In reaction to the consequences of the economic downturn, there have recently been a number of legal developments in Dubai. These developments may mark the beginning of changes to various aspects of the existing legal framework.

The first of these developments is the establishment of a judicial committee to consider and settle all disputes concerning bounced cheques (issued by buyers to developers). The second is the founding of a panel to protect the creditors of Amlak and Tamweel. The third development is the appointment of a tribunal to oversee any disputes arising from the Dubai World restructuring.

The Amlak/Tamweel judicial body, which was formed pursuant to Dubai Decree 61/2009 has jurisdiction to review requests and legal claims related to the settlement of financial issues involving Amlak or Tamweel. One of the difficulties in evaluating the panel at this stage is the absence of detail regarding both the principles it will apply and the powers of enforcement it enjoys. It could be similar to the bounced cheque committee in that decisions rendered by panel will not be subject to appeal.

Summary

In ruling upon an action filed before the Amlak/Tamweel Special Judicial Committee (the Committee) it was held that the Claimant, a customer who had applied for finance, was precluded from seeking termination under the provisions of Article 272/2 of the UAE Civil Transactions Law.

Claim

A civil action was filed by a Purchaser (the "Claimant") against a local finance company ("The Defendant"). The Claimant requested the Committee to terminate both the booking form and the Forward Lease Contract which had been executed by the parties. The documentation related to the Claimant's purchaser of a residential unit. In addition to termination, the Claimant sought an order that the Defendant return back to the Claimant the amount of AED 284,307 along with several guarantee checks.

Facts of the claim
The Claimant alleged that it signed a booking form reserving a Unit (with a total price amounting to AED 1,231,445) in one of the Defendant's projects. The Claimant further submitted that it had both paid the amount of AED 284,307 (out of the total price) to the Defendant and had also handed over nine guarantee cheques.

The Claimant subsequently concluded a Lease Contract (Forward Ijara) with the Defendant in respect of the finance of the unit. The Forward Ijara required the Defendant to deliver the unit in October 2008. However, the Claimant submits that the Defendant:

  • Failed also to register the purchase agreement with Dubai Land Department (DLD);
  • Failed to deliver the Unit on time, instead claiming a delay of 10 month; and
  • Failed to conclude a valid SPA with the Claimant.

As a result the Claimant initiated legal proceedings against the Defendant for its delay in delivering the Unit.

The basis for the Claimant's case to terminate the contract was grounded in Article 272/2 of the Civil
Transactions Law.

Court of First Instance
The Court of First Instance ruled in favor of the Claimant. The Court decided to terminate the booking form and requested the Defendant to pay the amount of AED 284,307 and return back the nine guarantee cheques to the Claimant. The Defendant appealed to the Court of Appeal.

Court of Appeal
The Defendant requested that the Court of Appeal refer the case to the Committee as stipulated by Decree no. 61/2009. The Court of Appeal so ordered and the case was transferred to the Committee.

The Committee Decision
The Claimant repeated the submissions that had been presented before the Court of First instance. The Defendant requested that the Committee dismiss the Claimant's case on the ground that the Defendant was willing to perform its contractual obligations (and had so demonstrated by offering the handover of the property) as agreed between the parties.

Furthermore, the Defendant submitted that the contract concluded between both parties was an Ijara contract which would ultimately result in the Claimant's full ownership of the Unit, and that the Claimant was fully aware that the Defendant was only a financial institution and was not the Developer of the project.

The Defendant submitted that parties had agreed in the Booking Form that the delivery of the property may be delayed by the developer and that the Defendant was excluded from any liability resulting from such delays.

Finally, the Defendant furnished the Committee with the Interim Real Estate Registry's report dated 25 April 2010 which confirmed the registration of the Unit with the IRER. The report also confirmed that the Claimant was a tenant only.

The Committee rejected the Claimant's first submission that the Defendant had failed to register the Unit in the registry of the DLD. The Committee concluded that Articles 2, 3 and 5 of Law No. 13 of 2008 (as amended by Law No.9 of 2009) could be interpreted to mean that all transactions involving existing properties should be registered in the Real Estate Register. In contrast, transactions involving off-plan properties or properties under construction should only be registered in the IRER.

The Committee held further that the DLPD was the responsible authority for registering the SPA (or indeed any other transactions in the IREP) after the submission of an application from the Defendant within the 60 days prescribed by the relevant Law, or even after the lapse of this period. The Committee decided that the time limit of 60 days was for "organizing purposes" only, and was not to operate as a time bar which could render unregistered SPA's void.

In short, the Committee held that the Defendant's completion of the registration even after this period did not render the SPA void and the Claimant's submission in this regard was dismissed.

As for the Claimant's second submission, the Committee held that article 272 of Civil Transaction Law should be interpreted along with Article 246 of the same law (dealing with the performance of contracts in good faith) to mean that the Committee enjoyed the full discretion to decide whether to terminate the Forward Ijara and Booking Form. The Committee found that the Defendant had acted in good faith (by demonstrating its intention to deliver the Unit). The Committee also relied upon the parties' agreement that the Defendant was excluded from any liability resulting from delays caused by the Developer. The Committee held that the delivery date was merely anticipatory and not final.

The Committee ruled in favor of the Defendant and accordingly dismissed the Claimant's request to terminate the Booking Form and the Forward Lease Contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.