The UAE legislator has approved cheques, as a mechanism to provide exceptional protection which other commercial tools do not benefit from. However, it comes with strict conditions, in order to preserve its value and importance as a payment mechanism. For this reason, the UAE legislator stipulated in the Federal Commercial Transactions Law that a returned cheque should be considered a direct execution deed where the reason for the return is "lack of balance in the account or insufficient balance." Accordingly, the holder of the cheque can - in this case - directly approach the execution judge to initiate obligatory enforcement procedures to collect the cheque's value, in the same manner as enforcement of final judgments issued by the UAE courts, however without the need to follow full course of litigation proceedings for obtaining a judicial judgment.
Contradiction of Judicial Principles Regarding the Consideration of a Returned Cheque Due to "Account Closure" as an Executive Instrument
Recently, there has been a conflict between the judicial principles of the Court of Cassation in Abu Dhabi and the Court of Cassation in Dubai regarding the reason for a returned cheque being "account closure" and whether the cheque should be considered an execution deed or not.
The Court of Cassation in Abu Dhabi considered returned cheques in this case as an execution deed, similar to a bounced cheque, due to lack of balance or insufficient balance, on the basis that there exists no difference between the two cases (i.e., the case of the return of a cheque due to the closure of the account, and the case of the return due to lack of balance or insufficient balance). Accordingly, the Abu Dhabi Court of Cassation held that it was not justified for the payer of the cheque to evade its obligation of payment, by deliberately closing the account before the cheque was submitted for disbursement.
Whereas the Dubai Court of Cassation took a contrary stance and refused to consider a returned cheque, due to closure of the bank account, as an execution deed, on the basis that the provisions in the Federal Commercial Transactions Law are explicit in that a returned cheque should only be considered an execution deed cases where the return is due to lack of balance or insufficient balance. Hence, the Dubai Court of Cassation decided that it is not permissible to take any action, as this will contradict the legislator's intention.
Unifying Judicial Principles through the Federal and Local Judicial Principles Unification Authority
In view of the conflict of judicial principles issued by the Court of Cassation in Dubai and the Court of Cassation in Abu Dhabi as described above, the Attorney General of the Federation submitted application No. (1) of 2023 to the Authority for the Unification of Federal and Local Judicial Principles to unify those principles. Following the consideration of this request, the authority ruled that a cheque returned as unpaid due to closure of the account is indeed an "execution deed", and that to rule otherwise would harm the recipient of the cheque, who in this case would lose the right to directly approach the execution judge forcing the payer to honor the cheque value, which is less expensive and less time-consuming than the normal litigation procedures.
The Authority also added in its ruling that failure to consider the returned cheque due to closure of the account as an execution deed, would allow the debtor to act in bad faith in avoiding paying the value of the cheque, by closing the account before submission for disbursement.
Conclusion
The introduction of this new judicial principle will lead to rebalanced and equated civil rights between holders of returned cheques due to a bank account's closure, and holders of returned cheques due to a lack of balance or insufficient balance. The recipient of a bounced cheque due to closure of an account now, not only has the right to resort directly to the enforcement judge to force the payee to honour its value, without needing to obtain a judicial judgment - as is the case with the holder of any bounced cheque due to lack of balance or insufficient balance – but may also avail his originally vested right to criminally prosecute the issuer as a criminal offense, since issuance of a cheque from a closed bank account is in principle a criminal act, presumably done in bad faith.
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