Brave New World
Mark Beer explains the impact of the Dubai World Tribunal
The financial crisis that enveloped Dubai in the winter of 2009 sent shockwaves through the emirate’s economy, with the most severe repercussions being felt in the financial and construction industries. As the third anniversary of the crash approaches, it’s only now that things are coming back to an even keel.
One company that has done more than most to help steady the ship and get Dubai’s economy headed in the right direction has been Dubai World. The giant, government backed conglomerate was perhaps one of the hardest hit by the crisis, with billions of dollars owed to a list of creditors that seemed never ending.
Amongst those creditors were many construction contractors who were stuck in limbo, waiting for the trickle down of funds from Dubai World, and getting increasingly desperate to see a reward for their work.
It was in this climate that perhaps one of the most decisive moments of Dubai’s financial crisis took place.
HH Sheikh Mohammed bin Rashid Al Maktoum issued Decree 57, which became the founding decree for the Dubai World Tribunal; a specialist body designed to deal with the restructuring of Dubai World and help steady an increasingly jittery construction industry.
Taking an amalgamation of the best of US, UK and UN laws, coupled with insights from the world’s leading academics, the government put together a framework for restructuring which would apply to Dubai World and all its subsidiaries, explains Mark Beer, the registrar for the Special Tribunal to Dubai World.
“For global businesses, businesses with assets all over the world, it was a very challenging time. It became very difficult for a contracting global business to service the loans that were taken out in the heady days when banks were willing to lend.”
“What happened was that Dubai World, being an enormous conglomerate enterprise, is a decree company. That is, it was set up by royal decree rather than, say, the commercial companies’ law. What that meant was that questions started to arise. ‘What would happen if it needed to restructure?’, ‘What would happen if it needed to look at its financial obligations and adjust them?’ There wasn’t really a clear answer because it was a decree company. It was outside the general remit of commercial laws. Clearly, it was in everyone’s interest at that stage, to put a structure into place that financiers around the world would look at and say, ‘Yes, this is a recognised structure for dealing with the reorganisation of a major global business,” he says.
With the objective of the decree clearly outlined – to resolve disputes brought by or against Dubai World or any of its subsidiaries, the Tribunal’s remit is provide real consistency in the way disputes are handled in relation to the enterprise.
Having successfully restructured $25bn of debt in one year, the tribunal has played active role in the successful regeneration of the company. Not only has this positive reaction to the crisis helped Dubai World to restructure, it has helped save jobs and ensure that creditors were paid.
Terming it an ‘amazingly brave decision,’ Beer says that while in a strictly legal sense, the Tribunal is limited to disputes associated with Dubai World, the framework put in place could have a fascinating impact on the way the region deals with restructuring in the future.
“It’s been proven to work in the restructuring of Drydocks World. The mechanism was proved to have worked, jobs were saved and the trade creditors were paid. The business is carrying on a growing concern. To my mind, that’s a real demonstration, it’s the proof in the pudding that the structure works extremely well.”
“One can only speculate, but it’s been proven that in Dubai, we’re capable of handling some of the world’s largest restructuring disputes, using this mechanism that has been set up (in Dubai). Whether it’s ever expanded to be used elsewhere, we can’t speculate, but it’s a good first step,” he asserts.
With the tribunal focused on the restructuring of billions of dollars in relation to Dubai World, Beer points out that Decree 57 has been an invaluable help throughout the process. In a region like Dubai, where the majority of disputes centre around real estate projects worth millions of dollars, Decree 57 allows the judges to refer to legislation that offers the best of all possible worlds.
Of course, it helps that those sitting on the panel are some of the foremost commercial law judges in the UK, if not the world. As such, they’re perfectly suited to proceed with complex multiparty disputes, particularly along construction lines, Beer says.
“In terms of day-to-day contractor disputes, we would apply the normal common law principles, which would promote settlements by allowing all participants a ‘no-surprise culture’. They know what’s going on at every stage. Both sides are communicating with the courts and the other side at all stages. So everybody knows where the case is, and as you’d expect in that environment, the settlement rate is pretty good.”
“In litigation, settlement should be the goal of the lawyers and the court, because it promotes the ongoing business relationships and allows contracting parties to continue with their project. Where there have been questions raised, for example over advanced payment guarantees and so on, the standard type of thing in construction disputes, we deal with those on an interlocutory and urgent basis, so that it’s very clear what needs to happen to money and to the continuation of projects. Once a decision is made there, the case can continue in its normal time.”
When it was set up by the Ruler of Dubai, the Tribunal initially consisted of three members: chairman Sir Anthony Evans, Michael Hwang SC and Sir John Chadwick. However, the royal decree does allow for the chairman to appoint further members as he sees fit.
As such, Sir David Steel was recently appointed to the post, having served as a DIFC Courts judge since 2011. The reasoning behind his appointment, Beer says, is to help the Tribunal hear each court case in a fair manner, with adequate preparation.
“There are 83 cases that have been filed in front of the tribunal, not counting the restructuring of Drydocks World. And we’ve realised that as the trials are starting to come through, we see there’s going to be a lot of trial work that’s going to take us through to the end of next year. We should never, as a tribunal, delay any litigation because we’re not ready. Therefore, it was very important to us, because of the calendar coming through from February, through the end of next year, being very busy, so it was absolutely vital for us to have four judges on the panel, so that we could always field enough judges.”
As part of the UAE’s judiciary, the Special Tribunal to Dubai World was set up as a court of appeal, with three sitting judges. While the DIFC Courts sit in the court of first instance with one judge, it also has a court of appeal with three judges. The tribunal however, dispenses with the court of first instance, providing a more efficient judgment for business seeking a quick resolution to their dispute.
“It’s a one stage process, when the tribunal gives you a decision, there’s no appeal for that decision. The decision is binding for both parties and they can move forward knowing that’s the answer to their commercial dispute. From a business point of view that’s very attractive, because no one in a business wants to go to court, then go to another court and then to another court, particularly in difficult and turbulent times. People want an answer and they want it as fast as they can, without of course, affecting their right to put their across,” Beer explains.
Despite the heavy workload over the next year, Beer is confident that the majority of trials involving the conglomerate will be cleared by the end of next year. While he accepts that there may be delays in certain cases, he says that the tribunal will be resourced according to its workload from then on.
While the Tribunal has to exist as long as there are restructuring documents dependent on it resolving disputes, Beer believes that once those contracts have expired, the Tribunal could be scaled down and not deal with day to day litigation. However, he adds that the members of the Tribunal would need to be available to should any major issues crop up.
“The tribunal will not go away as long as there are contracts that rely on its existence, but there’s no point in starting it up if there are no trials coming through.”
“Now that cases involving Nakheel will go back to either the Dubai courts or the DIFC Courts, we’re not expecting a huge number of cases, because Dubai World has been successfully restructured.”
“It’s important to say that courts and tribunals are always there to provide protection to those who need it, but in an environment where an organisation is back on its feet and doing well and succeeding, you don’t expect to see much litigation. So we’re not expecting, and we’d be very surprised, I’d go as far as to say, if we saw a resurgence of litigation involving Dubai World, given its strength as a business.”
