Cheques are widely used in UAE as a form of immediate or adjourned payment and are governed by specific legal provisions under Federal Decree-Law No. 50 of 2022 "the Commercial Transaction Law". According to the provisions of Article 667 of said Federal Decree-Law, when a cheque is bounced by the bank for insufficient funds it is considered a writ of execution, based on which, immediate enforcement procedures can be initiated by the creditor without the need to follow the usual legal route of filing a claim and obtain a final judgment subject to execution. However, there are circumstances where the value of the cheque may not be rightfully owed, and the issuer has the right to object against ongoing enforcement proceedings requesting these be halted.
Recently, cheque holders have used these legal provisions to initiate direct enforcement proceedings, before the execution judge, seeking the recovery of the cheque value, regardless of whether the value is entitled to the beneficiary at the time. This led to various legal measures taken against the cheque's issuer such as travel ban, arrest warrants, and enforcing against the issuer's assets such as real estate properties, bank accounts, cars, etc.
This article highlights how substantive disputes in the form of objections can be brought forth to challenge such legal procedures initiated in relation to cheques classified as executive bonds. The enforcement request and any objection regarding such cheques are subject to the rules and procedures outlined in the Civil Procedure Law.
Nonetheless, Article 239 of Federal Decree-Lawl No. 42 of 2022 "Civil Procedure Law" permits submission of a dispute in the form of an objection before the execution judge seeking cancellation of enforcement proceedings if the subject cheque is not due for payment to the beneficiary, provided the validity of such objection is proven before the court. Some situations whereby a valid objection which may lead to cancellation of the enforcement proceedings, include;
- If the cheque was issued as a security cheque, i.e., the cheque was issued by the drawer to the beneficiary to guarantee the performance of a certain obligation and is not payable unless there is a breach of that obligation.
- Non-entitlement to the cheque's value, i.e., the cheque was issued by the drawer in exchange for an obligation from the beneficiary, but the beneficiary did not fulfil their obligation towards the drawer in return for the cheque.
- Prepayment of the cheque's value which occurs if the drawer has already paid the value of the cheque, but the cheque remains with the beneficiary, and enforcement procedures are initiated based on it.
According to these scenarios, or for any other valid reason, it is possible to challenge enforcement procedures related to a cheque as stipulated in Article 667 of the Commercial Transactions Law. However, cancelling these procedures depends on presenting a valid objection before the appropriate court.
The higher courts, including the Dubai Court of Cassation, have set several precedents affirming that trial courts have the authority to oversee such objections to determine the reason for the issuance of a cheque based on the evidence, presumptions, and documents provided. It is pertinent to note that a judgment issued under any such objection can be further appealed before the court of appeal and cassation.
As such, there is a common misconception that once an enforcement order is issued for a bounced cheque due to insufficient funds, it cannot be contested. However, established legal principles and Court of Cassation precedents confirm that there is a legal pathway to object and even cancel such procedures. This can be achieved if the cheque issuer can demonstrate that the beneficiary is not entitled to the cheque's value for any of the previously mentioned reasons, or any other valid reasons, by filing a substantive objection against the enforcement proceedings.
In conclusion, understanding the nuances of substantive disputes in enforcement cases involving cheques considered as executive bonds is crucial. It allows individuals to effectively counter legal procedures when the cheque's value is not justifiably owed. By recognizing and exercising these legal rights, one can prevent unjust enforcement actions and protect their financial and legal interests. It is essential to seek professional legal advice to navigate these complex scenarios and ensure that the appropriate objections and course of action are raised in a timely manner.
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.