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Mon 20 Jun 2011 02:34 PM

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The stamp of authority

What to do if a government agency is slow to pay a certified amount or disputed claim?

The stamp of authority

The Dubai government was hit particularly hard by the global economic crisis. Some consultants and contractors have seen that government authorities have been slow to pay even certified amounts, much less to pay disputed claims. In the boom years, contractors and consultants might have taken a loss so as not to jeopardise future work prospects with the government, but with the mega projects of the last decade in Dubai, many of the sums due have become too large to write off.

In more and more cases, consultants and contractors are considering invoking contractual dispute resolution, whether through the Dubai courts or arbitration. Although formal legal action can sour relationships, it is often the only option.

Potential claimants should be aware that their contracts often do not identify all of the mandatory steps in the dispute resolution process. Dubai law prescribes conditions that claimants must meet before bringing legal action against a government entity.

Failing to comply with these pre-conditions will delay and complicate the process of getting paid, and may result on the loss of the claim.

In 1992, HH Sheikh Maktoum Bin Rashid Al Maktoum, Ruler of Dubai, issued instructions concerning government cases, which set forth the mandatory procedures for bringing an action against the Ruler or the government of Dubai. Under the 1992 Instructions, claimants were required to file their claim with the Legal Advisor's Office of the government of Dubai, and to obtain the approval of the Legal Advisor's Office before commencing an action in the courts.

The 1992 Instructions, however, provided a specific exemption from the pre-action requirements applicable to claims arising from contracts that contained arbitration clauses. These 1992 instructions were later revoked, however, by Law No. 10 of 2005.

Unlike the 1992 Instructions, Law No. 10 of 2005 does not distinguish arbitrable claims from those that require a court action. The government of Dubai’s Legal Affairs Department has confirmed that Law No. 10’s pre-conditions apply equally to arbitrable claims and court claims.

As such, under the current law, a party seeking to commence litigation or arbitration against the government of Dubai, or any department thereof, including public institutions and corporations (for example, the Road & Transit Authority, the Dubai Maritime City Authority, the Dubai Municipality, the Dubai Electricity & Water Authority and the Dubai Health Authority, to name a few), must first deposit a written recitation of the full details of the claim with the Attorney General at the government of Dubai’s Legal Affairs Department.

The Legal Affairs Department will notify the relevant government authority of the claim within one week of receiving the claim. The authority must then respond to the claim within 15 days of notice. There is a two-month window for amicable settlement of the dispute that runs from the time the Legal Affairs Department receives the claim.

Although this process delays by two months the commencement of litigation or arbitration, it can have the benefit of bringing the parties to the negotiation table. The Legal Affairs Department has been known to organise settlement meetings between the parties and to preside over an informal mediation in an effort to reach an amicable solution.

If the claim is not settled during the two-month settlement period, then the claimant is permitted to proceed to arbitration or to court.

Although a claimant is not permitted under Dubai law to seize or attach assets or property of the government of Dubai to recover under a final judgment or arbitral award against it, the Attorney General at the Legal Affairs Department is required to submit a certified copy of the final judgment or award to the Diwan Director to order its enforcement. The law presumes that the government will honour an award or judgment against it.

Drew Baiter is a senior associate at Kilpatrick Townsend Legal Consultancy.

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