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By Ahmed Yehia Hamdalla — Partner, SAT & Co. Advocates and Legal Consultants, Dubai
The gold trade runs on speed and trust. A dealer in the Gold Souk, or in a refinery office in one of the free zones, agrees a price on the phone, confirms it in a two-line message, hands over bars against a signature on a delivery note and settles through a running account that is reconciled when both sides find the time. For years nothing goes wrong. Then the price moves sharply between the deal and the delivery, a consignment assays below the fineness that was promised, or the two ledgers stop agreeing on how many kilos one side owes the other, and a relationship built on a handshake has to be proved in a courtroom. This article sets out how UAE law classifies these disputes, how they are proved, which remedies and time limits apply, and where claims are most often lost.
A sale of gold between two traders for the purposes of their trade is a commercial sale, governed by the Commercial Transactions Law promulgated by Federal Decree-Law No. 50 of 2022 (Article 93). Article 2 of that law fixes the order in which the rules are applied: first the parties’ agreement, so long as it does not contradict a mandatory commercial provision; then, where the legislation is silent, commercial custom, with special or local custom preferred to general custom and the parties’ own previous dealings treated as a special custom; and only then the rules of civil law. In a trade as custom-driven as bullion that order decides cases. The party who relies on a usage of the market, for instance that a price confirmed by message is binding or that balances are carried in fine weight rather than in money, must prove that the usage existed at the time of the transaction; the other party may rebut it; and the court may appoint an expert to verify it (Articles 89 to 92 of the Evidence Law, Federal Decree-Law No. 35 of 2022).
The first surprise for many traders is how much of their informal paperwork counts as evidence. Commercial obligations may be proved by any means, whatever their value, unless the law or the agreement provides otherwise (Article 91 of the Commercial Transactions Law), so the general requirement of written proof for transactions above AED 50,000 (Article 66 of the Evidence Law) does not stand in the way of a commercial claim. A merchant’s regularly kept mandatory books are evidence in his favour against another merchant in a dispute arising from their trade, subject to rebuttal from the opponent’s own regular books, and they are always evidence against the merchant who keeps them (Article 30). The court may order a party to produce a specified document relating to the transaction and may treat a refusal as a presumption in favour of the party who asked for it (Article 35). Electronic evidence, which the law defines to include electronic records, electronic correspondence and modern means of communication, follows the rules on documentary evidence; an informal electronic record binds the parties to the transaction where, among other cases, it comes from a means of communication named in their contract or from one that is authenticated or publicly available, and the party who alleges that it is not genuine bears the burden of proving so (Articles 53 to 58). The message thread, the delivery note and the ledger are not the background to the case. They are the case.
Most gold disputes are, at bottom, disputes about who bears a movement in the price, and on that question the law is precise. If the seller fails to deliver, the buyer may, after notice, ask the court for specific performance, rescind and claim damages, or buy equivalent goods at the seller’s expense and recover the difference; and where the goods have a known market price, as gold pre-eminently does, the buyer may claim the difference between the agreed price and the market price on the day fixed for delivery (Article 102). The rule is mirrored when the buyer defaults: if the price is not paid on the agreed date the seller may, after notice, resell the goods and recover the difference between the contract price and the price obtained in good faith on resale or, for goods with a known market price, the difference from the market price on the day fixed for payment (Article 104). Until delivery, actual or constructive, the risk of loss remains with the seller (Article 100). Two consequences follow. The day on which delivery or payment fell due is the most important fact in the file, because it fixes the measure of the claim. And the trader who waits to see where the market goes before he acts is building a damages claim that the law will measure at a date he did not choose.
Disputes about fineness and weight are decided as much by the calendar as by the laboratory. Federal Law No. 11 of 2015 fixes the legal standards of fineness, with 24 carat set at 999 parts per thousand, requires wrought articles to bear an official or recognised foreign hallmark before they are offered for sale, and exempts unwrought metal from hallmarking (Articles 2, 4 and 6); that is why the quality of bullion rests in practice on the refiner’s marks and on certificates issued by accredited bodies. Where the price is fixed by weight, net weight governs unless agreement or custom says otherwise (Article 97 of the Commercial Transactions Law), and a shortfall or a difference in quality leads to rescission only where it makes the goods unfit for their purpose or difficult to market; otherwise the court adjusts the price (Article 107). The trap lies in Article 108. A buyer who finds a difference or a defect must notify the seller within fifteen days of actual delivery and must sue for rescission or a reduction of the price within sixty days of delivery; for a hidden defect he must notify the seller as soon as it is discovered and bring the warranty claim within six months of delivery; where the seller is shown to have acted fraudulently the outer limit is one year from delivery; and the seller’s own claim for the price of excess quantity or better quality is barred after sixty days. The parties may vary these periods by agreement, which is worth doing in a trade where metal is often remelted within days.
Long relationships are usually run through an account rather than deal by deal, and the law attaches consequences to that choice. A list of goods that is received and not objected to within eight days is deemed accepted, unless a longer period was agreed (Article 105). Where the parties have agreed to carry their dealings on a current account, the individual entries merge into one indivisible whole and only the balance on closing is a debt that can be claimed (Articles 390 and 394); a claim to correct entries more than a year old, counted from receipt of the statement of account, is not heard unless the other side was notified within that year, and in no case after five years from the closing of the account (Article 408). A sum of money due between traders, known in amount when the obligation arose, carries delay interest from the due date without proof of loss, at the agreed rate or, failing agreement, at the market rate capped at nine per cent a year, and interest may not be compounded (Articles 72, 84 to 86 and 88). And what one trader owes another in the course of their trade can no longer be claimed in court, if the debtor denies it and the creditor has no lawful excuse, once five years have passed from the day the obligation fell due, unless the law fixes a shorter period (Article 92).
A recurring difficulty is the claim expressed in metal. A trader who is owed fifty kilos is tempted to sue for “fifty kilos or their value” and leave the rest to the court’s expert. In my view that is a mistake of drafting for which the claim later pays. The statement of claim should choose its principal relief, delivery in kind or a sum of money, state the day at which the metal is to be valued and the legal basis for choosing that day, and plead the alternative expressly; otherwise the valuation date becomes a decision of the expert, and at present levels of volatility the gap between two candidate dates can exceed the cost of the entire litigation. The same discipline applies to the account. The expert appointed by the court works from the parties’ books and correspondence, and the party whose books are regular and complete will usually find that the report follows them.
A newer source of dispute is regulatory rather than commercial. The Ministry of Economy’s due diligence regulations for the responsible sourcing of gold have been mandatory for all gold refineries operating in the UAE since January 2023, alongside the voluntary UAE Good Delivery Standard launched in November 2021. A consignment that a refinery, or a counterparty’s compliance officer, declines to accept for want of provenance documents raises one question between buyer and seller: which of them assumed that risk? A contract that is silent on origin documents, on the right to reject for compliance reasons and on what happens to the price in that event leaves the answer to the general rules on delivery and conformity described above.
The trader who wants to win the dispute he hopes never to have should therefore do five things while the relationship is still good: confirm every trade in writing, through a channel named in the contract, stating weight, fineness, price basis and the dates for delivery and payment; send statements of account regularly and object to the other side’s statements within the week; test the metal on receipt and give notice of any shortfall within fifteen days; act on the day of default rather than on the day the market suits him; and count the five years from the due date of each obligation, not from the day the relationship broke down. Gold disputes are rarely lost on the law. They are lost on a confirmation that was never written, a notice that came late and a ledger that was never reconciled.
Sources: Federal Decree-Law No. 50 of 2022 Promulgating the Commercial Transactions Law, Articles 2, 72, 84 to 86, 88, 91, 92, 93, 97, 100, 102, 104, 105, 107, 108, 390, 394 and 408; Federal Decree-Law No. 35 of 2022 Promulgating the Law of Evidence in Civil and Commercial Transactions, Articles 30, 35, 53 to 58, 66 and 89 to 92; Federal Law No. 11 of 2015 on the Control of Trade in Precious Stones and Precious Metals and their Hallmarking, Articles 2, 4 and 6; all as published on the UAE Legislation portal (uaelegislation.gov.ae), the Arabic text prevailing in case of conflict. Emirates News Agency (WAM), 19 November 2023, on the Ministry of Economy’s due diligence regulations for the responsible sourcing of gold and the UAE Good Delivery Standard. The remarks on how a claim expressed in metal should be pleaded are the author’s own view, not a statement of settled case law. This article is general commentary and not legal advice on any specific dispute.