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A possessory lien under Libyan law is created by contractual agreement. It permits a creditor the right to remain in possession of an encumbered thing, movable or immovable, until the debtor has satisfied the debt. Therefore, a lien is a legal claim that one person, the creditor or the pledgee, has over the property of another, the debtor or pledgor, as security for paying a debt.

possessory lien under Libyan law image

Under Libyan law, possessory lien grants the pledgee the right to (i) possess the pledge until the terms of the possessory lien are met, and (ii) the right to seek a court’s decision to sell the pledge if its value deteriorates to a point where the value of the pledgee becomes, or fear to become, less than the debt.

On the other hand, the pledgor (i) is under obligation to guarantee the safety of the pledge, and (ii) shall be responsible for the deterioration of value or loss of pledge due to his/her negligence or force majeure (Articles 1105 and 1106 of the Libyan Civil Code).

Article (1101) of the Libyan Civil Code

As stipulated by Article (1101) of the Libyan Civil Code, the thing subject of a possessory lien must either be movable or immovable, which can be sold independently in a public auction. It should also be well defined and subject to possession. Therefore, the subject of a possessory lien could be real estate or a car that falls under the definition of the thing subject to be pledged.

The property, the pledge, could be kept, in possession of, the pledgee, until the debt has been paid, or it could remain in possession of the pledgor. In some cases, the pledgor remains in possession of the pledge but will not own it.

In case the pledged item was in the position of the pledgor, and after the debt was satisfied and the pledged item was returned to the pledgee, the pledgee has the right to claim any such entitlement against the pledgor for damages for the pledged item.

The pledgor is responsible for the safety of the thing pledged. Consequently, the pledgor is accountable for any damage to the pledged item. Article 1106 (1) of the Libyan Civil Code holds the pledgor responsible for damages to the pledged item if the damage is due to his negligence or due to forcemajeureeven if the pledged item is in possession of the pledgee.

Article 1107 of the Libyan Civil Code rest the duty of maintenance of the pledged thing on the pledgee. The pledgee becomes responsible for the safety of the pledge if he has possession of the pledge. He will use the care of a reasonable person and shall be liable for deterioration or loss of the pledged item unless he proves the cause of damage is not attributed to him.

The management of the thing pledged shall be the responsibility of the pledgee, who shall manage the thing pledged item as a reasonable person would under the circumstances. The pledgee shall not change how the pledged item is used unless approved by the pledgor.

If the pledgee miss manages the pledged thing or misuses it, the pledgor shall have the right to ask for the pledged item to be placed under judicial deposit.

The pledgor will also have the right to ask the court for the restitution of the pledged thing, provided he will be the debt.

Unless the pledge contract states otherwise, the thing pledged must be invested as stipulated in Article 1108. The pledgor is not allowed to benefit from the investment, in the form of revenue or production, of the pledged thing. On the other hand, the investment of the pledge is considered an obligation on the pledgee if he is in possession of the thing pledged.

Net Profits Details

The net profits received by the pledgor from managing the pledged item shall cover (i) the pledgee’s expenses on the preservation and maintenance, expenses of the pledged item, (ii) the interest and, (iii) the rest of the amount of the net profit, if there is any, shall be deducted from the capital amount of the debt.

Dr Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. He served as an expert witness on Libyan law. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya and Washington D.C.

Disclaimer:

Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and how they may affect a case.

For specific technical or legal advice on the information provided and related topics, please contact the author.

The elements of investing the pledged money in the Libyan civil law:

The Libyan law has placed upon the pledgee in the official mortgage the right to dispose of any of its forms, whether by sale, or investment, but this behaviour is not to be released in the possession pledge, since the pledged money is transferred to the pledgee and this condition

Second: The elements of investing in the possession mortgage contract:

The investment of the pledge is considered an obligation of the pledgee in the Libyan Civil code provided that there is no agreement not to invest
The pledged money is between the pledgee and the pledgor, and this obligation is only in the event that the pledged money is transferred to the possession of the pledgor, and this right does not

It is for the pledgee in the event of a possession mortgage (90).
It follows from this obligation that it be in return, as the pledgor does not have the right to benefit from the pledged money in the possession pledge without return.
At that point, the mortgagee has the right to use the mortgaged property for himself, such as living in the mortgaged house or riding in the mortgaged car, and he also has the right to

He exploits it by someone else and rents it out to someone else (91).
What the mortgagee obtains from the net profit, and what he also obtains from his investment of the pledged money is not returned to the pledgee.

He must first deduct from the net profits the value of what he spent on the custodian on the mortgaged thing, and in repairing it when it was damaged,
Then he deducts, secondly.

All the expenses he incurred on managing the mortgaged money and then deduct thirdly the interests obtained from the origin of the mortgage.

Then, fourthly, what remains of the net profit, after all, that is deducted from the principal debt secured by the mortgage. This aforementioned deduction is considered one of the
The pledgor has the right, and the pledgee has no right to interfere in it, so he has the pledgee to follow what is appropriate towards this opponent (92).

the obligation of a person by virtue of a contract as security for a debt due to him, or to another, to deliver To the creditor, or to a foreigner appointed by the two contracting parties, something that gives the creditor a right in rem that entitles him to withhold the thing until the debt is paid.

So that he is ahead of the ordinary creditors and those who follow him in the salary in fulfilling his right from the price of this thing in whichever hand it is (8).
Where the possessory mortgage contract is considered a consensual mortgage like a formal mortgage, which is established by virtue of a mutual consensual contract between the mortgagee creditor and the debtor.

The present contract, and each of them has obligations, and this consensual contract is concluded by mere exchange of offer and acceptance between the contracting parties.

The pledge could be a real estate mortgage, movable mortgage, and debt mortgage. Article (1101) stipulates, saying: “It is not subject to the possessory mortgage unless it
can be sold independently in public auction of movables and real estate”

Possession Mortgage Contract

In application of this text, it is required in the possession mortgage contract that the following conditions be fulfilled (28):

The first condition: The mortgaged money must be from real estate and movables that can be sold by public auction.

The second condition: that these real estates and movables should be of what is valid to deal with.

The third condition: that it be precisely specific, and that it is subject to possession, and there is no difference between being movable things.

The elements of investing the pledged money in the Libyan civil law:

The Libyan law has placed upon the pledgee in the official mortgage the right to dispose of any of its forms, whether by sale, or
investment, but this behaviour is not to be released in the possession pledge, since the pledged money is transferred to the pledgee and this condition

Second: The elements of investing in the possession mortgage contract:
The investment of the pledged money is considered an obligation of the pledgee in Libyan law, provided that there is no agreement not to invest
The pledged money is between the pledgee and the pledgor, and this obligation is only in the event that the pledged money is transferred to the possession of the pledgor, and this right does not

It is for the pledgee in the event of a possession mortgage (90).
It follows from this obligation that it be in return, as the pledgor does not have the right to benefit from the pledged money in the possession pledge without return.
At that point, the mortgagee has the right to use the mortgaged property for himself, such as living in the mortgaged house, or riding in the mortgaged car, and he also has the right to
He exploits it by someone else and rents it out to someone else (91).
What the mortgagee obtains from the net profit, and what he also obtains from his investment of the pledged money is not returned to the pledgee, but must

He must first deduct from the net profits the value of what he spent on the custodian on the mortgaged thing, and in repairing it when it was damaged,
Then he deducts, secondly, all the expenses he incurred on managing the mortgaged money, and then deducts thirdly the interests obtained from the origin of the mortgage.
Then, fourthly, what remains of the net profit after all that is deducted from the principal debt secured by the mortgage.

This aforementioned deduction is considered one of the
The pledgor has the right, and the pledgee has no right to interfere in it, so he has the pledgee to follow what is appropriate towards this opponent (92).

Conditions of the pledged money in the possession mortgage contract:
The possession mortgage contract varies into real estate mortgage, movable mortgage, and debt mortgage.
Likewise, he responds to the debt, according to what Article (1101) stipulates, saying: “It is not subject to the possessory mortgage.”
Except what can be sold independently by public auction of movables and real estate” (27).

In application of this text, it is required in the possession mortgage contract that the following conditions be fulfilled (28):
The first condition: The mortgaged money must be from real estate and movables that can be sold by public auction.
The second condition: that these real estates and movables should be of what is valid to deal with.
The third condition: that it be precisely specific, and that it is subject to possession, and there is no difference between being movable things.
Material, such as: furniture, cars, livestock, and ornaments, or be intangible, such as: copyright, patent, antique money,
Or be a debt: such as: nominal bonds.

The nature of delivery, or seizure of the pledged money in the Libyan Civil Code:
The nature of the custody of the pledged money differs according to the type of pledge in the law, either it is an official pledge, or it is a pledge
possessively, as follows:

First: The nature of arrest in the official mortgage contract:
The money pledged in the official mortgage contract in Libyan law remains in the possession of the current debtor and is not transferred to the mortgagee, and it is not necessary

In this case, the pledged money – the real estate – is transferred to the creditor, but remains under the possession of the debtor, and Article 1047 stipulates:
A Libyan civilian asserted this right by saying: “It is permissible for the pledgee to dispose of the mortgaged property, and any act issued by him does not affect the right of the mortgaged property.”

The creditor and the mortgagee” (55).
This indicates that the pledgee retains the right to dispose of the mortgaged property as it was before the mortgage.

The powers of the owner from disposal, use and exploitation, provided that it does not harm the right of the mortgagee and does not affect it.
In this case, the right of his mortgage of the mortgaged property is restricted in the real estate registry, and it becomes the right of the mortgagee creditor to fulfill his right and track the property.

In which hand did he move after the mortgage was entered into? (56).

Second: The nature of arrest in the possession mortgage contract:
The right of the obligation to deliver the pledged thing from the pledgee is considered to be the one who transfers possession of the thing to the pledgee, or to another person
The two parties shall designate him for an absolute physical delivery, whether the pledged money is real estate or movable, and the delivery entrusted to him in the sale is not sufficient.

Just; Rather, in it, possession must pass from the hand of the pledgee and not return to him except after the termination of the mortgage (57).
Possession in the mortgaged money is one of the most important features that distinguish the possessory mortgage from other types, so it must be transferred from the hand of the mortgaged property.

The mortgaged property is in the hands of the pledgee, or justice, even if the thing mortgaged is a debt; The mortgagee creditor has the right to possess the mortgaged debt bond on the condition That the debt is transferable, attached, or mortgageable (58).

Likewise, possession is required to be clear, unambiguous, and unambiguous so that others are fully aware that this

The thing in the possession of the mortgagee on the basis that it is mortgaged, and it is also required that it be continuous as long as the mortgage contract continues.
The possessor, and it is not effective in the right of others other than this possession, as if it goes out from the hands of the pledgee to the hands of someone else without his will.

The law authorizes him to recover them from others, and to take precedence over ordinary creditors, as well as creditors next to him in salary (59).
The possession in the possession mortgage contract hardly differs in its quality from the official mortgage contract.

The real estate registry if the mortgaged property is real estate until possession passes to the creditor, or justice – and this matter is not different from a contract
The official mortgage can also be registered in the real estate registry – but if the mortgaged place is movable in the possession mortgage, it must

Proving it in an official paper showing the values of the amount secured by the mortgage, and the mortgaged money, and it is stipulated in the papers that it has a fixed date;
Because this date will determine the salary of the mortgagee creditor (60).

The elements of investing the pledged money in the Libyan civil law:
The Libyan law has placed upon the pledgee in the official mortgage the right to dispose of any of its forms, whether by sale, or
investment, but this behavior is not to be released in the possession pledge, since the pledged money is transferred to the pledgee, and this condition
There is no official mortgage, and the statement is as follows:

First: The elements of investing in the official mortgage contract:
The debtor owed in the official mortgage contract in Libyan law has the right to reserve the right to dispose of the mortgaged money as it was before the mortgage contract
Evidence for the text of Article: (1047) asserts this right by saying: “The pledgee may dispose of the mortgaged property, and any disposal issued

It does not affect the right of the creditor and the mortgagee.” The pledgee remains entitled to all the powers of the owner from disposal, use, and investment provided
It does not harm the right of the mortgagee creditor and does not affect him, and this behavior is nothing but the transfer of his possession to the mortgaged money (88).

Consequently, the mortgagee creditor, in the event of an official mortgage, must restrict the right of his mortgage to the mortgaged money from the pledgee’s right to dispose of it in

The pledged money is officially mortgaged by selling it in separate parts to a number of buyers, so the mortgagee creditor has the right to track each part.
Of the mortgaged money, that is, the property is in the hands of the person who bought it, and the Libyan law confirms that the mortgagee has the right to follow the property even if it is moved to

any other person in any particular way (89).
Second: The elements of investing in the possession mortgage contract:
The investment of the pledged money is considered an obligation of the pledgee in Libyan law, provided that there is no agreement not to invest

The pledged money is between the pledgee and the pledgor, and this obligation is only in the event that the pledged money is transferred to the possession of the pledgor, and this right does not

It is for the pledgee in the event of a possession mortgage (90).
It follows from this obligation that it be in return, as the pledgor does not have the right to benefit from the pledged money in the possession pledge without return.

At that point, the mortgagee has the right to use the mortgaged property for himself, such as living in the mortgaged house or riding in the mortgaged car, and he also has the right to

He exploits it by someone else and rents it out to someone else (91).
What the mortgagee obtains from the net profit, and what he also obtains from his investment of the pledged money is not returned to the pledgee, but must

He must first deduct from the net profits the value of what he spent on the custodian on the mortgaged thing, and in repairing it when it was damaged,

Then he deducts, secondly, all the expenses he incurred on managing the mortgaged money, and then deducts thirdly the interests obtained from the origin of the mortgage.
Then, fourthly, what remains of the net profit, after all, that is deducted from the principal debt secured by the mortgage.

This aforementioned deduction is considered one of the
The pledgor has the right, and the pledgee has no right to interfere in it, so he has the pledgee to follow what is appropriate towards this opponent (92). التزام شخص بمقتضى عقد ضماناً لدين علةيه، أو علةى غيره بأن يسلةم
إلى الدائن، أو إلى أجنبي يعينه المتعاقدان شيئاً يترتب علةيه للةدائن حقاً عينياً يخوله حبس الشيء لحين استيفاء الديْن،
بحيث يتقدم علةى الدائنين العاديين والتالين له في المرتب في اقتضاء حقه من ثمن هذا الشيء في أي يد يكون ) 8 .)
حيث يعتبر عقد الرهن الحيازي رهناً اتفاقياً كالرهن الرسمي ، ينشأ بمقتضى عقد رضائي تبادلي بين الدائن المرتهن والمدين
الراهن ، ويرتب علةى عاتق كل منهما التزامات ، وينعقد هذا العقد الرضائي بمجرد التبادل بالإيجاب والقبول بين المتعاقدين

شروط المال المرهون في عقد الرهن الحيازي:
يتنوع عقد الرهن الحيازي إلى رهن العقار، ورهن المنقول، ورهن الدّيْن، وبالتالي يرد الرهن الحيازي علةى العقار، والمنق ول،
وكذلك فهو يرد علةى الدَّيْن، وذلك علةى حسب ما نصت علةيه المادة: ) 1101 ( بقولها: ” لا يكون محلاً للةرهن الحيازي
إلاَ ما يمكن بيعه استقلالاً بالمزاد العلةني من منقول وعقار ” ) 27.)

وتطبيقاً لهذا النص، فإنه يقتضي في عقد الرهن الحيازي تحقق الشروط التالي ) 28:)
الشرط الأول: أن يكون المال المرهون من العقارات والمنقولات التي يصح بيعها بالمزاد العلةني.
الشرط الثاني: أن تكون هذه العقارات والمنقولات مما يصح التعامل بها.
الشرط الثالث: أن تكون معين بالذات تعيناً دقيقاً، وأن تكون قابلة للةحيازة، ولا فرق بين أن تكون الأشياء المنقول
مادي ، مثل: الأثاث، والسيارات، والمواشي، والحلةي، أو تكون معنوي ، مثل: حق المؤلف، وبراءة الاختراع، والنقود الأثري ،
أو تكون ديْناً: وذلك مثل: السندات الاسمي

طبيعة التسليم، أو القبض للمال المرهون في القانون المدني الليبي:
تختلةف طبيع القبض للةمال المرهون علةى حسب نوع الرهن في القانون إما أن يكون رهناً رسمياً، وإما أن يكون رهناً
حيازياً، وذلك علةى النحو التالي: .

مقومات الاستثمار في عقد الرهن الحيازي:
إن استثمار المال المرهون يعتبر التزاماً يقع علةى عاتق المرتهن في القانون اللةيبي بشرط إذا لم يكن هناك اتفاق بعدم استثمار
المال المرهون بين الراهن والمرتهن، وهذا الالتزام لا يكون إلاّ في حال انتقال المال المرهون إلى حيازة المرتهن، وهذا الحق لا
يكون للةراهن في حال الرهن الحيازي ) 90 .)
ويترتب علةى هذا الالتزام أن يكون بمقابل، فلةيس للةمرتهن أن ينتفع بالمال المرهون في الرهن الحيازي من غير مقابل ،
وحينئذٍ يحق للةمرتهن أن يستغل المرهون لحساب نفسه كأن يسكن المنزل المرهون، أو يركب السيارة المرهون ، وله أيضاً أن
يستغلةها بواسط غيره فيؤجرها لشخص آخر ) 91 .)
وما يتحصل علةيه المرتهن من صافي الربح، وما يتحصل علةيه أيضاً من استثماره للةمال المرهون لا يرده للةراهن؛ بل يجب
علةيه أن يخصم من صافي الأرباح أولاً قيم ما أنفقه في المحافظ علةى الشيء المرهون، وفي إصلاحه عند تعرضه للةضرر،
ثُم يخصم ثانياً كل المصروفات التي صرفها علةى إدارة المال المرهون، ثم يخصم ثالثاً الفوائد المتحصل علةيها من أصل الرهن،
ثم يخصم رابعاً ما بقي من صافي الربح بعد كل ذلك من أصل الديْن المضمون بالرهن، وهذا الخصم المتقدم يعتبر من
حق المرتهن، وليس للةراهن الحق في التدخل فيه، فلةلةمرتهن اتباع ما هو مناسب اتجاه هذا الخصم ) 92

أولاً: طبيعة القبض في عقد الرهن الرسمي:
يبقى المال المرهون في عقد الرهن الرسمي في القانون اللةيبي في حيازة المدين الراهن ولا ينتقل إلى المرتهن، وليس من الضروري
في هذه الحال أن ينتقل المال المرهون – العقار – إلى الدائن، وإنما يبقى تحت حيازة المدين، وقد نصت المادة: ) 1047 )
مدني ليبي علةى هذا الحق بقولها: ” يجوز للةراهن أن يتصرف في العقار المرهُون، وأي تصرف يصدر منه لا يؤثر في حق
الدائن والمرتهن ” ) 55.)
حيث يدل ذلك علةى أن الراهن يحتفظ بحق تصرفه في العقار المرهون كما كان قبل الرهن، فإن الراهن تظل له كل
سلةطات المالك من تصرف واستعمال واستغلال بشرط ألاَ يضر بحق الدائن المرتهن ولا يؤثر فيه، ويجب علةى المرتهن في
هذه الحال تقييد حق رهنه للةعقار المرهون في السجل العقاري، ويصبح من حق الدائن المرتهن استيفاء حقه وتتبع العقار
في أي يد انتقل إليها بعد قيد الرهن علةيه ) 56.)

ثانياً: طبيعة القبض في عقد الرهن الحيازي:
يعتبر حق الالتزام بتسلةيم الشيء المرهون من الراهن هو الذي ينقل حيازة الشيء إلى الدائن المرتهن، أو إلى شخص آخر
يعينه الطرفان تسلةيماً مادياً مطلةقاً سواء كان المال المرهون عقاراً، أو منقولاً، ولا يكفي فيه التسلةيم المعهود به في البيع
فقط؛ بل لابد فيه من أن تنتقل الحيازة من يد الراهن ولا تعود إليه إلاَ بعد انقضاء الرهن ) 57.)

والحيازة في المال المرهون تعتبر من أهم ما يميز الرهن الحيازي من غيره من الأنواع الأخرى ، فيجب أن تنتقل من يد
الراهن إلى يد المرتهن، أو العدل حتى ولو كان الشئ المرهون ديْناً؛ فيحق للةدائن المرتهن حيازة سند الدّيْن المرهون بشرط
أن يكون الدّيْن قابلاً للةحوال ، أو الحجز، أو الرهن الاستحقاقي ) 58.)
وكذلك يشترط في الحيازة أن تكون ظاهرة وواضح لا لَبس فيها ولا غموض حتى يكون غيره علةى علةم تام بأن هذا
الشيء في حيازة المرتهن علةى أساس أنه مرهون، ويشترط فيها أيضاً أن تكون مستمرة طالما استمر قيام عقد الرهن
الحيازي، ولا يكون نافذاً في حق غيره من غير هذه الحيازة ، حيث لو خرجت من يد المرتهن إلى يد غيره من غير إرادته

يخول له القانون في استردادها من غيره، والتقدم علةى الدائنين العادين، وكذلك الدائنين التاليين له في المرتب ) 59.)
والحيازة في عقد الرهن الحيازي لا تكاد تختلةف في كيفيتها عن عقد الرهن الرسمي، فالرهن الحيازي يتطلةب تسجيلةه في
السجل العقاري إذا كان محل الرهن عقاراً حتى تنتقل الحيازة إلى الدائن، أو العدل – وهذا الأمر لا يختلةف عن عقد
الرهن الرسمي في امكاني تسجيلةه أيضاً في السجل العقاري – وأما إذا كان محل الرهن منقولاً في الرهن الحيازي، فيجب
اثباته في ورق رسمي يبين فيها قيم المبلةغ المضمون بالرهن، والمال المرهون، ويشترط في الورق أن يكون لها تاريخ ثابت؛
لأن من شأن هذا التاريخ أن يحدد مرتب الدائن المرتهن ) 60.

مقومات استثمار المال المرهون في القانون المدني الليبي:
إن القانون اللةيبي قد وضع علةى عاتق الراهن في الرهن الرسمي الحق في التصرف يأي شكل من أشكاله سواء بالبيع، أو
الاستثمار، ولكن هذا التصرف ليس علةى اطلاقه في الرهن الحيازي بإعتبار المال المرهون ينتقل إلى المرتهن، وهذا الشرط
لا يوجد في الرهن الرسمي، وبيان ذلك علةى النحو التالي:
أولاً: مقومات الاستثمار في عقد الرهن الرسمي:
يحق للةمدين الراهن في عقد الرهن الرسمي في القانون اللةيبي أن يحتفظ بحق تصرفه في المال المرهون كما كان قبل عقد الرهن
بدليل نص المادة: ) 1047 ( علةى هذا الحق بقولها: ” يجوز للةراهن أن يتصرف في العقار الم رهُون ، وأي تصرف يصدر
منه لا يؤثر في حق الدائن والمرتهن “، فإن الراهن تظل له كل سلةطات المالك من تصرف، واستعمال، واستثمار بشرط
ألاَ يضر بحق الدائن المرتهن ولا يؤثر فيه، وهذا التصرف ما هو إلاّ يوضع ملةكه للةمال المرهون ) 88.)
وبالتالي، فيجب علةى الدائن المرتهن في حال الرهن الرسمي تقييد حق رهنه للةمال المرهون من قيام الراهن بحق تصرفه في
المال المرهون رهناً رسمياً عن طريق بيعه أجزاء متفرق إلى عدد من المشترين، فيصبح للةدائن المرتهن الحقَّ في تتبع كل جزء
من المال المرهون أي العقار في يد من اشتراه، ويؤكد القانون اللةيبي أن المرتهن له الحق في تتبع العقار حتى إذا انتقل إلى
أي شخص آخر بأي طريق معينه ) 89.)
ثانياً: مقومات الاستثمار في عقد الرهن الحيازي:
إن استثمار المال المرهون يعتبر التزاماً يقع علةى عاتق المرتهن في القانون اللةيبي بشرط إذا لم يكن هناك اتفاق بعدم استثمار
المال المرهون بين الراهن والمرتهن، وهذا الالتزام لا يكون إلاّ في حال انتقال المال المرهون إلى حيازة المرتهن، وهذا الحق لا
يكون للةراهن في حال الرهن الحيازي ) 90.)
ويترتب علةى هذا الالتزام أن يكون بمقابل، فلةيس للةمرتهن أن ينتفع بالمال المرهون في الرهن الحيازي من غير مقابل ،
وحينئذٍ يحق للةمرتهن أن يستغل المرهون لحساب نفسه كأن يسكن المنزل المرهون، أو يركب السيارة المرهون ، وله أيضاً أن
يستغلةها بواسط غيره فيؤجرها لشخص آخر ) 91.)
وما يتحصل علةيه المرتهن من صافي الربح، وما يتحصل علةيه أيضاً من استثماره للةمال المرهون لا يرده للةراهن؛ بل يجب
علةيه أن يخصم من صافي الأرباح أولاً قيم ما أنفقه في المحافظ علةى الشيء المرهون، وفي إصلاحه عند تعرضه للةضرر،
ثُم يخصم ثانياً كل المصروفات التي صرفها علةى إدارة المال المرهون، ثم يخصم ثالثاً الفوائد المتحصل علةيها من أصل الرهن،
ثم يخصم رابعاً ما بقي من صافي الربح بعد كل ذلك من أصل الديْن المضمون بالرهن، وهذا الخصم المتقدم يعتبر من
حق المرتهن، وليس للةراهن الحق في التدخل فيه، فلةلةمرتهن اتباع ما هو مناسب اتجاه هذا الخصم ) 92.)

Dr. Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. He served as an expert witness on Libyan law. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya and Washington D.C.

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ and the law may have changed since publication.

Readers considering legal action should consult with an experienced lawyer to understand current laws and how they may affect a case. For specific technical or legal advice on the information provided and related topics, please contact the author.

In application of this text, it is required in the possession mortgage contract that the following conditions be fulfilled (28):

The first condition: The mortgaged money must be from real estate and movables that can be sold by public auction.

The second condition: that these real estates and movables should be of what is valid to deal with.

The third condition: that it be precisely specific, and that it is subject to possession, and there is no difference between being movable things.

Tort under Libyan Civil Law: Understanding the “Fault” Factor

In civil law countries such as Libya, a tort is an act or omission that causes harm to others for which courts impose liability. The compensation is based on injury to other’s physical safety, property, economic interests, or reputation. Here we discuss Tort under Libyan Civil Law and understand its factors.

Article 166 of the Libyan Civil Code is contained within Section III (“Unlawful Acts”), Part 1 (“Liability Arising from Personal Acts”) of the Libyan Civil Code. Creates a general provision of liability for civil wrongs as defined in that section. Article 166, which is entitled “General Rules,” provides as follows:

“Every fault which causes injury to another imposes an obligation to make reparation upon the person by whom it is committed.”

A negligence claim will succeed if the claimant can prove: a fault was committed by the defendant, damage or harm, and causation between the act of the defendant and the harm suffered.

In this article, we shall deal with the concept of “fault.”

Tort under Libyan Civil Law: “Fault” According to Article 166

Article 166 of the Civil Code requires that the defendant must commit a “fault.” The Libyan Civil Code does not define the word “fault.” However, it is understood that a person is at fault. When he commits an act or omission that is a deviation from the behaviour of a reasonable or “ordinary” person in the same circumstances.

Dr El-Sanhouri defines the “ordinary person” as the one who represents the “majority of people” in his intelligence and care. Similarities may be drawn between the concept of the “ordinary person” test and the English common law principle of the “standard of care” and the “reasonable person. ” Under the “ordinary person” test, the burden of proof falls on the claimant to prove that the defendant failed to act as an “ordinary person” would under the circumstances surrounding the facts.

A “fault” could thus result from an act in contravention of Libyan law, given that a reasonable person is expected to act under the law. Or an act that is not unlawful but nevertheless falls short of the standard expected of an ordinary individual. In accordance with the common person standard as set out by Dr El-Sanhouri, intent to commit the harmful act or the harm itself is not required to hold someone liable under Article 166 of the Civil Code.

Ordinary Person

The judge will examine the facts at hand and determine whether the person acted as an “ordinary person.”

In determining an ordinary person’s appropriate standard of behaviour, a Libyan court will consider whether the damage was a natural result of the defendant’s act. It is noted that although the concept of foreseeable harm is not applied explicitly, this consideration may come into the above analysis. If the defendant’s fault and causation are established, the defendant shall be responsible for the damage.

A fault, namely a deviation in a normal person’s behaviour, may also occur when someone is exercising a right or a license in an abusive manner. There is a general agreement among scholars and judges that someone is also at fault when s/he deprives a person of a right or a privilege protected by the law.

The majority of cases concerning Article 166 relate to acts rather than omissions. However, the facts of every case should be examined carefully by the court. Failure to perform accordingly may constitute a fault if there is a duty to act in a certain way while facing a specific situation. A judge may then find that by failing to act, a person failed to meet the standard of an ordinary person under the given circumstances.

Article 166 of the Libyan Civil Code focuses

Article 166 of the Libyan Civil Code focuses (Tort under Libyan Civil Law) on the nature of the harmful act. The Libyan Civil Code is not concerned with the degree of likelihood of the harmful event occurring. In analysing the nature of the act, two principles apply under Libyan law, both in the Libyan Civil Code and the legal commentaries of El-Sanhouri; the principle of (1) the deviation from the behaviour of an “ordinary person” and (2) the age of legal discretion.

Dr Mohamed Karbal is licensed to practice law in Libya, New York, and Washington D.C. He served as an expert witness on Libyan law. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya and Washington D.C.

Disclaimer: Every effort has been made to ensure the accuracy of this publication at the time it was written. It is not intended to provide legal advice or suggest a guaranteed outcome as individual situations will differ, and the law may have changed since publication. Readers considering legal action should consult with an experienced lawyer to understand current laws and how they may affect a case. For specific technical or legal advice on the information provided and related topics, don’t hesitate to contact the author.

Contribution to the World Bank’s “Doing Business 2021” publication

Dr. Mohamed Karbal contributed for the second time to the World Bank Group’s flagship annual publication “Doing Business 2021.” Doing Business publication is a comparative law study that measures regulations that enhanced business activity using quantitative indicators for 190 economies.

More on the “Doing Business” publication can be found here.

Doing Business world bank 2021 certificate

Check Also: Awarding Lost Profits in International Investment click here

Awarding Lost Profits in International Investment Disputes:Libyan Law Firm

Libyan Law Firm: Awarding Lost Profits in International Investment Disputes

Dr. Mohamed Karbal is licensed to practice law in Libya, New York, and Washington D.C. and served as an expert witness on Libyan law for Tekfen-TML Joint Venture v. Man-made River. Karbal & Co is a full-service international law firm that serves the needs of businesses and governments in Libya,  Washington D.C.and Turkey.

For more information on our legal services relating to Libyan law, please visit our page.

Libyan Law Firm of Tripoli
Libyan Law Firm of Tripoli

Introduction

Tribunals, whether national or international, exercise discretion when awarding lost-profits claims since such claims involve complex economic and financial data.  In lost-profits claims, the common practice is to award claimants damages to place the claimant in the same pecuniary position they would have been in had the contract been performed.  However, in general, tribunals use various methods to calculate lost-profits such as the “Benchmark” and the “Before and After” methods. 

Calculating lost-profits is complex and has resulted in courts awarding damages for lost-profits inconsistently or arbitrarily. This article will examine and compare how two tribunals analyzed the facts and explain the methodology and reasoning it relied on to issue its damages in lost-profits claims. 

In this article, we will review the case of PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v Republic of Turkey[1] (“PSEG v Turkey”) as decided by the International Centre for Settlement of Investment Disputes (“ICSID”) in applying Turkish law.  As a comparison, we will discuss the case of Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. the State of Libya, et al.[2], which was decided under the Unified Agreement for the Investment of Arab Capital in the Arab States (Unified Agreement) and applied Libyan law. 

The ICSID

PSEG v Turkey

​​​​​​ As the ICSID is considered “the international body” designated to arbitrate and settle international investment disputes arising between investors and states, the ICSID has tried hundreds of cases on various procedural and substantive topics ranging from decisions on provisional measures to decisions on annulment of agreements, and matters relating to lost-profits. 

Background

In PSEG v Turkey,PSEG Global applied to the Turkish Ministry of Energy and Natural Resources in 1994 to build a lignite-fired thermal power plant in Turkey. Authorization was granted in 1994 to prepare a feasibility study which was submitted in early 1995, and the project was approved late that year. The Implementation Contract required PSEG to conclude several agreements and protocols, most notably the Energy Sales Agreement, the Fund Agreement, and the Treasury guarantee ICSID arbitration.[3] After the Concession Contract was signed, a performance bond for USD 8.04 million was posted by PSEG on February 23, 1999,[4] which was terminated at a later time.

In its claim, registered with the ICSID on May 2, 2002, the PSEG estimated the pre-construction costs to be in excess of USD 10.5 million, which included engineering and consultant studies, development costs, and legal fees.[5]  The Project envisaged thirty-eight (38) years of commercial operation and a total investment cost of USD 804.8 million.

Assessing Lost-Profits

Based on the experts’ reports submitted, PSEG proposed to the ICSID tribunal  (“ICSID Tribunal”) three approaches to assess the damages: the fair market value, the lost-profit valuation, and the actual investments made and out of pocket expenses incurred by the Project sponsors.[6] A claim by PSEG against Turkey was based on the lost-profit valuation approach and was calculated as the equivalent to the amount of profits that PSEG would have obtained under the Concession Contract. Using the lost-profit valuation approach, PSEG estimated its lost-profits to be USD 223.742 million, where the interest incurred on the lost-profits would amount to USD 334.756 million at the end of 2006.[7]

In return, Turkey argued that the PSEG should show a record of profits in addition to performance records. Turkey convincingly invoked the awards granted in AAPL159 and Metalclad,160, which required the plaintiff to show that it had a record of profits and a performance record. Turkey explained that the for awards under Wena161 Tecmed162 and Phelps Dodge163, the ICSID refused to consider profits that were too speculative or uncertain. Furthermore, Turkey noted that in cases where lost profits were awarded to plaintiffs, such as Aminoil, the claim was based on the fact that the plaintiff had a long history of operations.[8]

The ICSID Tribunal examined other ICSID decisions whose awards were granted based on the precedent in Aucoven.  The PSEG Tribunal concluded that previous ICSID tribunals were “reluctant to award lost profits for a beginning industry and unperformed work.” As decided in Aucoven, the PSEG Tribunal added that compensation based on the lost-profits, is “normally reserved for the compensation of investments that have been substantially made and have a record of profits.”  Otherwise, compensation for lost-profits is “refused when such profits offer no certainty.”[9]

PSEG argued that its claims are based on contractual arrangements “that establishes the expectation of profit at a certain level and over a given number of years.” An identified period of investment specified in a contract renders calculating future profits an easy task.  On the contrary, the PSEG Tribunal considered that long term contracts subject to adjustment mechanisms and other possible variations with time were the “most difficult if not impossible to calculate such future profits with certainty.”[10]

In explaining the basis for its decision not to award PSEG lost-profits, the PSEG Tribunal stated:

Even assuming that none of those difficulties existed, in this case the exercise becomes moot because the parties never finalized the essential commercial terms of the contract, and as a result neither could the additional agreements concerning the sale of electricity, the Fund payments and the Treasury guarantee be finalized.

Relying on cash flow tables that were a part of proposals that did not materialize does not offer a solid basis for calculating future profits either.[11] The future profits would then be wholly speculative and uncertain. By definition, the concept of lucrum cesans requires in the first place that there is a lucrum that comes to an end as a consequence of certain breaches of contract or other forms of liability. Here such an element is not only entirely absent but impossible to estimate for the future.[12]

As a result, the PSEG Tribunal awarded PSEG compensation in the amount of USD 9,061,479.34 out of the claimed estimated lost profits of USD 223,742,000 with interest at the six months average LIBOR rate plus two (2) percent per year for each year during which amounts are owing to be compounded semi-annually.  In addition, Turkey was ordered to pay sixty-five (65) percent of the costs of the arbitration and legal costs and fees of USD 20,851,636.62.

Unified Agreement for the Investment of Arab Capital

Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. State of Libya, et al

Signed on November 26, 1980, and entering into force on September 7, 1981, the Unified Agreement for the Investment of Arab Capital in the Arab States (“Unified Agreement”) is a regional agreement limited to the Arab States which are willing to solve investment claims raised by an Arab national in its territory.  The Unified Agreement called for the establishment of an Arab Investment Court (“Al‐KharafiTribunal”), and the draft statutes of the said court came into force on February 22, 1988.

Even though it was decided in 2013, the case of Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. the State of Libya, et al. (“Al‐Kharafi v Libya”) is considered the first arbitral award issued under the Unified Agreement and was the first to apply Libyan law.

Background

In 2006, the Libyan Ministry of Tourism approved an investment project proposed by Al-Kharafi & Sons Co. for the construction and operation of a tourism complex (the “Project”). Shortly thereafter, the Kuwaiti company signed a Built-Operate-Transfer contract with the Libyan Tourism Development Authority for a ninety (90) year land-leasing contract comprised of twenty-four (24) hectares of state-owned land in Tajura, a city in the Tripoli District. The Project was to build a small town consisting of a four-star hotel, hotel apartments, residential apartments, townhouses, villas, a shopping mall, offices, public areas, and a beach totaling 69,500 sqm.    The Project was to start in 2007, but construction work never commenced. The Ministry of Economy annulled the project’s approval in 2010 and as a result, the land-leasing contract was also invalidated.

Expert Witness

At the beginning of the dispute with the Libyan government, Al‐Kharafi was satisfied to receive USD 5 million as compensation for the loss. However, the amount of compensation was revised until it reached the amount stated in the expert’s reports submitted by Al-Kharafi.  The submitted financial reports prepared by international financial experts showed that the value of the lost-profits during the investment period of the Project covered by the contract ranged between USD 1.74 million and USD 2.55 million.

All financial experts used the data and documents provided by Al-Kharafi to prepare their scientific and unbiased reports on the estimation of the company’s lost profits for eighty-three (83) years according to commercial practice and the international accounting and financial standards.

Al‐Kharafi Tribunal’s Reasoning  

The Al‐KharafiTribunal described the experts’ reports submitted by Al-Kharafi as being:

prepared by highly renowned, specialized and expert accounting firms with vastly reliable and credible research, studies, and results… All financial experts have built on the data and documents provided by the Plaintiff to write their scientific and unbiased reports on the estimation of the company’s 83-year-long lost profits, pursuant to the commercial practice and the international accounting and financial systems.[13]

In its decision, the Al‐KharafiTribunal failed to analyze the reasoning and analysis contained in the experts’ reports. The Al‐KharafiTribunal instead reached its decision for the plaintiff based on the following reasons:

  • The experts’ “reports are considered among expertise works that the defendants could have objected to and refuted by means of response expert reports prepared by specialized firms having an excellent professional reputation.”
  • “The defendants did not submit any response expert report to refute the content of the reports submitted by the [Al-Kharafi].”

The Al‐KharafiTribunal added, “the [d]efendants’ discussion of these four reports was limited to the form and did not tackle the details and calculations through the submission of reports characterized by the same level of expertise as the submitted four reports.”[14]

Concerns with the Experts’ Reports

Instead of questioning the experts’ method of forecasting the lost profit of the Project which had never commenced, the Al‐KharafiTribunal asked the same question twice framed differently to the two experts.   The Al‐KharafiTribunal first asked if the damages mentioned in the reports were real and certain lost opportunities and constitute a lost profit.”[15]  The experts replied that the lost profit was certain and represents the minimum.” 

After the Al‐KharafiTribunal repeated the same question (for an unknown reason), and the experts’ answer was, “[t]hese are certain profits that the Plaintiff has lost and which it would have otherwise certainly realized in the normal conditions currently prevailing in Libya.”[16] In cases where a court rewards the claimant compensation for lost-profits based on the breach of a contract  if for goods and/or services, the contract would refer to the amount of items/service to be provided and the corresponding price.

For the case at hand, the Al‐KharafiTribunal appears to have failed to review the facts. The case did not involve the purchase and sale of products or the provision of services: The case involved a land lease on which the Project will be built and there was no guarantee on the number of clients would seek the service provided by Al-Kharafi. Furthermore, the Project never commenced.    

In Al-Kharafi v. Libya, the experts relied on the fair market value based on the “conditions currently prevailing in Libya.”  The experts calculated how much profit the Project would generate during the first year and later multiplied such a figure by the number of years remaining of the land lease agreement (i.e., eighty-three).

The experts, in theory, should have obtained a performance record to establish that the Project is generating a profit in order for Al-Kharafi to be awarded damages of lost-profits. Logically, Al-Kharafi should not have been awarded loss-profits as the Project did not have a performance record.

The Status of Al-Kharafi v Libya

Since Al-Kharafi v Libya’s award was published in 2013, both parties became involved in legal proceedings.  Al-Kharafi filed for proceedings to seize Libyan properties around the world, as an attempt to enforce the award. In 2015 and 2016, Al-Kharafi Construction Group failed to take ownership of the luxurious Libyan plane, previously used by Kaddafi.  The aircraft was on a maintenance program in France.

On the other hand, the Libyan authorities filled legal proceedings with the Egyptian courts.  At first, the Cairo Court of Appeal rejected the Libyan request to annul the award in Al-Kharafi v. Libya.  The Court of Appeal’s decision was appealed before the Supreme Court, who in December 2019 overturned Cairo’s Court of Appeal decision and ordered rehearing.   

In June 2020, the Cairo Court of Appeal found that the arbitral award should be set aside. The court based its decision to annul the award on two significant issues.  The first issue was that the judicial system, from a public policy view, is always entitled to examine and ensure that the core procedural standards, such as standards of fairness, have been adhered to by the arbitral trial.

The second issue was the judges are entitled to evaluate whether the award was based on reasons and conclusions that represent a clear and real violation of public policy.  The court concluded that the award was unproportioned to the actual damage, especially when Al-Kharafi, at the beginning of the dispute, was only demanding five (5) million dollars as compensation. 

This article was first written in 2018.


[1] PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v Republic of Turkey, ICSID Case No. ARB/02/5

[2] Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. State of Libya, et al. Final Award Document downloaded from http://www.italaw.com

[3] Id. para.24.

[4] Id. para.21.

[5] PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Limited Sirketi v Republic of Turkey, ICSID Case No. ARB/02/5, para.19.

[6] Id. para.283.

[7] Id. para.285.

[8] Id. para.311.

[9] Id. para.310.

[10] Id. para.312.

[11] Id. para.313

[12] Ibid.

[13] Mohamed Abdulmohsen Al‐Kharafi & Sons Co. v. State of Libya, et al. Final Award Document downloaded from www.italaw.com p.378.

[14] Ibid.

[15] Ibid.

[16] Ibid.

Dr. Mohamed Karbal is licensed to practice law in Libya, New York, and Washington D.C. and served as an expert witness on Libyan law for Tekfen-TML Joint Venture v. Man-made River. Karbal & Co is a full-service international Administrative law firm that serves the needs of businesses and governments in Libya,  Washington D.C., and Turkey. For more information on the legal services we offer on Libyan law, please visit our page dedicated to Libyan law.

After the fall of Gaddafi’s regime, foreign companies which had performed works in Libya rushed to the international tribunals seeking compensation.  Since the counterparty in agreements for public procurements in Libya is a public entity established by the Libyan government, foreign companies file their claims against both the public entity and the state of Libya. It is understood that the aim of such a litigation strategy is to have the state of Libya jointly liable.

International Administrative law firms in Tripoli Libya
International law firms in Tripoli Libya

Since I served asexpert witness on Libyan administrative and civil law on behalf of the Respondent  in Tekfen-TML Joint Venture v. Man-made River Authority and the State of Libya and my law firm was retained to advise the Respondent, it is worth mentioning that the said case dealt with the issue of defining a “government entity”. The case was first brought before the International Chamber of Commerce in Geneva, Switzerland. 

The Arbitral Tribunal decided not to hear the allegations against the State of Libya based on its conclusion that the Man-Made River Authority was not a “government entity.” As a result, the Arbitral Tribunal determinated that the State of Libya is not responsible for violations committed by the Man-Made River Authority and by a majority decision, dismissed the claim against the State of Libya.

The Arbitral Tribunal upheld the claim against the Man-made River Authority in part. It awarded the Tekfen-TML Joint Venture sum of USD 40,134,129 payable immediately by the Man-made River Authority, after setting-off a counter-claim of USD 354,520.

The Arbitral Tribunal (by majority decision) found that the Man-made River Authority is an independent legal entity under Libyan law.  Therefore, the Arbitral Tribunal rejected Tekfen-TML Joint Venture’s notion that the Man-made River Authority was an organ of the Libyan state or an auxiliary of the state, and thus identical to the state.

Under Libyan law, the Libyan Supreme Court (the “Supreme Court”) considers  various factors to determine whether an entity is a “state entity” or a “state organ.” The Supreme Court examines, inter alia, whether the entity/organ:

  1. has an independent legal personality;
  2. is chaired by a minister or under the direct influence and supervision of a minister;
  3. exercises a legislative function such as enacting policies for public sectors;
  4. serves public needs, i.e., providing health service, education, food products, etc.;
  5. recruits employees to be governed by the Civil Service Code or other laws or special policies and procedures.
  6. was intended by the legislature to be a part of the government and exercise public functions or whether the legislature intended the entity to operate as a commercial company.

(the “Test”).

In practice, the Supreme Court did not rely merely on the “independent legal personality” factor alone  to determine whether an entity is a “state entity.” An example of a precedent where the Supreme Court considers the Test is its decision in Cassation No. 296/24 dated 25 April 1978 where the Supreme Court concluded that the Agriculture Development Board (“ADB”), which had an independent legal personality, is a government entity. The Supreme Court reviewed and analyzed in detail the power and practices granted to ADB by Law 146/1972 which established the ADB.

As mentioned by the Supreme Court, and based on the Law 146/1972, the ADB:

  1. has a separate legal personality;
  2. is chaired by the Minister of State for Agricultural Development;
  3. has a mission to participate in the development of the national economy in the agriculture sector by increasing agricultural production to ensure self-sufficiency in grain, meat and other protection of natural resources, etc.;
  4. establishes general policy for agricultural development in areas listed in Law 146/1972; and
  5. oversees the integrated agrarian development plan.

In its conclusion, the Supreme Court ruled that

the Agricultural Development Board, which enjoys legal personality, administrative authority, which is a part of public authority, and participates in the development of the national economy in the agriculture sector, should be considered as one of state public facilities…

Rebalancing Administrative Contracts under Libyan Law

by Dr. Mohamed Karbal

Dr. Mohamed Karbal is licensed to practice law in Libya, New York and Washington D.C. and served as an expert witness on Libyan law for Tekfen-TML Joint Venture v. Man-made River. Rebalancing Administrative Libyan Law is explained in details here.

We are offering our services as a Legal Consultation and if you’re establishing business in Libya you can hire us as a lawyer.

Under the Libyan Civil Code, a Libyan tribunal is empowered to adjust or rebalance a civil contract to “restore its equilibrium” as a result of extraordinary or unforeseen events if one party may still continue the performance of the contract.  A Libyan judge may rebalance the contract due to unforeseen events or circumstances (La théorie de l’imprevision).

The doctrine of unforeseen events or circumstances is also applicable to administrative contracts.  Article 105 of the Administrative Contract Regulations (“ACR”) requires an administrative unit to rebalance the contract in the case of unforeseen circumstances that render performing an obligation under the contract difficult, but not impossible.

Rebalancing Administrative Libyan Lawyer

The Libyan law empowers a tribunal to rebalance a contract, whether civil or administrative, only when the contract is “excessively onerous.” However, if the contract is impossible to perform, it is illogical to adjust the terms of the contract. The contract will be terminated in this case.  

The doctrine of unforeseen events or circumstances (La théorie de l’imprevision) is provided under Article 104 and 105 of the ACR and is detailed in Art. 147(2), and Art. 657(4) of the Libyan Civil Code.

Art. 147(2) of the Libyan Civil Code states:

When … as a result of exceptional and unpredictable events of a general character, the performance of the contractual obligation, without becoming impossible, becomes excessively onerous in such way as to threaten the debtor with exorbitant loss, the Judge may, according to the circumstances, and after taking into consideration, the interests of both parties, reduce to reasonable limits the obligations that have become excessive. Any

agreement to the contrary is void.

The rebalancing of a contract under the Libyan Civil Code is also applicable to lump-sum contracts.  Article 657(4) of the Libyan Civil Code, which deals with lump-sum contracts states: 

As a result of exceptional events of a general character which could not be foreseen at the time of the contract was concluded, the economic equilibrium between the respective obligations of the master and of the contractor breaks down, and the basis on which the financial estimates for the contractor were computed has subsequently disappeared, the judge may grant an increase of the price or order resiliation of the contract.

For administrative contracts, article 105 of the ACR provides:

If general exceptional conditions occur, being unforeseeable, as would make execution of the obligation burdensome threatening the contractor with serious loss, without [being] impossible, the contractor shall have right to compensation for recovering the contract financial balance to the reasonable limit.”

In summary, the doctrine of unforeseen events or circumstances requires that an event must (i) be exceptional and unpredictable, (ii) of general nature and (iii) occurs during the performance of the obligation under the contract.

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By Karbal & Co, Legal Consultants

Last updated: 27 April 2017

With the Gulf nations aiming to diversify their economies through the implementation of a VAT in 2018, what can we expect?

In recent years, the Gulf States have sought measures to diversify their economies to reduce their oil dependency and seek alternative means of state revenue.

In a unified effort, six GCC UAVAT countries have announced plans to simultaneously enact a VAT law by January 1, 2018 under the Unified Agreement for Value-added Tax (“UAVAT”). The VAT shall levy funds at a rate of 5% for both goods and services that are sold or provided to consumers within the Gulf States.

GCC UAVAT By M. Karbal

When shall the law come into force?

Although the legal framework shall be agreed upon between the countries by January 1, 2018, the VAT law shall be implemented in the GCC countries between January 1, 2018 and January 1, 2019. The UAE has stated in particular that it shall implement the law by January 1, 2018.  

To whom is the law applicable?

Businesses

Not all businesses operating in the UAE will be required to pay a value-added tax. According to a statement issued by the UAE Ministry of Finance, companies whose annual revenue exceeds AED 375,000 shall be required to register with the relevant authorities and pay the tax. However, companies whose annual turnover is between AED 187,000 and AED 375,000 have the option to register. Although the 5% VAT may be applied to all industries operating within the UAE, specialists believe that certain industries may be exempt, including water and energy (oil & gas and renewable energy). Additionally, international trade between GCC member states is likely to call for special statutory exceptions to facilitate trade between the countries. It is also unclear whether the VAT will be applied to imports. The details of the legislation for each GCC member state remain to be seen.

Consumers

Concerns have been raised about the applicability of the VAT to consumer goods. Reports indicate that in its essence, the VAT aims to tax tobacco, energy drinks and soft drinks. A list of 100 items shall be issued stating items that shall be exempt from the VAT tax, including healthcare, basic food items and education fees.

Measures taken to enact law

Member states in the GCC shall have from January 1, 2018 to January 1, 2019 to implement the legislation internally by enacting their own laws. It is therefore presumed that each member state shall impose its own specific details on VAT compliance requirements for companies.

Although the UAE has yet to release the general framework for the VAT law, reports indicate that the UAE has drafted a law internally. In anticipation of the implementation of the new GCC VAT law, the UAE established a Federal Tax Authority which shall enforce federal tax laws and levy taxes. The Federal Tax Authority shall also perform tax audits on firms and issue penalties in the case of non-compliance.

Significance of new tax law on businesses operating in the Emirates

Many questions raised by businesses operating in the Emirates concern compliance for the highly anticipated tax law. Compliance with the legislation will most likely include periodic reporting requirements, such as quarterly or monthly filings for VAT returns. A predicted effect of the tax law shall be an increase in detailed record keeping for businesses. Furthermore, if companies shall be expected to periodically remit funds to the Federal Tax Authority, companies may be faced with issues concerning cash flow management.  

Looking for tax law services in the UAE or Libya? Please visit our Contact us page to connect with us. 

Karbal & Co is an international law firm with offices in Dubai, United Arab Emirates and Tripoli, Libya. Our corporate law practice advises clients on all ownership, corporate governance and regulatory matters. Our experience includes setting up companies, ownership agreements and drafting articles of association for various different companies in the information techonology, medical and oil & gas industry.

Structuring Islamic finance transactions in the Shipping Industry of the UAE

Structuring Islamic finance transactions in the Shipping Industry of the UAE

By Nabilah Karbal, specialist in Islamic Finance and Associate at Maritime law firm Karbal & Co in Dubai, United Arab Emirates.

Islamic finance is a branch of finance that raises capital and provides financial services in compliance with Islamic rules and principles. Islamic finance not only establishes rules for providing financial services, but also legal rules for commercial transactions, such as sales.

Seeing as Nasdaq Dubai is the largest exchange for sukuk globally, and since the Dubai Maritime Vision 2030 aims to “establish Dubai as a leading Global Islamic Maritime Economy,” Dubai is rapidly growing as a world Islamic financial hub.

Structuring Islamic finance transactions

This article briefly examines (I) the specific contractual rules required for a valid Islamic finance transaction and (II) the commonly used Islamic finance products in the maritime industry.

(I)                Contractual rules specific to Islamic Finance

Islamic finance contractual rules

The purpose of Islamic finance contractual rules is (1) to encourage development and (2) to ensure that transactions between parties are sound and fair. Islamic finance requires that the parties to a contract be of sound mind, and that the contract be formed on the basis of offer and acceptance. Furthermore, the terms of the acceptance by one party must mirror the terms of the offer proposed. The basic contractual rules of Islamic finance transactions therefore reflect the same contract law rules of common-law jurisdictions, thus making the Islamic finance contracts enforceable in many western jurisdictions.

Like many of the rules throughout various jurisdictions that aim to protect consumers, Islamic finance requires the seller to fully disclose all known flaws of goods that may not be evident to a buyer. Parties must also avoid any misrepresentations, and a seller may not take advantage of a buyer’s ignorance.

Furthermore, the seller must disclose the profit made from the transaction by disclosing the actual cost incurred (i.e., the cost of acquiring, producing or manufacturing the good). A permissible exception to this requirement is a musawama transaction, whereby a buyer agrees not to know the profit earned by the seller.

Check also: Liability for Collisions under UAE Maritime Law

Prohibitions in Islamic finance transactions

Islamic Finance transactions must be based on honesty and fair trade. Profiteering and cheating are therefore impermissible or haram. Furthermore, certain practices of the financial services industry of western jurisdictions are prohibited in Islamic finance. In addition to the prohibition on transactions concerning impermissible goods (i.e., investing in the production or sale of pork and alcohol), one of the absolute prohibitions in Islamic finance is the prohibition of riba.

There are two categories of Riba; The first is the act of charging interest on a loan (Riba al Nassiyah), and the second is the compensation received by one party which is in excess of the value of the underlying transaction (Riba al Fadl). The act of charging interest in addition to the principal on a loan is therefore impermissible in Islam. Islamic finance therefore provides alternatives to conventional financial products that use riba through various Islamic finance products.

Transactions must also avoid gharrar, or uncertainty. All terms of the contract, such as date of delivery in a sales contract, must be defined in order to avoid uncertainty. However, price need not be agreed upon in order for the contract to be valid if the price can be readily determined on the market. A seller must also own the property that is the object of the contract prior to the conclusion of the sale or transaction in order to avoid gharrar. Ownership can be either constructive or actual.

Finally, maysir, or speculation, is a major prohibition in Islamic finance. The interdiction therefore prohibits the use of derivatives in Islamic Finance transactions.  

(II)             Common Islamic finance products used in Ship Finance

Amongst the various Islamic finance products available, certain products are well-suited to the needs of the shipping industry. The following are the most popular Islamic finance products used in ship finance:  

Ijara- Operating and Finance leases

Ijara is the Arabic word for “rent.” It is defined as a bilateral usufruct contract, or contract which grants one party the right to use the property of another party for a specific duration. In order to avoid gharrar, a lessor must therefore own the asset before entering into a lease contract with a leasee.

The ijara contract can be structured as either an operating lease or a finance lease known as ijara wa iqtina.

Ijara wa iqtina allows a leasee to pay periodic rental payments to the owner of the property with the promise to purchase the property at the end of the lease term. In the shipping industry, ijara wa iqtina is therefore used to finance the purchase of ships and other marine assets. Islamic finance also allows transactions to be structured with a security or mortgage in order to protect the lessor from the leasee’s default.

Istisna’a – Project finance

Istisna’a is a commonly used Islamic finance product which enables a bank to act as an intermediary between a customer and a manufacturer hired to produce or construct an asset. It is mainly used for project finance or working capital as an alternative to a loan.

In practice, a customer approaches a bank in order to construct property or manufacture goods. The bank pays for the construction of the project, and ownership of the finished product is transferred to the bank upon completion. In the maritime industry, istisna’a is predominately used in ship building. It enables a bank to exercise pre-delivery financing of ships under construction.

Upon completion of construction, ownership may be transferred from the bank to the customer. The customer has the right to pay for the property either (1) in installments, or (2) in whole at the end of the construction.

Murabaha – Cost-plus financing

Another commonly used Islamic finance product is murabaha, which is the Islamic finance equivalent of cost-plus financing in conventional banking.

Murabaha is often used for acquiring assets and working capital. In the maritime industry, murabaha would therefore be used to acquire ships and other marine assets.

In a murabaha transaction, the bank enters into a contract to acquire an asset on behalf of a customer. The bank acquires ownership of the asset in order to avoid gharrar. The rules of Islamic finance allow a bank to acquire the property in its name, or to appoint an agent to act on the bank’s behalf to acquire the asset. The bank may even appoint the customer as an agent.

After the bank acquires the asset, the asset is immediately transferred to the customer. The customer then pays for the asset by a deferred payment on a date that is pre-agreed upon between the two parties.

Like other Islamic finance transactions, banks may protect themselves from loss through mortgages, collateral (rahm), and/or guarantees (kafala).

Sukuk – Bond

Sukuk is considered the fastest growing and most popular Islamic finance product on the market. The growing popularity can be accredited to the fact that, like bonds and shares, sukuk certificates are securities that can be publically-traded on a secondary market (exchanges). The popularity is also due to a sukuk’s capability of raising large amounts of capital.

Sukuk can be defined as a beneficial interest or proof of ownership in an underlying asset whereby a sukuk holder receives periodic payments based on the performance of the underlying asset. Sukuk is often equated to bonds in conventional banking. However, many characteristics clearly distinguish sukuk from conventional bonds. For example, periodic payments based on performance of the underlying asset differ from coupons attached to a conventional bond, as coupons allow a bond holder to receive interest payments. Furthermore, due to the ownership interest a sukuk grants a holder of its certificates, a sukuk can be classified as a hybrid security that combines the characteristics of both bonds and shares (debt and equity).  

There are various forms and structures of a sukuk, however ijara sukuk appears to be a popular form of sukuk in the maritime industry. In a typical sukuk transaction, the obligor, or the party who wishes to raise funds, approaches an Islamic bank for funding. The Islamic bank then establishes a special purpose vehicle (“SPV”). The SPV issues the sukuk certificates, which are title deeds of equal shares for leasing project, to shareholders in exchange for capital. The obligor transfers the property to the SPV in exchange for the capital provided by the sukuk holders. The obligor enters into a rental agreement with the SPV, and agrees to pay periodic rentals on the property, with a promise to purchase the property at a maturity date. The certificate shares are only issued once the obligor transfers the property to the SPV. Seeing as the certificates represent ownership, the certificates grant the holders the right to receive rental fees paid by the obligor and dispose of their property affecting the lessee’s rights.

Liability For Collisions Under UAE Maritime Law Explanation

Liability For Collisions Under UAE Maritime Law Explanation

Hosting one of the world’s largest ports, Dubai has rapidly expanded to become a leading maritime hub. As an expected consequence of the growth of Dubai’s maritime industry, the number of marine accidents has steadily increased over the past few years, as Dubai Port police have reported that there were 53 maritime accidents in 2013, 37 accidents in 2012, and 34 accidents in 2011. According to Marasi News, 9 of the 37 accidents that had taken place in 2013 were collisions.

Collisions cause a variety of  adverse consequences, ranging from  fires and explosions to loss of cargo and damage to the vessel, marine pollution, and death or injury sustained by individuals such as members of the crew. In the most extreme cases, the aforementioned effects may be coupled in the vessel sinking. Depending on the severity of the effects, damages for collisions may cost those who are liable millions in losses. The major area of concern during a collision is the allocation of liabilities amongst the parties implicated.

UAE Maritime law

The purpose of this article is to address the legal issues surrounding fault and liability that arises from a maritime collision that occurs within UAE territory by applying the applicable legislation, the UAE Maritime Code of 1981(Maritime Code).

Definition of a collision under Maritime Law

UAE Maritime law defines a collision an accidents that occur between vessels, regardless of whether physical contact has occurred; the UAE law allows victims to recover from tortfeasors even if no physical contact has occurred where  damage by an act or failure to act or violation of navigation rules is caused to another vessel, the goods or persons aboard the vessel (Article 318/2 of Maritime Code).  In case a collision occurs, persons or cargo aboard a ship or an innocent third party involved in the collision may recover for damages and losses suffered. However, the physical contact between ship and structures, such as a bridge or dock, is not a collision, and in fact constitutes tortious liability. 

Determining liability of a vessel

Like many other jurisdictions, a collision occurs due to either a fault of a vessel, force majeure, or unidentified cause. Determining the allocation of liability is determined by assessing which party is at fault.  If a Court determines one vessel is at fault for the collision, the owner of the vessel will be held liable for paying damages to successful claimant(s) (Art. 320 of Maritime Code). The UAE Maritime Law code provides for joint and several liability for collisions where more than one vessel is at fault. If a Court finds both vessels jointly at fault, then the Court will accord liability to ships in proportion to the amount of blame of each vessel.  (Art. 321 of the Maritime Code). Incidents may arise where Courts are faced with the difficulty of determining the percentage of  fault of the vessels, such as when evidence is vague and does not permit the court to determine who is at greater fault. In this case, the courts will find  all vessels involved in the collision equally at fault.     

Force majeure is the commonly used legal principal to describe an unknown cause or an irresistible force outside of the control of either party which causes a tort. Under maritime law, examples of force majeure include forces of nature, such as a hurricane or flood, which leads to a collision between vessels. In case of a force majeure, the UAE Maritime Code explicitly exempts each party from liability to the other. (Article 319 of Maritime Code) Instead,  a vessel shall only be responsible for its own losses.

Damages

As it is mentioned above, the ship-owner of a vessel that is found at fault for the collision shall be liable for paying damages to the victims of the collisions.

In dividing damages when more than one vessel has determined to be liable in a collision, , Article 321 of the UAE Maritime Code provides that damages will be determined and divided in proportion to the fault of more than one vessel. In effect, each vessel shall only remain liable for damages in in proportion to the percentage of the fault.  Furthermore, the UAE recognizes joint and several liability, which allows a victim to recover the totality of their damages from one of the defendants. (Article 321/3 of the Maritime Code).   Joint and several liability is limited, as vessels will only be jointly and severally liable for death or personal injury. if the damages relate to death or personal injury. Under UAE law, a charterer may also be required to indemnify the ship-owner for any claims for damages in a collision caused by the ship to third parties. (Art. 255of Maritime Code)

Check also: UAE Commercial Companies law and legal reforms

UAE Commercial Companies Law and legal reforms

UAE Commercial Companies Law and legal reforms

By Nabilah Karbal, Associate at Karbal & Co’s Dubai Office. 

Introduction

Federal Law No. 2 of 2015 “The New Commercial Companies law” (CCL), which came into force on July 1, 2015, replacing the Federal Law No. 8 of 1984. The purpose of the new legislation was to bringing the UAE up to speed with corporate legislation currently enacted in many developed nations. The New CCL requires that corporations subject to the legislation amend their articles of association and memoranda to comply with the legislation’s new provisions. Failure to amend a corporation’s articles of association before June 30, 2016 will result in the dissolution of the company.

The purpose of this article is to highlight certain changes and new additions enacted by the new legislation, and what corporations and shareholders need to know.

UAE Companies Law and legal reforms

Applicability and scope of the New Commercial Companies Law

The scope of the new legislation covers a variety of areas of ownership and corporate governance rules for different company models and concerns the protection of shareholders and fiduciary duties of directors.  

Although the CCL suggests that it applies to all commercial companies, the CCL is not applicable to free zone companies (Article 5 of the CCL). Article 5 of the CCL will only apply to free zone companies if they operate outside of their designated areas.

Furthermore, Article 4 stipulates that certain companies are not subject to the new CCL. These companies include

(1)   Companies that the federal cabinet had specifically exempted from application due to resolution;

(2)   Companies that are wholly or partially owned by the federal or local government; and

(3)   Companies of which the federal or local government owns 25% or more and which operate in the oil, gas, and power sectors.

Check Also: Medical Malpractice in the U.A.E

General rules

Foreign ownership: Restrictions codified

The UAE provides a system of ownership where foreign ownership is restricted to 49% of the company’s shares and where the remaining 51% is required to be owned by an Emirati national. With the new CCL, Article 10(1) provides that the restrictions must be strictly observed, as any share transfers to foreign nationals greater than 51% will be invalidated. With the original CCL, this provision was nonexistant.

Fiduciary duties (the duties of Directors and Managers)

Fiduciary duty can be defined as a duty owed by an agent to a principal. For a corporation or business entity that is an independent person, directors and managers owe a fiduciary duty to the corporation. Corporate laws of jurisdictions of developed nations impose a duty of ordinary care and prudence on a director and manager. Article 22 of the New CCL imposes the duty for directors to act with the care of an “precise person.” Prior to the New CCL, fiduciary duties of directors and managers had not been codified.

In its attempts to protect corporations, Article 24 of the new CCL provides that all provisions exempting directors and managers from personal liability are void.

A form of a “duty not to compete” requirement has been enacted in Article 86 of the New CCL, which applies specifically to limited liability companies. Article 86 stipulates that a director of a company is not allowed to manage or govern another company unless the director obtains the consent of the company for which she is already a director.

Updated Accounting Requirements

The Enron crisis is considered the event which highlighted the importance of the role of accountants. As a reaction, legislation in developed nations, such as Sarbannes-Oxley, set into force accounting requirements to which many jurisdictions now adhere.

In the UAE, accounting requirements were already in force prior to the New CCL. However, the New CCL brings accounting requirements up to international standards. Article 26 of the New CCL stipulates that business entities subject to the new legislation are required to retain accounts of books at their relevant head offices for five years. The aim is to give shareholders and directors an accounting of profit and loss for a given period.

Introduction of Holding Companies into UAE legislation

Although “groups” exist in the Emirates, Article 266 of the new CCL legally recognizes the existence of holding companies in the UAE. 

Rules applicable to Joint Stock Companies

Responsibility of board of directors

For both private joint stock companies and public joint stock companies, the board of directors shall be held accountable for compliance with corporate governance framework. Article 6 and 7 of the New CCL provides that failure for a director may result in a statutory penalty of up to 10 million AED.

Rules applicable to Private Joint Stock Companies

Corporate governance

The New CCL provides that the Minister of Economy shall issue resolutions concerning a corporate governance framework for companies with more than 75 shareholders.

Rules applicable to Public Joint Stock Companies

Corporate governance

The Securities & Commodities Authority shall issue the resolution regarding the corporate governance framework. The framework will include rules relating to the corporate governance applicable to the a public joint stock company. 

Auditors

Modern securities regulation, such as Sarbannes-Oxley, provides rules on independent auditors. The New CCL provides that all public joint stock companies must have at least one or more auditors that are nominated by the board of directors. The new CCL further provides that all auditors must be thereafter approved by the general assembly.

Article 243 of the New CCL provides that the mandate of the auditor shall not exceed 3 successive years. The reasoning behind this is most likely the same as other western jurisdictions. A restriction on the employment of an auditor aims to ensure independence from the corporation, and genuine auditing of the books.

Protection of Minority Shareholders

Protection of a class of shareholders

In order to protect a specific class of shareholders, Article 170 of the New CCL provides that the class may seek to void any resolutions passed for or against the class. 

Petitioning the court against actions that are detrimental to a shareholder

Western jurisdictions provide certain safeguards to protect minority shareholders. Article 164 of the New CCL provides the possibility for a shareholder who owns more than 5% of total outstanding shares the possibility of petitioning the competent court of the Securities & Commodities Authority for any actions of the company (board of directors) that are against the interests of any of the shareholders. This condition is common place in many jurisdictions, such as New York, where shareholders with a 20% ownership share of a closed corporation may petition a court for dissolution for a number of reasons, i.e., reasonable expectation of governance.

Rules applicable to Limited liability companies

New rules for sole shareholders

Prior to the New CCL, the concept of a sole shareholder was non-existent in the UAE legislation. Article 71 of the New CCL recognizes the right of one natural person or a corporate entity to be a sole shareholder of an LLC.

Number of directors

Many jurisdictions require that the the articles of association or by-laws to stipulate the number of directors and managers of a company.  Article 83 of the New CCL requires that the number of directors to be set in the articles of association and a company’s memorandum.  

Valuation of shares for shareholders for non-cash consideration

Valuation of shares for shareholders is essential to equity ownership. The valuation enables shareholders to obtain an accurate value of the ownership for the purpose of purchase or sale of equity. Due to the importance of the valuation of equity within financial centers and seeing as Dubai is growing into a regional financial hub, we understand the need for the addition to UAE legislation.  

Article 78 of the New CCL provides that shares will be valued in non-cash consideration or “in-kind.” The valuation of the shares can be done in one of two ways, either (1) the shareholders agree to determine the value of their shares, which shall be approved by the Department of Economic Development, or (2) a financial consultant approves the value of the shares, where the value is also subject to approval by the Department of Economic Development.

The Authority of an Expert Opinion in Medical Malpractice Litigation

The Authority of an Expert Opinion in Medical Malpractice Litigation

The Authority of an Expert Opinion in Medical Malpractice Litigation: Expert opinions in litigation aim to shed light on a matter presented in a case and assist the court in its understanding the matter presented by applying knowledge of a specific study to the facts of the case. Expert opinions are extremely important, as they are often taken into consideration by a court in its ruling. Expert opinions may therefore lead the court to rule in favor of one party over another.

The purpose of this article is to examine the authority of the expert opinions of the High Committee on Medical Liability in medical malpractice litigation in the U.A.E.

Federal Law no. 10 of 2008 on Medical Liability regulates the liability of medical practitioners in the United Arab Emirates.  Article 15 of the Federal Law no. 10 of 2008 established the High Committee on Medical Liability (the “Committee”), which is made up of consultant physicians selected by the Cabinet.  “The Committee members are from the Ministry of Health, the Ministry of Justice, the Health Authority Abu Dhabi, the Health Authority Dubai, a professor from the School of Medicine, the Armed Forces Medical Services Directorate, the Ministry of the Interior Medical Services Directorate, Emirates Medical Association, and the private medical sector.”

The Authority of an Expert Opinion in Medical Malpractice Litigation

The Committee serves as a body of medical experts and it provides opinions upon the request of the public prosecution office, a competent court or a medical body.  The Committee’s report should address whether a medical error and harm had occurred and whether there is causation between the culpable act and harm.  

Due to the composition of the Committee, as well as how it is established and appointed by the Cabinet, one may consider that the Committee shall provide a holistic and accurate medical opinion.  The composition also brands the Committee as the most legitimate source of medical opinion since it was established by a federal law, unlike other experts who are appointed by the courts.

This cloak of legitimacy given to the Committee, in my opinion, led various judges to consider the Committee’s reports as the authority on the subject matter which should override any other report. 

Appeal no. 48-63-70/2013 (The U.A.E. Supreme Court)

This case involves charges filed against a gynecologist for medical malpractice which was filed before the competent criminal court and a court of first instance in Abu Dhabi.

The Court of First Instance requested the Committee to provide a report on the facts of the case.  The Committee’s report concluded that the gynecologist had committed medical malpractice.  In the meantime, the gynecologist submitted three expert opinion reports prepared by the head of the medical liability department of the Ministry of Health, the Medical Committee of Dubai Health Authority and a medical consultant.  All three reports concluded that the report submitted by the Committee was inaccurate and that there was no medical malpractice committed by the Respondent. Furthermore, the three reports concluded that the harm caused to the claimant was due to medical complications recognized within the medical community. 

However, the Court of First Instance relied on the Committee’s report and ignored reports submitted by the gynecologist. In relying on the Committee’s report, the Court of First Instance ruled that the gynecologist had committed medical malpractice and decided to compensate the Claimant (the patient) for damages.  The Court of Appeals affirmed the Court of First Instance’s ruling and the gynecologist appealed the Court of Appeals’ ruling.   The case was heard by the Supreme Court of Abu Dhabi. 

The Supreme Court explained that the Committee is merely a body of experts in the medical profession and its opinion should be treated by the court as any other expert opinion report.

The Supreme Court also added that relying only on the Committee’s report and ignoring other reports submitted by the gynecologist is an error in examining evidence.  Furthermore, the Supreme Court pointed out that a report submitted by the Committee should not be considered as exclusive evidence.  This means that a court should not dismiss other expert reports submitted by one party to the litigation just because such reports contradict the conclusions in the Committee’s report.

In conclusion, the Supreme Court of the United Arab Emirates set an important precedent in that a committee established by law, such as the High Committee on Medical Liability, should not viewed as the supreme authority and should not override other reports in weighing the evidence in a court of law.

Check Also: Liability of a Freight-Forwarder Before the Dubai Courts

Liability of a Freight-Forwarder before the Dubai Courts

Liability of a Freight-Forwarder before the Dubai Courts

There has been a debate in many countries on the degree of liability of the carrier and a freight forwarder on the issue of cargo claims; is a freight forwarder a principal or an agent?  The debate indicates that a freight forwarder’s legal status in the shipping industry depends on the degree of involvement of a freight forwarder in the overall operation of shipping goods.  A freight forwarder could limit his liability by limiting his rule and act only as an agent on behalf of the carrier.

Contrary to the belief that the courts of the U.A.E. are still behind their western counterparts when it comes to maritime litigation, the courts of Dubai have proven to be very advanced.

Collisions under Libyan Maritime Law

Despite the important role played by a shipping agent in the chain of logistics, the Federal Maritime Commercial Law No. 26 of 1981 did not establish the responsibilities of a shipping agent.   Nevertheless, the courts of Dubai, in its efforts to determine the liability of a shipping agent, apply Article 8 of the aforementioned law, which allows a court to apply international maritime customs and rules of justice.  

The general rule followed by Dubai courts is to consider the freight forwarder not as an agent in litigation of cargo claims, unless proven otherwise.   There has been a clear application by the Dubai Court of Cassation which distinguishes between the carrier and the freight forwarder.  In one case filed against a ship-owner and a freight forwarder for damages to goods, the Court of Cassation of Dubai stated that in performing duties such as delivering cargo to the ship, delivering bills of lading to shippers, delivery of cargo to consignees, and supplying fuel to the ship, a freight forwarder is acting as an agent for the carrier or ship-owner. All such acts performed by a freight forwarder are considered to fall under Agency Law, and a freight forwarder is therefore considered an agent.  

The Court of Cassation of Dubai in the said case dismissed the claim against the freight forwarder for lack of evidence that the freight forwarder violated the rules of agency and acted as a principal. The Court also decided that unless the freight forwarder committed a tortuous act, the laws of the United Arab Emirates and the courts of Dubai place minimum liability on the shipping agent. This is due to the fact that a freight forwarder is not a party to the main shipping document, the Agreement of Affreightment.

One of the incidents that a freight forwarder may find itself responsible for is case of loss or damage to cargo is when the freight forwarder commits a tortious act.   

As long as the freight forwarder acts on behalf of the shipper and refrains from acting as a principal in shipping matters, a freight forwarder’s liability will be limited.

Therefore, it is advisable that a freight forwarder limit their role to receiving cargo from the shipper and issuing bills of lading on behalf of the carrier.

Check Also: Liability for Collisions under Libyan Maritime Law Click here