The General Assembly of the Dubai Court of Cassation judgment on Imprisonment Orders issued in Insolvency Cases
Dispute Resolution / UAE
The General Assembly Decision seeks to balance the protection of personal freedom with the exercise of creditors’ rights to payment of judicially confirmed debts in line with Islamic Sharia.
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Dina Assar Professional Support Lawyer,Dispute Resolution
Mosaab AlySenior Counsel,Dispute Resolution
On 24 October 2023, the General Assembly of the Dubai Court of Cassation issued a highly significant judgment, Decision no. 4 of 2023 (the “General Assembly Decision”) that considers the conditions set out in Article 319 of the UAE Civil Procedures Law for issuing an arrest warrant or imprisoning order against a judgment debtor in the course of executing a final civil judgments. This article reviews the judgment and highlights its key findings.
Dubai law no. 13 of 2016 on the Judicial Authority in the Emirate of Dubai established the General Assembly of the Dubai Court of Cassation (the “General Assembly”). The General Assembly has jurisdiction to, among other things, consider and determine questions of law of a complex nature or settle conflicting views of different circuits within the Dubai Court of Cassation.
The General Assembly comprises the Chief Justice of the Court of Cassation or the most senior judge thereof in addition to at least eight judges.
Article 319 of the UAE Civil Procedures Law provides:
“The execution judge may issue an order, based on a request submitted by the creditor, to imprison the debtor if he refuses to execute any executive instrument, unless it's proven that he is unable to pay. A debtor is not considered able to pay if it's proven that his entire assets are ones that cannot be seized or sold.
A debtor's claim of inability to pay is not accepted if he refuses to pay under any of the following circumstances:
a. If he diverts or conceals his money to the detriment of the creditor, making it impossible for the creditor to execute against those funds.
b. If the debt is one installment or more that is due from the debtor, or if the debtor is among those who guaranteed the original debtor's payment before the court or execution judge. This is unless the debtor proves new occurrences that affected his solvency and made him unable to pay the installments, the value of the guarantee, or any part of it, after these installments were determined for him or after he gave the guarantee.
The execution judge orders the imprisonment of the debtor in the cases mentioned in sections (a) and (b) of item (2) of this article for a period not exceeding one month. This period can be renewed for additional periods. If the debtor is someone who isn't feared to flee and has residency, the imprisonment period should not exceed (6) six consecutive months. His imprisonment can be renewed after (90) ninety days of his release if he continues to refuse execution, provided that the total period of the debtor's imprisonment does not exceed (36) thirty-six months, no matter how varied the debt or creditors, especially if the execution instruments coincide. Unless the debt arises from intentional financial crimes, then the imprisonment period can reach up to (60) sixty months.”
(Unofficial English translation)
It was previously usual practice for execution judges, within the Dubai Courts, to issue arrest warrants, and imprisonment orders pursuant to Article 319 of the UAE Civil Procedures Law, against debtors who failed to pay their debts, as confirmed by the courts in final judgments, unless the debtors could prove that they were insolvent and therefore were unable to pay. Hence, because it was considered that insolvency was the exception, the burden was therefore on the debtor, to establish their inability to pay their debts.
This General Assembly’s judgment provides clarity with respect to the interpretation of Article 319 of the UAE Civil Procedures Law, in ruling on the conditions set out in Article 319 for issuing an arrest warrant or imprisoning order against a judgment debtor in the course of executing final civil judgments, based on Islamic Sharia which the General Assembly Decision reaffirmed as a source of legislation in the Emirate of Dubai.
The General Assembly considered that according to the Court of Cassation’s settled principles,
“It is settled in Islamic Law, which is a source of legislation in the Emirate of Dubai, that insolvency is presumed unless the contrary is proved. The onus is on the one alleging otherwise to disprove this presumed fact. Where a debtor alleges insolvency, the creditor has to prove the debtor’s solvency for his imprisonment to be authorized.”
As a consequence, the General Assembly held that an imprisonment order cannot be made unless the creditor proves the debtor’s solvency, diversion or concealment of his assets, or a default on debt installments, The General Assembly Decision therefore concluded that:
“an arrest warrant shall not be issued by the execution judge against the debtor unless he first conducts a brief investigation by which he establishes that the debtor (i) is solvent; (ii) smuggled or concealed his assets; or (iii) stopped paying instalments [of the debts] with no excuse.”
The General Assembly’s judgment is expected to affect future arrest warrants and/or imprisonment orders during the course of execution final civil judgments. Indeed, since the General Assembly issued its judgment in late October 2023, we have already noted that many arrest warrants, which were effective in execution cases, have been revoked by Dubai Execution Judges. This is because the burden of proof is no longer on the debtor to establish that he is insolvent. The debtor may simply claim insolvency and the onus will shift to the creditor to prove that the debtor is solvent or that he has taken steps to divert or conceal his assets. It is important to highlight that:
The General Assembly Decision, as a matter of Dubai law, is mandatory in the onshore Dubai Courts. It is binding on all circuits in the Dubai Court of Cassation and, on the lower courts (e.g., Court of First Instance or Court of Appeal). On the other hand, the General Assembly Decision does not bind any other court in the UAE whether the Federal Courts or other local emirate courts (e.g., Abu Dhabi Courts or RAK Courts). It follows that other UAE courts may take a different approach from what is now settled in Dubai Courts.
The General Assembly Decision may only be repealed by a decision from the Special Tribunal which is responsible for unifying legal principles between federal and local judicial entities in the UAE, if the matter in question was referred to it according to Federal Law no. 10 of 2019 regulating Judicial Relations among the judicial, Federal and Local Judicial Authorities'.
The General Assembly Decision seeks to balance the protection of personal freedom with the exercise of creditors’ rights to payment of judicially confirmed debts in line with Islamic Sharia. Going forward, the responsibility will rest with execution judges to exercise discretion in applying Article 319 in accordance with the guidance provided by the General Assembly in this important judgment.
For further information,please contact Mosaab Aly.
Published in November 2023
