Dubai Court Judgment
Omar KhodeirSenior Associate,Litigation
Previously, where a debtor defaulted on payment, a creditor had to file a substantive civil claim before the competent UAE court to order the debtor to pay (along with any compensation and legal interest). This type of claim was often the main option pursued in certain disputes.
In such a substantive civil claim, a case is filed before the Court of First Instance. It is common that a few hearings are scheduled to allow the parties to submit their pleadings. The Court will then reserve the case for judgment. It is also common for the Court to issue a preliminary decision to appoint an expert to provide an opinion on technical aspects. The expert may be expected to organise meetings with the parties and allow them to submit their comments on the draft report before lodging the final version with the Court. The Court of First Instance will then reserve the case for judgment and issue its decision on the merits of the case. The judgment is subject to appeal to the Courts of Appeal and Cassation.
This process may be lengthy depending on the circumstances. However, there are now alternative routes with the emergence of new expedited mechanisms for the recovery of debts by way of payment order claims. The procedure for obtaining a payment order is set out in Cabinet Resolution 57 of 2018 issuing the Executive Regulations of the Civil Procedure Law (the Executive Regulations) and the amendments to the UAE Civil Procedure Code (Cabinet Resolution 33 of 2020 and resolution 75 of 2021). These introduced an expedited process for dealing with debt claims. Consequently, where there is an outstanding debt that the debtor has acknowledged, the creditor may be able to obtain immediate ex parte judgment (without notice to the debtor).
Pursuant to Article 62 of the Executive Regulations, a creditor has recourse for a payment order application if all of the below conditions are met:
the right of the creditor is established in writing; either electronically or in a paper format;
the debt falls due for immediate payment;
the creditor's claim relates to a debt amount of a known value; and
The creditor claim is related to commercial transactions.
If the above conditions are not met, the court will dismiss the application.
Furthermore, it is settled by the Court of Cassation, pursuant to Articles 62, 63 of the Executive Regulations of the Civil Procedure Law (as amended) that, notwithstanding the general rules for instituting proceedings at first instance, the provisions on payment orders shall apply if the creditor’s claim is established in writing, either electronically or in paper form, is due, or if the right holder is a creditor in possession of a commercial paper.
A creditor is required to make a demand for payment to the debtor at least five days before applying for a payment order with the judge of the court whose jurisdiction area includes the headquarters of the debtor or the court within the local limits of whose jurisdiction the agreement was, wholly or in part, concluded or performed, or the court within the local limits of whose jurisdiction the agreement should be performed.
It should be noted that the payment order process is subject to appeals, as is the case for substantive claims. However, it is arguable that the appeal process for payment orders will likely be faster if the conditions to obtain a payment order are satisfied and no underlying and unforeseen valid counterarguments are available for the debtor.
In view of these recent legislative developments and the increasing amount of disputes that involve payment orders and direct enforcement, this article reviews two recent court decisions (Dubai Court of Cassation Judgment No. 325/2021 and Execution judgment 6330 of 2022) which address to the rules of direct enforcement, payment orders and discusses the advantages of these procedural innovations
Dubai Court of Cassation Judgment 325 of 2021In this case, a UAE entity working in the field of energy (the Defendant) purchased equipment and products from an Oil and Gas company (the Claimant). The payment was to be made upon issuing and delivery of the invoices.
The Claimant fulfilled its obligations according to the agreed timing and proceeded with issuing the invoices. The invoices were not disputed by the Defendant and there was a promise and clear acknowledgment from the Defendant that all dues will be paid. Nevertheless, the Defendant breached the agreed terms and failed to make the payment despite numerous demands from the Claimant.
The Court of Cassation also held that: “As an exception to the general rules to file claims, provisions of Payment Order are followed if the right of the creditors is evidenced in writing electronically or via a document and due to be paid or if the party with such right a creditor with a commercial instrument.”
The Defendant argued that the court lacked jurisdiction to issue the payment order because of the existence of an arbitration clause. The Court of Cassation rejected this argument. It held that it is settled that where a dispute before the Dubai Courts meets any of the conditions precedent for the exercise of jurisdiction under the Civil Procedure Law, the Dubai Courts may not cede jurisdiction because to do so would breach public policy.
Execution judgment 6330/2022A UAE company (the Claimant) provided a loan to an individual (the Defendant). To secure and guarantee repayment, the Defendant issued a post-dated cheque for the full amount. On the due date, the Claimant presented the cheque to the bank and the cheque bounced because of insufficient funds.
The Claimant immediately registered an execution file with the Execution Court, demanding the direct enforcement and payment of the due amount. The Execution Court issued its decision to accept the registration and imposed a travel ban on the Defendant. In the space of a few weeks, letters were issued by the Execution Court to different UAE bodies (e.g. Land Department and UAE Banks) to attach available assets and funds held by the Defendant and to transfer the same to the Execution Court’s treasury for encashment by the Claimant.
As described above, payment orders represent an attractive option for the following reasons:
Ease of process;
Speed of resolution. No hearings at the initial stage and the payment order is typically issued within 3 days from the date of filing (if all conditions are satisfied);and
The procedure relating to immediate enforcement have also helped creditors recover debt faster.
For further information, please contact Omar Khodeir.
Published in November 2022
