Hello and welcome back to the Pinsent Masons podcast, where we keep you up abreast with the most important developments in global business law every second Tuesday. I’m Matthew Magee and I’m a journalist here at Pinsent Masons, and this week we are investigating the business implications of the conflict in the Middle East: what does it mean for workers, for deals and projects, and what impact will an energy price shock have around the world?
But first, here is some business law news:
Ruling clarifies enforceability of Chinese judgments in England & Wales
British employers should prepare for new family leave rights, and
UK launches new anti-fraud strategy
A recent ruling by the High Court in London has clarified that Chinese creditors can enforce Chinese judgements in the English courts despite the absence of reciprocal enforcement treaties between China and the UK. The ruling could open avenues for Chinese creditors to either go after judgement debtors themselves or sell their claims on. In this case, five Chinese creditors brought claims to enforce final judgements obtained in the courts of the People’s Republic of China against a husband and wife who had relocated to the UK. The total claim was for £28 million and the High Court ruled in favour of the Chinese creditors and English judgements were entered for the claimants. England has no reciprocal judgement enforcement treaty with China, but the Chinese judgement can be enforced in England and Wales as long as it is the final and conclusive judgement of the court, it has been given by a court which English law regards as competent, and it is a judgement for a fixed sum of money.
British businesses will need to have clear and compassionate communication with staff ahead of new rules being introduced over family related employment rights, an expert has said. New rules brought in as part of the Employment Rights Act will take effect in April, giving workers new entitlements to bereavement and paternity leave, among other things. Employees will be entitled to bereavement leave from their first day on the job, including in circumstances of pregnancy loss before 24 weeks. The entitlement provides a minimum of one week of unpaid leave and workers have at least 56 days in which to take it. The new right also includes safeguards against dismissal or negative treatment for taking bereavement leave. Employment expert Anne Sammon said that companies should start preparing now ahead of the new reforms taking effect. “Organisations should review and update all family related leave policies, ensuring they reflect new day one entitlements,” she said.
UK plans for a new cross agency crackdown on online fraud represent an ambitious attempt to improve the UK’s response to economic crime, according to experts. The Online Crime Centre will launch in April, uniting specialists from the UK government, police, intelligence agencies, banks, technology platforms and mobile networks to tackle high volume cyber crimes and fraud. The centre will share intelligence between agencies to identify organised crime accounts, websites and phone numbers and block them. It comes as figures show that as many as one quarter of UK businesses have been the victim of fraud. New civil law enforcement tool pilots are planned, along with a commitment to consider the introduction of civil penalties for fraud and money laundering as an alternative to criminal prosecution.
Attacks by the US and Israel on Iran at the very end of February have had all sorts of consequences, humanitarian, social, military and political. But the war has also had consequences for businesses based in the region and increasingly around the world. Goods and supplies suddenly had a harder time reaching projects, some business activity was no longer safe, and lots of the foreign workers based in the region have sought to return to their home countries. Meanwhile, an energy price shock will affect the entire world economy.
The events will have an impact on businesses for a long time to come because of higher energy prices and trade restrictions, such as that through the Strait of Hormuz. But we will start with the immediate consequences and how companies based in the Middle East can handle them. Pamela McDonald is a construction specialist based in Doha and before she outlined some of the issues specific to the construction industry, she told me about the difficulties that all companies in the region are facing.
Pamela McDonald: One of the biggest things that our clients are experiencing is challenges around business continuity. The really immediate impact that we are all feeling is these public alerts coming through quite regularly telling us to shelter in place and as a result of that, the government directives and embassy directives to work from home. So there is quite a lot of disruption to businesses as a result of those immediate risks. A lot of other challenges that people are facing as well, for example, around supply chain issues. The closure of the Strait of Hormuz means that things like materials, equipment and plant, all of those items that would have been coming through that narrow channel, have been blocked and are seriously delayed now. So the supply chain is very seriously affected and in particular any clients that are working offshore, in marine areas, offshore jacketing projects for example in the oil and gas space, they have received suspension notices from governments. Or if they have not, they are seriously affected in what they can do because the GPS signal is spoofing and they rely on the GPS to be able to navigate the vessels. So there is almost a total suspension of operations in the oil and gas space when it is offshore in the Middle East at the moment.
Matthew Magee: Construction is a huge part of the economy of the Middle East and has been severely disrupted, causing costly delays that will have legal consequences. But there is a carve out in contracts for this kind of situation called force majeure. A force majeure clause relieves a company of some of its liabilities when circumstances beyond its control prevent it from fulfilling its contractual obligations. Pamela says that this is where a company’s focus will now be.
Pamela: The on the commercial side, people are looking at their contracts and working out what relief is available and I have to say, you know, I'm sitting in Qatar and I have been here for 12 years now and there have been a number of incidents over the last decade or so which have caused us to look at the question of force majeure. Firstly in my time out here, it was the blockade that happened, the air, land and sea blockade that happened in Qatar by certain neighbouring countries. We then had Covid, of course. Then there was the invasion of Ukraine by Russia. And now we are dealing with it again. So what clients are looking at in their contracts is, is this a force majeure? Is it an exceptional, unforeseeable, uncontrollable event that prevents performance? And that is what force majeure is. What they are really trying to work out is whether this is something that was beyond their control. I think yes, it probably is. Not foreseeable, I think we've got the answer to that as well. It is not foreseeable, could not have been avoided by the parties to the contract. But the thing that is really causing people to check the nuance and the uniqueness of their situations is whether it actually prevented performance and did not just disrupt performance or make it more expensive because that is where the force majeure falls down and more detailed and nuanced legal arguments are needed to be analysed by the commercial teams and the legal teams.
Matthew: So is the current conflict a force majeure event? That is not an easy question to answer, but Pamela outlined the factors that need to be taken into account.
Pamela: Well, to start with, some government entities in the Middle East have declared this event as a force majeure in relation to their particular contracts. I am talking there about Qatar Energy, Kuwait Petroleum Company and BAPCO in Bahrain. They have publicly declared force majeure and that is in relation to the supply of oil and gas under their contracts. But whether or not it is a force majeure really does depend on the interpretation of each individual circumstance and contract and it is not necessarily force majeure if it is not actually preventing performance. But it is fair to say that the event is beyond the control of the commercial parties, was not foreseeable, could not have been avoided, but the question is whether it actually prevented performance and that is what needs to be looked at carefully and will be unique to each contract. For example, right now I am thinking about a client’s situation where all of the goods and services that they needed to perform their works were going to come through the strait and that is currently impossible. But there are ways and means of getting things another way. You know, you can put things on a truck and you can move them through a different shipping route, but it is much, much longer and there are challenges and bottlenecks as a result of the whole world trying to find that workaround at the same time. There is a degree of proportionality required and an analysis around what is reasonable and proportionate in terms of what kind of mitigation measures a party has to take. There is an interpretation requirement around all of this. Parties do need to look at the unique circumstances and the unique terms of each individual contract because they are not consistent across the industry on this point.
Matthew: Pamela says that some contracts will be really specific, which will help. If your contract says that construction materials will be delivered along the Strait of Hormuz, then that is very clearly impossible right now. But many will be vaguer and open to interpretation. So how will these disputes be settled? It will vary she said.
Pamela: In the construction industry, I guess this is one claim amongst many that happen in a complex infrastructure or a complex energy project. It is in amongst multiple other claims. In the past in Qatar, we did have a compensation claims committee that was created to respond to Covid claims and also claims that were arising as a result of the introduction of a new minimum wage, which came at the same time roughly as the Covid claims and it is possible that the governments will do something similar. They are not doing that right now, but it is quite early days. I should imagine the Chambers of Commerce who will be wanting to look after foreign investment and continuation of investment in these Gulf states going forward will be looking to look after the supply side of the industry. They may try to assist to find solutions where parties have suffered severe hardship and that is exactly what they did in Qatar in the lead up to the World Cup when COVID caused really significant losses because of labour shortages and what have you. So there are some parallels. If it is wrapped up into other claims, then it's one of those that would have to be dealt with in the traditional way. It's either litigation or it's arbitration. Ideally it's neither of those because they're both expensive and you would prefer to have an amicable discussion and get a commercial settlement.
Matthew: So what can companies do to make these coming disputes quicker, cheaper and easier to resolve? Pamela says if you do one thing, then keep good records.
Pamela: The main thing for parties to do in order to be effective in a dispute resolution scenario is create really clear records every single day that this war is happening, time stamped, showing what is happening on the ground and what it is affecting and preventing you from doing. So that when the time comes to articulate those claims, you've got a really nice audit trail of cause and effect.
Matthew: Different and vital challenges for companies relate to their people. How should work change and adapt in the circumstances? How do you keep people safe? How do you manage foreign workers’ desires to leave the region but continue working? Dubai based employment law expert Luke Tapp outlined the challenges.
Luke Tapp: So one of the key challenges over the past couple of weeks has been work location. So where should employees of our clients be working from? Should they be working from home? Should they be working from the office or should they be working remotely outside of the region? And that is impacting on different clients across different sectors in different ways and of course, a lot of it depends upon where the employee actually needs to be based in order to undertake their activities. Now the starting position for clients in relation to work location would be the labour law of course, and the labour law of all of the different jurisdictions within the Middle East. And by way of example, Article 13 of the UAE Labour Law places the emphasis on employees to ensure there is a safe and suitable working environment that companies provide their employees with. Now, what is safe and suitable will of course again depend on the circumstances. At the beginning of the conflict, it was very much the case that companies were encouraging employees to work from home. As that has developed over the past couple of weeks, there is a diverse approach across our clients where some clients are saying we need to get back to business as usual. There is a business continuity challenge here and we need people within our premises in order to function and in those circumstances companies are encouraging employees back into the workplace. But equally, we're seeing some companies look to be repatriating their staff outside the region at this point of conflict and also pressing down on the work from home or remote work policies.
For those companies who are encouraging employees to return back to the office, our advice has been to think about what type of risk assessment should be undertaken to ensure obligations such as those under Article 13 of the Labour Law are being satisfied. Looking at where the safe place would be within the office if an alarm goes off because of a missile warning and where those employees would go to. And of course thinking about numbers. So is it appropriate and is it possible for companies to come back to 100 percent capacity within the office? Or would it be safer for a smaller percentage of the workforce to be in the office in order to accommodate situations where there is an evacuation from the office or where employees need to move to a safe space? So yes, working remotely and working from the office are one of the really important topics that our clients are grappling with at the moment. Periods of leave or periods of unpaid absence from the workplace. The laws around periods of unpaid leave or annual leave do vary across the different jurisdictions within the UAE, DIFC, ADGM and across the Middle East. But ultimately, if a company wishes to place a person on a period of unpaid leave, our advice is always that that should be agreed to with the employee and also the company should be alive to any regulatory obligations that are triggered in respect of salary payments such as under the UAE position, the wage protection salary which reviews the regular monthly payment of salaries to employees’ bank accounts.
Matthew: It’s reported that around 90 percent of the private sector workforce in the Middle East is made up of foreign workers and many will want to return to their home country. Luke said that employers see the issue as a short term problem and are sympathetic and accommodating.
Luke: There is a desire among some employees across the private sector workforce to be repatriated to go and work remotely. Speaking with our clients, HR directors and in house lawyers, they are telling us that these requests are being raised internally and are asking for our advice on how to respond to those requests. In spirit, what we are seeing from our clients and their community of employees within the UAE is that they are accepting of employees working from outside of the region where it's possible. And this is not a new concept in fact, it's something that's quite common across the region already where, for example, during school holidays or during the summer, or perhaps during a quieter period within the Middle East, employees have over the past few years developed a practice of working from outside of the UAE and still being as productive and effective as they would have been had they been within the UAE. So I think the UAE workforce and the Middle East workforce is quite well equipped to accommodate employees working from outside of the home location and what we're seeing from employees is that approach being quite embedded into their culture already, and I think in that context employers are being more supportive of allowing employees to work from outside of the country. So it is something that employees have responded to positively. I think there's a recognition from employees that this is a temporary crisis and the most important thing for now is the well-being and safety of their staff, maintaining and strengthening the trust between the employee and employer and I think being as flexible as possible and supportive as possible as to what a person believes their particular priority is at the moment is a way that employers can make sure that that trust is there and only enhances during these periods.
In terms of the legal position, yes, the strict legal position is that companies are not obliged to provide repatriation flights or permit employees to work outside of the UAE. It's not a legal obligation for companies to allow that to happen. However, equally there's no legal restriction from a UAE perspective in that taking place. There will be consideration that companies will need to give in terms of tax risk, permanent establishment risk, local employment risks from wherever the employee moves to undertake the work. And so those risks do need to be factored into the decision, but from a regional and a UAE labour law perspective, there's nothing that restricts companies from allowing employees to do that.
Matthew: But some employers will want workers to be in the workplace. They must pay attention to their obligation to keep those employees safe, said Luke.
Luke: I think the most important point in relation to making sure the working environment is safe, whether that's under the UAE labour law or any of the other local laws across the region, is to not have a fixed position on it at the moment. I think it's really important that the leadership and the local management of all organisations are reviewing this on a regular basis, and I would recommend a daily basis because things are changing quickly. Areas are becoming more risky or less risky as the conflict develops and we are also seeing the impact on well-being for where employees are being forced to work away from the office and they would prefer to work from within the office as well. I would also say that there isn't a one size fits all approach across all of the different sectors and all of the different locations and so it will be different to every employer.
In terms of the practical steps employers can take to make sure that they are complying with their legal obligations and ensuring the workplace is as safe as possible for their employees, companies should be undertaking risk assessments. They should be ensuring there is a safe place to evacuate to in an emergency. They should ensure that the number of people that they allow into the office is proportionate to the safe spaces that they have and they should consider whether there should be special approval calls for employees to attend the office so that they don't just have employees turning up who they haven't accounted for on a day-to-day basis. So there are those practical steps that employers should absolutely be undertaking at the moment if they are going to allow or encourage employees to return to the office.
Matthew: An unavoidable consequence of the conflict felt all around the world has been the rise in energy prices. Edinburgh based energy expert Julia Maguire started by outlining the immediate effects on energy supply and therefore price.
Julia Maguire: The immediate impact has obviously been to oil price. We're in a position now where we have acute oil price volatility. So we talk about the immediate challenges on the physical presence of oil and the ability of society, if you like, to access oil. But it's actually the thing that really impacts the oil price is more that fear or concern of how long this disruption is going to continue and how difficult it is going to be to get back to what you might call a kind of BAU position. The critical elements of that are critical energy choke points. So the Straits of Hormuz being a very obvious one when we've got almost a third of global seaborne oil that goes through the Straits of Hormuz. So that's an incredibly significant level of supply that has just really been cut off at the knees. And 20 percent of all LNG traffic goes through the same route. Non-Iranian commercial traffic, 90 percent of tanker and LNG carrier movements through the Straits of Hormuz have stopped. The major industries that are incredibly energy intensive are things like steel production. We have transport, shipping in particular, but also air transport and other logistical parts of our society that are impacted by transport. So all of those are very directly impacted for sure. The wider knock on effects, we have huge disruption to fertiliser and petrochemical markets and that interestingly brings in this risk of what we're seeing as a secondary food price shock, which is energy driven but not manifesting in a purely energy scenario. And then we have the power markets. Obviously we still have energy systems in Europe in particular which are incredibly sensitive post Ukraine. So what we're seeing is renewed stress with gas price rises, which are impacting power markets in Europe and also in parts of Asia.
Matthew: This isn't the first energy price shock the world has experienced. So what generally happens when energy prices suddenly spike?
Julia: Well, how I've heard it described, and I think this is quite a good way of thinking about it, is that the higher energy prices almost act like a bit of a tax on the global economy. So you see prices spike, you see real incomes fall, you see business margins squeezed, you see investment decisions delayed. Now, it may not be a smooth curve in all of these things. I think one of the challenges is that we are seeing overall growth slowing, but it can happen incredibly unevenly and often very abruptly and it can impact in ways that are not necessarily immediately predictable, but it does have that slowing effect on the global economy. But I think the lack of predictability on exactly what elements are going to be impacted and when is what makes it very, very challenging.
Matthew: So in the short to medium term, we're looking at some instability, rising industrial costs and almost certainly a knock on impact on fiscal and economic policy as governments try to control the pressure these price rises have on inflation. But we may also see an effect on energy policy and investment as governments seek to decouple their economies from conflict in oil and gas producing regions of the world by putting more effort into wind, solar and other renewable energy sources, says Julia.
Julia: So we can foresee that there will be an increase and acceleration of alternative sources of energy production. Looking at the medium to long term, we know that those alternative sources of energy production are available. However, there is a reality about the speed at which those can be implemented. But we foresee that the impact of the current conflict will be that there will be a drive to find ways to accelerate that. There are constraints on just how quickly that can happen. There are technological constraints and other constraints around, for example, the ability of the grid and transmission infrastructure to actually cope with a huge surge in different sources of power production. So it's not as simple as saying let's build more offshore wind farms and that will be a quick fix.
There are many other elements that need to slot into the picture to be able to actually deliver that increased power from other sources, all of which would need to align. One of the things that we're certainly seeing is that there has been an acknowledgement that one of the things holding back more renewable energy production is the age and state of a lot of transmission infrastructure. And that is generally felt across the globe in different ways and at different levels. But for example, we're seeing a huge programme of grid infrastructure in Australia at the moment and we know that in the UK, we're looking at different ways of approaching getting more private investment into grid infrastructure in order to accelerate the improvement and upgrade of our transmission infrastructure in order to facilitate new types of energy generation.
Thanks once again for listening. We know there are lots of calls on your time and we appreciate every minute you spend with us. Please do share with anyone you think this programme or any of the other programmes are relevant to. And remember, you can sign up for a weekly digest of our daily news produced by our specialist team of journalists at pinsentmasons.com/newsletter, and that will be tailored to just the things you care about. For now and until next time, thanks and goodbye.
The Pinsent Masons podcast was produced and presented by Matthew Magee for international law firm Pinsent Masons.
