable Abu Dhabi Law” (which would exclude UAE federal civil and commercial laws or any other laws of the Emirate of Abu Dhabi). There have not been any authorities to date from the ADGM courts or ADGM enactment directly addressing the circumstances under which the corporate veil can be pierced.

Onshore UAE

Managers of a company have a statutory duty of care (CCL Article 22). Where a manager acts fraudulently or fails to act within the statutory duty of care (eg, through dissipation of assets to evade creditor claims), the shareholders of the company may bring claims against the fraudulent director(s).

Article 84 of the CCL provides that every manager in a limited liability company (LLC) is liable to the company, the shareholders and third parties for any fraudulent acts by such manager and will also be liable for any losses or expenses incurred due to:

• improper use of the power or the contravention of the provisions of any applicable law;
• the memorandum of association of the company;
• the contract appointing the manager; or
• any gross error by the manager.

Similarly, the board of directors will be liable towards the company, the shareholders and third parties for all acts of:

• fraud;
• misuse of power;
• violation of the law or the articles of association of the company; or
• an error in management.

Article 166 of the CCL states that shareholders may individually pursue a liability claim against the board of directors of the company if they have suffered harm as a result of any act carried out by any of them in violation of the provisions of the CCL.

Under the Civil Code, directors may only act within their authority and will be personally liable for exceeding it.

DIFC and ADGM

In the DIFC, a director is considered a fiduciary. A person is the fiduciary of another if they have undertaken (whether or not under contract) to act for or on behalf of another in circumstances which give rise to a relationship of trust and confidence.

Where a fiduciary breaches their obligation of loyalty, they are liable to:

• pay damages to their principal in respect of any loss suffered by the principal in accordance with the Law on Damages and Remedies; and
• account to their principal for any benefit they have acquired in consequence of the breach.

Further, under the DIFC Companies Law, a director has the following duties:

• to act honestly, in good faith and lawfully with a view to the interests of the company;
• to act with the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances;
• to avoid conflicts of interest;
• not to use the company’s property, information or opportunities for their own benefit unless approved by the company; and
• confidentiality – to only use information obtained in confidence from the company for the benefit of the company and not for their own or anyone else’s advantage.

Further, under Article 149 of the DIFC Companies Law, a shareholder is able to seek a court order requiring the company to take an action or refrain from taking an action. Under Article 149(1)(c), this includes an order authorising proceedings to be brought in the name of and on behalf of the company by such person or persons and on such terms as the court may direct (derivative claims).

In the ADGM, a director has a duty:

• to act within their allocated powers;
• to promote the success of the company; and
• to exercise independent judgement.

The ADGM Companies Regulations of 2020 provide for derivative claims which allow a member of the company to seek relief on behalf of the company and where such claims are in relation to a cause of action arising from an actual or proposed act or omission involving default, negligence, breach of trust or breach of duty by a director of the company. This right is restricted to those eligible members holding 5% of the share capital.

Criminal

The rules for facilitating joinder of overseas parties is provided for in Article 21 of the New Penal Code, which provides for joinder in limited circumstances, such as:

• crimes committed against the internal or external security of the state, or against its constitutional regime or its stocks and bonds issued under legal licence, or in connection with its stamps, or crimes of falsification or counterfeiting of its official documents or seals;
• crimes of falsifications, counterfeiting or forgery of money belonging to the state, no matter whether such acts are committed in or out of the state;
• crimes of falsification, counterfeiting or forgery of coined or paper money which is legally in circulation in the state, or crimes of putting such money into circulation in the state or the possession thereof with the intention of putting it into circulation; and
• deliberate murder committed against a UAE citizen.

The New Penal Code’s provisions relating to bribery, embezzlement, and damage to public property also apply outside the UAE, in the following instances:

• if either the offender or victim is a UAE citizen;
• the offence is committed by an employee in the UAE public or private sector; or
• the offence is committed on UAE public funds.

Civil Claims

Joinder of overseas parties can be performed both in the DIFC/ADGM Free Zones and onshore, although it appears to be less common in onshore proceedings.

Civil Claims

UAE onshore

The process to follow for service in the UAE will depend on where the party to be served is located. If the UAE has a treaty in place with that foreign country where service needs to occur, the process set out in that treaty will be followed.

In the absence of a treaty, service happens by diplomatic channels and the process set out in the Civil Procedure Law will need to be followed. Under the Civil Procedure Law, service out of jurisdiction is now deemed to be effected 21 working days from the date of serving the concerned diplomatic mission in the State with the letter of the Ministry of Foreign Affairs and International Cooperation containing the notification (Article 11(2)). Service on the defendant must be effected in accordance with the laws of the foreign jurisdiction.

DIFC

Service in Dubai must be done in accordance with Part 9 of the DIFC Court Rules.

Permission to serve process outside of the DIFC and Dubai is not required but it is the responsibility of the party serving to ensure compliance with the laws regarding service of the place where service is being effected (DIFC Court Rules, r.9.53–9.54). Service by alternative methods is possible with the permission of the court if the foreign jurisdiction’s laws permit service by the alternative method in question (subject to any treaty rules).

ADGM

Service outside the ADGM but within the UAE can be done by either following the procedure under Part 4 of the ADGM Court Procedure Rules 2016 or following the rules regarding service of the place in which it is served.

Service outside the UAE can be effected without permission, and by any method permitted by an applicable treaty or convention or the rules regarding service of the place in which it is served. The applicable procedure is set out in ADGM Court Procedure Rules 2016 Part 4 Rules 24 and 25.

Service on the defendant must not violate the laws of the place of service.

UAE Judgments

In order to enforce a UAE domestic judgment which is final (not subject to any further appeal), the claimant is required to start execution proceedings in the courts of the relevant emirate usually commencing in the courts of the emirate which handed down the judgment. The judgment has to be final and certified by the execution court.

The debt must be settled within 15 days. If the debtor fails to do so, a request can be made to the execution judge to enforce the judgment. Usually, a UAE judgment is enforced in the form of an attachment order. The attachment could be to property, stocks, bonds, shares or real estate. Other methods of enforcement may include bankruptcy proceedings. However, debtors will usually appeal such judgments to achieve delay.

Process of Deputation

Enforcement for inter-emirate judgments (and previously the enforcement of DIFC court judgments and orders outside Dubai, but in the UAE) must be pursued through the process of “deputation” or “referral” as provided under Article 71 of Cabinet Decision No 57 of 2018.

Article 71 provides that the execution court will refer the judgment or order to the execution judge for the area in which the judgment or order is sought to be enforced, and provide the latter with all the legal documents required for execution. The execution judge to whom the referral is made would then take all the decisions necessary to execute the referral and rule on procedural objections relating to the execution.

The execution judge who has carried out the execution will inform the execution court which made the referral of what has happened, and transfer any items or property received by them; if the execution judge to whom the matter has been referred finds legal reasons precluding the execution, they must notify the execution court.

Dubai and the DIFC

In Dubai, there is a reciprocal protocol of enforcement between the courts of the DIFC and onshore Dubai, pursuant to which a judgment of the Dubai courts (or DIFC court) can, subject to certain procedural formalities being met, be enforced in the DIFC as though it were a DIFC court judgment (or enforced in the Dubai courts as though it were a Dubai court judgment).

Abu Dhabi and the ADGM

In Abu Dhabi, a memorandum of understanding (MoU) with the Abu Dhabi Judicial Department and the ADGM has been signed for the reciprocal enforcement of their judgments, decisions and orders.

MoU Between DIFC/ADGM and Ras Al Khaimah

Similarly, an MoU between DIFC courts and Ras Al Khaimah courts and an MoU between Ras Al Khaimah courts and ADGM courts for enforcement of judgments have been signed.

Bilateral and Multilateral Conventions

Reciprocal enforcement of judgments

The UAE has entered into a number of treaties with other countries which govern the reciprocal enforcement of judgments. The most commonly used in the Middle East is the Riyadh Arab Convention for Judicial Cooperation of 1983 (the “Riyadh Convention”) for enforcing foreign judgments and awards. The other commonly used treaty is the GCC Convention of 1996 which allows the recognition and enforcement of judgments and awards without any review of the merits. The other signatories to the GCC Convention are Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

The UAE has also entered into a number of international treaties for enforcement of judgments with, for example, Tunisia, France, India, Egypt, China and Kazakhstan. In addition, the UAE has entered into new international judicial co-operation agreements (IJCAs) with the United States, Russia, Netherlands and Italy, and has ratified extradition treaties with South Africa and Denmark.

Reciprocity between the UAE and foreign states

In the absence of a treaty for mutual recognition of judgments, there is a need for reciprocity between the UAE and the foreign state issuing the judgment of which recognition and enforcement is sought in the UAE (Article 85 of UAE Cabinet Resolution No 57 of 2018). On 13 September 2022, the UAE Ministry of Justice (MoJ) sent a letter to the Dubai courts calling for the reciprocal enforcement of judgments of the English courts in the UAE, a step which follows the English High Court’s decision in Lenkor Energy Trading DMCC v Puri (2020) EWHC 75, in which it was found that a Dubai court judgment regarding liability for bounced cheques was a final and conclusive judgment of a court of competent jurisdiction. Since the MoJ’s 2022 letter, there has not been any indication from UAE local courts (whether by way of formal announcement or in practice) that it would from now on enforce English court judgments under the principle of reciprocity (set out in Article 85). Nevertheless, the English High Court’s recent decision to again enforce a Dubai court judgment in Emirates NBD Bank PJSC v Rashed Abdulaziz Almakhawi and Others (2023) EWHC 1113 (Comm) may suffice to demonstrate that Lenkor was not a one-off occurrence and persuade the UAE onshore courts that the reciprocity criteria in Article 85(1) have now been met, such that an English court judgment should be enforced in the UAE courts. The requirements under Article 85(2) (eg, that the UAE courts do not have exclusive jurisdiction and that the order is not contrary to public morals) still need to be satisfied.

Judicial assistance

There are also bilateral treaties which exist in relation to judicial assistance between the UAE and other jurisdictions. For example, there is a treaty between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates on Judicial Assistance in Civil and Commercial Matters dated 7 December 2006 (the “Treaty”). The Treaty focuses solely on the service of judicial documents and the taking of evidence by means of letters of request or commissions. Under the Treaty, taking of evidence is deemed to cover the taking of statements and the production, identification or examination of documents, records or samples requested. This could be an avenue available for parties in the UK to obtain evidence from witnesses or third parties based in the UAE and vice versa.

Arbitral Awards

While arbitration proceedings less commonly deal with fraud claims, a foreign arbitral award providing compensation to a victim of fraud could be enforced in a relatively straightforward manner in the UAE. The UAE is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) without reservation which means that, in theory, the UAE should enforce awards issued in countries which are also signatories but also those issued in countries which are not. In practice, the onshore courts have shown themselves reluctant to do so. The UAE courts can only refuse enforcement on limited grounds (eg, public policy) which are not in violation of the New York Convention. There is also a domestic enforcement regime dealing with the enforcement of onshore awards in the DIFC/ADGM courts and vice versa.

Onshore UAE

In criminal and civil matters, there is no concept of privilege against self-incrimination. However, there is a general right for the accused to remain silent when responding to allegations against them; as such, no inferences may be drawn if a defendant decides to remain silent.

DIFC and ADGM

In the DIFC and ADGM, common law principles of privilege apply, including privilege against self-incrimination.

Onshore UAE

Under Federal Law No 34 of 2022 (the “UAE Advocacy Law”), a lawyer is not permitted to reveal a secret confided to them, or which comes to their knowledge through their profession, except if its revelation is to prevent the perpetration of a crime.

A lawyer may be criminally liable if they disclose confidential information obtained during the course of their services under the New Penal Code. Article 432 of the New Penal Code prohibits the disclosure of confidential information by any person who by their profession is entrusted with a secret.

DIFC and ADGM

Practice Direction No 2 of 2009 of the DIFC courts’ Code of Professional Conduct for Legal Practitioners provides that practitioners are required to keep information communicated to them by their client confidential unless such disclosure is authorised by the client, ordered by the court or required by law. This duty extends to all partners and employees of a practitioner and continues even after the practitioner has ceased to act for the client.

Similarly, in the ADGM, there is a duty of confidentiality that is imposed on lawyers. Disclosure is only permitted if it is authorised by the client, ordered by the court or otherwise required by law as provided in the ADGM courts’ Rules of Conduct 2016.

In the DIFC and ADGM, the common law principle that privilege may be lost if the communication or document in question came into being for the purpose of furthering a criminal or fraudulent design will apply. This is sometimes known as the “fraud exception” or the “iniquity principle”, which is founded on public policy.

Onshore UAE

The concepts of punitive damages and exemplary damages are not recognised by UAE law.

DIFC

In the DIFC, courts may order punitive damages where the defendant’s conduct has been deliberate and particularly egregious. Article 40(2) of DIFC Law No 7 of 2005 (the “DIFC Law of Damages and Remedies”) provides that: “the Court may in its discretion on application of a claimant, and where warranted in the circumstances, award damages to an aggrieved party in an amount no greater than three times the actual damages where it appears to the Court that the defendant’s conduct producing actual damages was deliberate and particularly egregious or offensive”.

ADGM

In the absence of any ADGM enactment or precedent on this point, the position on claiming punitive/exemplary damages in the ADGM is as set out in English common law.

Onshore UAE

Banking documents are confidential and disclosure without consent is likely to be unlawful. This is provided in Article 120 of Federal Decree Law No 14 of 2018 (the “Central Bank and the Organisation of Financial Facilities and Activities Law”), which states that all data and information relating to customers’ accounts, deposits, safe deposit boxes and trusts with licensed financial institutions – in addition to all relevant transactions with customers – must be considered confidential in nature, and may not be made available or disclosed, directly or indirectly, to any third party without the written permission of the owner of the account or deposit, their lawyer or their authorised agent.

A court can order production where relevant to a claim in certain situations, as discussed in 2. Procedures and Trials.

DIFC and ADGM

Similarly, in the DIFC and ADGM, banking documents are confidential and disclosure without consent is likely to be unlawful. However, production can be ordered in certain circumstances as discussed in 2. Procedures and Trials.

The Cybercrimes Law came into effect on 2 January 2022. While not specifically enacted for tackling cryptocurrency fraud, the Cybercrimes Law contains many offences commonly committed by crypto fraudsters, including hacking and the fabrication of websites, mail and electronic accounts. It also criminalises unlicensed cryptocurrency trading and the unauthorised/unlicensed marketing of cryptocurrency.

The UAE’s broader civil and criminal regime also apply to activities relating to crypto-assets. Regulated companies dealing with crypto-assets must comply with the UAE’s general AML/CFT laws.

In 2022, the DIFC Court heard a landmark case relating to the misappropriation of Bitcoin in what was one of the first cryptocurrency litigation disputes in the region. On 14 December 2022, the DIFC launched its specialist Digital Economy Court with specialised rules to protect the public against emerging threats such as cryptocurrency fraud.

Regulation

The UAE Central Bank does not currently recognise crypto-assets as legal tender. The DIFC Courts have accepted that cryptocurrencies are property following the English decision of AA v Unknown Persons (2019) EWHC 3556 (Comm).

The UAE’s virtual assets regulatory landscape is complex with five (currently) virtual asset (VA) regulators within the UAE.

On 14 January 2023, new federal-level VA legislation entered into force which does not apply to the ADGM and DIFC. In February 2023, the UAE Central Bank was replaced by the Securities and Commodities Authority (SCA) as federal regulator and supervisor of the cryptocurrency sector. The UAE Central Bank will carry on the regulation of crypto-payments.

CAAR

Crypto-assets are regulated in the UAE under Securities and Commodities Authority Decision No 23/RM/2020 Concerning Crypto Assets Activities Regulation (CAAR):

• Crypto-assets are defined as records within an electronic network which function as mediums for exchange, units, representations of ownership, economic rights, or access or utility rights, capable of being transferred electronically.
• The CAAR regulates the trade of crypto-assets and the licensing of companies carrying out financial activities related to crypto-assets, which attract enhanced anti-money laundering and monitoring obligations. For example, under Article 21 additional screening must be carried out where unverifiable geographical locations are used or the identity of users is designed to be hidden.
• The CAAR does not apply to state-issued crypto-assets or digital currencies that are already regulated by the UAE Central Bank.

VARA

In Dubai, Law No 4 of 2022 was issued on 11 March 2022 which established the Dubai Virtual Asset Regulation Authority (VARA), the world’s first independent regulator of virtual assets, with the aim of enabling and promoting the use of virtual assets in the emirate. On 19 September 2023, VARA published the Virtual Assets and Related Activities Regulations 2023 (the “2023 VA Regulations”) which set out a comprehensive virtual assets (VA) framework built on principles of economic sustainability and cross-border financial security. The 2023 VA Regulations include regulations applying to all VA providers and activity-specific regulations.

DIFC and ADGM

In the DIFC, on 1 November 2022, the Dubai Financial Services Authority (DFSA) introduced a new framework for regulating financial services using crypto-tokens. DFSA firms can provide a range of financial services with crypto-tokens.

In the ADGM, crypto-assets are regulated under the Financial Services and Markets Regulations 2015.