Coronavirus impact: Legal disputes rise in UAE as firms struggle to meet contractual obligations

Legal disputes in the UAE have spiked since the outbreak of coronavirus as businesses are unable to meet their contractual obligations due to tough economic and financial condition.
Legal experts averred that the concept of "force majeure" has been a key topic of discussion recently in relation to contracts where obligations to be performed have been made very difficult, if not impossible, because of the global pandemic.
"Covid-19 has also a considerable impact on both volume and nature of disputes. As the pandemic continues to spread across the globe, businesses are facing significant levels of instability caused by weakened financial markets and disruption to business operations and pipelines," said Mohamed El Baghdady, senior associate for dispute resolution at Baker McKenzie Habib Al Mulla.
He said payment default rates have increased rapidly and creditors are looking into all possible actions to secure the recovery of their funds.
"The limited operational suspension of UAE Courts and various governmental bodies during the lockdown period also had an impact on the operations of businesses. All these factors have led to a significant surge in legal disputes," he pointed out.
Nathan Banks, founder and managing partner, Banks Legal, said they have also seen an increase in instructions on debt recovery work and construction dispute matters.
"With many businesses re-evaluating their cash flow situation and assessing business continuity plans, it is only natural to see a rise in the disputes of this nature. As cash flow becomes tight, terms of payment cannot be adhered to," added Banks.
It is estimated that there is an increase of at least 20 per cent in the number of legal disputes since late January when the UAE announced its first Covid-19 case.
Sectors hit
Nathan Banks noted that firms, that were previously allowing longer periods to their debtors to make payments, are now taking a more assertive approach and escalating debt collection to enforce payment via the Dubai Courts or DIFC Courts.
"With property prices at record lows, many are looking to renegotiate sale and purchase agreements and if unsuccessful, considering options, such as referring the matter to courts or an arbitration tribunal as appropriate, to claim damages for delay in handover or outright termination for failing to deliver projects as per agreed time frames. The events and hospitality industry has also seen an increase in disputes related to legal work," he said.
El Baghdady underlined that legal disputes are either arising because Covid-19 is disrupting the contractual relationships such as suspension, or due to freeze of supply of good and services.
However, the biggest impact is seen on the increase in the volume of claims related to debt recovery, insurance, lease contract, employment and redundancy.
"It may be fair to say that financial institutions and businesses involved in the supply of good and services are seeing more disputes. It is expected that more disputes would take place in other sectors such as real estate and hospitality," he added.
-waheedabbas@khaleejtimes.com 

• Dubai