UAE’s new FDI law: What compensation will foreign investors get in dispute resolution?

The UAE’s new law on foreign direct investment (FDI), which took effect on October 30, will set new precedent by allowing 100 per cent foreign ownership of companies in the country.

The new legislation, which outlines who is an investor and what is an investment under the FDI Law, also details the type of protections afforded to foreign investors who qualify under it.

Also read: UAE law allowing 100% foreign ownership now in force

It also provides an avenue for recourse if a foreign investor is harmed by the UAE or one of its entities, according to law firm Bin Nakhira & Partners.

The dispute resolution provision under the FDI law provides for alternative dispute resolution (ADR) and/or expedited local court process in the UAE.

According to a statement explaining the legal aspect by Bin Nakhira, the dispute resolution provision is “very basic” in its drafting.

It permits an aggrieved investor to settle a dispute with the UAE or its entity through any ADR mechanism which can include conciliation, expert determination, mediation and arbitration.

An investor will also have the option of going to the local courts in the UAE.

The provision expressly states that if the investor decides to proceed in the local courts, it will be done so in an expedited manner.

However, it “does not provide details” in terms of how the process will be expedited. Currently, there is no special court or expedited process set up in the UAE courts to deal with FDI disputes, said Bin Nakhira.

The law also allows a foreign investor to choose international arbitration to settle the dispute, provided they have consent from the UAE.

Details on how the international arbitration would be structured (such as the number of arbitrators, the seat of arbitration, language, etc) will be decided between the parties once the proceedings are commenced.

“Under the FDI law, the UAE has not consented to a specific method of settling any dispute with a foreign investor. The dispute resolution provision only provides the foreign investor with options. A separate agreement will be required for the UAE to consent to international arbitration or another method to settle the dispute. However, the FDI law does give the option to the foreign investor to seek recourse in the UAE courts,” the statement explained.

Compensation

The new FDI law does not expressly provide for compensation, according to Bin Nakhira.

The only exception is in the case of expropriation. Article 9 of the law provides that an investment will not be expropriated except if the taking is for the public benefit and the UAE provides adequate compensation.

Compensation will more than likely be determined on principles of international law, the law firm said.

“The UAE has effectively made unilateral undertakings within the framework of the new legislation which could be considered as having “internationalise” or created international obligations in the FDI law. In other words, if an arbitration is commenced under the FDI law, the arbitral tribunal seated will more than likely interpret any harmed caused by the UAE or one of its entities to the foreign investor as a breach of international law and award damages in line with international standards of compensation,” the statement elaborated.

Principles of compensation under UAE law would “more than likely” not be considered, it added.

The long-awaited FDI law is expected to help the UAE become more investor-friendly and attract more international investors.

Also read: UAE law allowing 100% foreign ownership to apply selectively, won’t hurt locals