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Commercial Transactions Law in the UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00

230

transaction,  commercial, business

Introduction

In 1985, the United Arab Emirates passed a civil code that was to be applied to civil transactions, and commercial transactions were to be exempted from the scope of this law. Still, the difference between the two wasn't explicitly stated. Till 1993, the courts in the UAE depended on tenets of common law to decide commercial cases. However, this changed with the introduction of Federal Law No.18 of 1993, which had a comprehensive corpus of rules covering all financial and mercantile activities such as business transactions and banking. This article aims to explore and analyse the important provisions of this federal law and investigate possible amendments to accomplish this law better.

Application

While the law is dubbed as a 'commercial transactions law', it has much wider application, with Article 1 in the Preliminary Part of the Commercial Transactions Code declaring that it applies to all "merchants" and "'commercial activities", even if not carried out by a trader. However, these laws are only to be applied if there is no special agreement between the parties engaging in the transaction, as in that case, the agreement will take precedence. In the absence of any such arrangement, this federal law shall apply, with local customs taking precedence over general customs. Moreover, it is also mentioned that specific agreements and commercial customs can be applied only as long as they do not contradict public order or morals.

Definition of Commercial Business

To apply the aforementioned federal law, it becomes essential to lucidly describe and determine what constitutes a commercial activity and what defines a merchant under the law. Article 4 mentions that any activities carried out by a trader in pursuance of realizing his trade, any speculative activity engaged in to earn a profit, any activity specified by law as such, or activities facilitating or related to commerce shall be considered as commercial activities. Article 5 goes on to list down a detailed list of activities to be included within the ambit of the law, which is as follows- The purchase of commodities and other material and non-material movables to sell them at a profit or hire them out, banking, exchange, stock market and other investment and financial operations, activities related to commercial papers, and all sea and navigation activities. In addition to these specific activities, formation of companies, current accounts, insurances, public auction premises, hotels, playgrounds, theatres, and other amusement centre activities, water, electricity and gas distribution activities, post, telegraph, recording television, and public warehouses and mortgages shall also be considered as commercial activities.

Definition of Professional Services

Not only does the act regulate mercantile activities and business transactions, but also commercial activities that are practised as professions. A list of such occupations is provided under Article 6 and includes brokerage, commercial agency and representation, commission agency, supply contracts, purchase and sale of land for profit-making, land transport, certain real estate activities, and income generated from the extraction of natural resources. Apart from that, tourism, export and import, printing, publishing, photography, animal resources and fishing, and letting and sub-letting of apartments are also included within the scope of the law. To ensure compliance with the law and prevent any loopholes arising, Article 7 of the federal law also mentions that all activities analogous to the mentioned activities or similar to them in nature shall also be covered under this law. However, when an artist creates a work and sells it by himself (Article 8) or a farmer grows produce and sells it himself (Article 9), it shall not be considered a commercial activity.

Restrictions on Commercial Transactions

Post the laying down of norms governing commercial and mercantile activities; the federal law also lays down restrictions regarding persons who are ineligible and restricted in certain manners from engaging in commercial transactions altogether in the United Arab Emirates. Article 23 states that only the UAE citizens can engage in such transactions and non-citizens need to have one or more partners from the UAE, as specified under the Commercial Companies Law. Professionals are also restricted from engaging in export-import activities, and to prevent the retrospective application of this law, extant businesses run by non-residents must comply with the provisions of this new law from hereon. Article 24 also states that persons whose companies have filed bankruptcy within a year of opening are also not eligible to engage in commercial transactions unless they have been rehabilitated. Persons who have been convicted of a crime of bankruptcy either by fraud, swindle, threat, deception, forgery, breach of trust or falsified papers are also prevented from engaging in business transactions unless rehabilitated.

Recent Amendments to the Commercial Transaction Laws

In October 2020, the UAE's cabinet made certain amendments to the Federal law discussed herein, which will be implemented from 2022 onwards. Most notable among these changes is the redefining of crimes related to cheques. In addition, several devices and alternatives will be introduced to guarantee payments are secured by cheque simply and quickly. For example, banks will have to partly pay the amount after subtracting the total amount available to the beneficiary and make bounced cheques an executive document to be administered directly by an appropriate judge in court. Moreover, specific penalties for convicts have also been envisioned, including cancelling the cheque books of convicts and barring them from acquiring new ones for up to five years. They will also be omitted from practising professional or commercial activities. Further penalties for legal bodies except for banks and financial institutions will also be introduced. These penalties will include fines, and licenses may be suspended for up to six months. Those who repeat violations will have their licenses revoked or terminated. Other amendments comprise the opening of joint accounts among two or more people. Suppose one of the shared account holders dies or loses legal control. In that case, the other joint account holders will have to inform the bank within ten days of the date of death or disqualification, post which the banks will limit their liability. These amendments shall become enforceable the day after they are notified in the gazette.

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