Arrest may be allowed if the creditor can prove that the debtor has money, the debtor has smuggled or hidden funds, or if the debtor ceased paying debt without valid justification.

The Dubai Court of Cassation made the announcement on October 24 in an attempt to clarify the clauses of Article 319 of the Federal Civil Procedure Law and avoid creditors making unnecessary claims. In what is seen as a landmark judgement, debtors in the UAE will no longer face the risk of arrest for failing to meet their payment obligations.

Debtors in the UAE, both individuals and businesses, will no longer be at risk of being imprisoned for failing to comply with their payment obligations, according to the most recent judgment. In general, this could be applied to credit card payments, personal loans, and loans taken out by business owners. Legal sources demonstrate that personal guarantors for loans also benefit from this judgment.

Background and Context

In a landmark ruling dated 24/10/2023, the General Authority of the Dubai Court of Cassation in Resolution No.4 of 2023 issued and reiterated the law concerning the imprisonment of debtors and issuing decisions to arrest and summon the debtor, which focused on Article 319 of the Civil Procedure Code of the UAE. This landmark judgment delves into intricate nuances, contemplating a debtor’s financial state, smuggling or concealing of debt money, and cessation of payment of installments, providing an extensive interpretation of the application of Article 319 and its implications on debtor imprisonment and related decisions.

Article 319 found in “Title 5 – The Debtor’s Detention and Travel Ban and Other Precautionary Measures” in the Civil Procedure Code (Federal Decree-Law No. 42/2022) lays the foundation for the imprisonment of debtors, yet the court’s ruling sheds new light on the matter. The essence of this ruling lies in the intricate balance between a creditor’s claim and a debtor’s financial standing which is the basis of the principles of insolvency law. The Court of Cassation asserted that insolvency, being a recognized principle in law, shifts the burden of proof to the creditor. Traditionally, proving insolvency rested upon the debtor; however, this judgment places the onus on the creditor to bring forth a valid reason to detain or arrest the debtor if the debtor claims to be insolvent before the court.

A significant precedent set by the ruling is the adherence to Islamic law, where insolvency is the default assumption, and making any deviation from this principle would be a matter of contention. The court emphasized that any claim contrary to this principle must be substantiated with concrete evidence produced before the court, thereby placing the burden on the party making such claims- where in most cases it is the creditor. In essence, the ruling emphasizes that a debtor is considered insolvent unless proven otherwise, aligning with Islamic legal tenets at its core reasoning.

Exceptions and Procedural Safeguards

The ruling also delineates exceptions to this and the arrest can be issued only in the following circumstances:

• The creditor can provide proof that the debtor has money
• The debtor is alleged to have smuggled or hidden funds to evade repayment
• If the debtor ceased paying debt installments without valid justification

To ensure fair and just legal procedures, the ruling mandates ensuring a meticulous evaluation of the circumstances before issuing any decision for the debtor’s arrest. This meticulous approach safeguards against unjust imprisonment and upholds the principles of fairness and due process.

Duration and Renewal of Detention

Crucially, the ruling addresses the duration of a debtor’s detention. In cases where detention is deemed necessary, the court specifies a maximum period, taking into account the potential risk the creditor faces from the debtor leaving the country. The detention periods, while extendable, are subject to strict limitations, with a maximum cumulative period to prevent undue hardship on the debtor.

Significance and Implications

The law related to cheque bounce has undergone a change in recent times in the UAE. In 2022, the UAE passed Federal Law No. 50 of 2022, which amended and repealed some of the previous laws that governed cheque bounces. The changes introduced in the new law included the decriminalization of cheques that were not honored due to insufficient funds. Only those cheques that were issued in bad faith will be viewed as a criminal offence. Prior to this law, such instances were penalized by imprisonment and the levying of hefty fines.

The fact that imprisonment and arrest are considered severe punishments, the new judgment seems to be a reasonable mitigation of the general rules. This ruling marks a milestone in the UAE’s legal landscape. By placing the burden of proof on creditors in very specific scenarios, the judiciary has reaffirmed its commitment to fairness, justice, and adherence to foundational legal principles. Furthermore, the ruling emphasizes the importance of due diligence in legal procedures, ensuring that decisions made are rooted in robust evidence and thorough investigation.

Therefore, the ruling represents a paradigm shift in debtor-creditor dynamics by providing more balance and fairness in the approach in the UAE. By upholding Islamic legal principles, respecting procedural safeguards, and emphasizing fair burden of proof, this judgment sets a benchmark for legal proceedings involving debtor imprisonment. It not only ensures justice for creditors but also safeguards the rights and dignity of debtors, reinforcing the UAE’s commitment to a robust and equitable legal system.