Federal Supreme court judgment: Liability for unauthorised electronic transactions and the question of causation
Dsipute Resolution / UAE
El Ameir NoorPartner,Dispute Resolution
Zane AnaniSenior Professional Support Lawyer, Dispute Resolution
In Federal Supreme Court judgments 776 of 2020 and 1213 of 2022, the UAE court considered claims of fraud and negligence made against a telecom company (which was also a victim of the fraud) and its liability for unauthorised electronic payment transactions (as a result of the fraud). The judgment addresses the elements of a claim in tort. The question of causation and vicarious liability were key in determining liability.
The Claimant/customer was a UAE businessman. Before traveling overseas, the claimant notified his banks in the UAE about his intended travel and provided them with his personal contact information (his phone number). He also blank signed several authorisation letters to transfer money, which he left with his manager to be used as necessary in order to transfer funds to him. However, while in Australia, the Claimant could no longer use or access the service on his mobile phone. He discovered upon his return to the UAE that his SIM card had been replaced pursuant to an application submitted in his name. The new SIM card was used to gain access to online banking and to receive OTP (one-time passwords) confirmations associated with his account. The fraudsters were therefore able to gain access to the customer’s bank account and initiated illegal fund transfers.
Although the Sharjah Court of First Instance found in favour of the Claimant against the fraudsters, it excluded the telecom company from liability.
The Claimant appealed the judgment of the Sharjah Court of First Instance and it was reversed by the Court of Appeal. The Court of Appeal issued judgment against the fraudsters for the principal amount and against the telecom company for additional compensation of AED 200,000 on the basis that the replacement of the SIM card was the proximate cause and not simply a contributory factor for the fraudulent transactions.
The telecom company then appealed this judgment before the Supreme Court which ordered a retrial by the Court of Appeal. The Supreme Court directed the Court of Appeal to consider the effect of replacing the SIM card for the loss sustained (in view of the fact that not all of the fraudulent transactions were conducted by phone).
The telecom company cited a similar case (Dubai Court of Cassation 1169 of 2021), in which a SIM card was also replaced and used to gain access to online banking in order to receive OTP (one time password) confirmations associated with the account which ended up in the possession of the fraudsters. In that case, the fraudsters were able to gain access to the customer’s bank’s computer system and initiated fund transfers of AED 9,047,500. The customer argued that but for the change of SIM card the fraudsters would not have been able to steal the money. The Court of Cassation, however dismissed the case against the telecom company and ruled that the replacement of the SIM card was a subsidiary cause and not the proximate cause of the transfers made.
However, after the retrial, the Court of Appeal ruled again against the telecom company for the additional compensation on the basis that the replacement of the SIM card was the direct cause of the transfers. This judgment was upheld by the Supreme Court by its judgment No 1213 of 2022 and the telecom company was ordered to pay the additional compensation of AED 200,000 but not the principal amount of AED 3.07 million. Consequently, the Court did not apply Dubai Court of Cassation judgment 1169 of 2021 to the facts of the present case.
In this case, the Court of Appeal considered the elements of a claim in tort. The court held that it must be shown that the tort directly or proximately caused the damage for which compensation is sought.
Article 283 of the UAE Civil Code provides:
“(1) Harm may be direct or by causation.
(2) If the harm is direct, it must unconditionally be made good, and if it is consequential there must be a wrongdoing or a deliberate act or the act must have led to the harm.”
The Court of First Instance discussed the issue of the causal link between the tort attributed to the employee of the telecom company by replacing the SIM card and the damage caused to the Claimant by the illegal bank transfers from his account. The question was whether the replacement of the SIM card proximately caused or contributed to causing the damage, bearing in mind that some of the transfers were carried out directly by the bank’s employees, not by phone, after the customer had entrusted one of his employees with the transfers and handed him blank-signed authorisation letters to transfer money which were then used for purposes other than those intended by the Claimant. The Court concluded the replacement of the SIM card proximately caused or contributed to causing the damage; however, considering that the transfers were not all undertaken via phone reduced the liability of the telecom company and limited it to the additional compensation (AED 200,000) but not to the principal amount.
The Court of Appeal also held that the telecom company was vicariously responsible for the actions of the employee who replaced the SIM card and was convicted for fraud for replacing the card.
This is pursuant to Article 313 of the Civil Transactions Law which provides that vicarious liability is predicated on actual authority to control, supervise, and direct. The subordinate must commit the tort in the course or by reason of his employment, whether or not by order of his superior, with or without the superior’s knowledge.
As a result, the telecom company was liable in tort to compensate the Claimant for the damage he suffered due to acts performed by their employee under their control, supervision and direction.
These judgments highlight the importance of establishing causation and vicarious liability in order to recover damages in cases of fraudulent activity like this. The fraud that was committed in this case was complicated due to the electronic transaction element and the involvement of multiple parties. However, determining the act that led to the harm was key in this case. Determining whether the act (attributable to the defendant) was the main cause of the loss or just a contributory factor was also essential in determining liability under the UAE Civil Code. It is worth noting that this case was tried six times, twice by each level which underlines the importance and complexity of the legal issues discussed.
For further information,please contact El-Ameir Noor and Zane Anani.
Published in January 2024
