The Power of Payment Orders in Debt collection in UAE.

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The Payment Order process in the United Arab Emirates (UAE) is designed to facilitate an efficient method of obtaining judgments for straightforward debt cases, offering creditors a timely and cost-effective means of seeking relief. Recent amendments to Cabinet Resolution No. 57 of 2018 have brought clarity to the uncertainties surrounding Payment Orders, confirming the Court of First Instance’s jurisdiction to adjudicate claims that meet the criteria for a Payment Order. This article discusses the nature of Payment Orders, the procedure for obtaining them, their mandatory status, and the parties’ rights to appeal or challenge such orders.

Payment orders may offer an efficient method to obtain ex parte judgement against a debtor. They are frequently used when claiming amounts arising from bounced checks or other commercial instruments.

Payment orders were originally promulgated by Federal Law No. 11 of 1992 (the “Civil Procedure Law“). Cabinet Decision No. 57 of 2018 (the “Cabinet Decision“) amended the procedural process of the Civil Procedure Law. These changes came into effect 16 February 2019.

When unambiguous debts are owed in the UAE, payment orders provide a fast method for judicial relief. However, enforcement of awards remains a key challenge to collecting the debts once the judiciary has intervened.

What is a Payment Order in debt collection in UAE?

An order for payment is an exception to the general rule for claiming debts in UAE Courts. An order for payment is technically a combination of summary and substantive legal proceedings. In practice, there is limited precedent where orders for payment have been issued by UAE Courts.

Criteria for a Payment Order for Debt Collection in UAE

Article 62(1) of Cabinet Resolution No. 75 of 2021 sets forth the criteria for obtaining a Payment Order. It applies when the creditor’s right is immediately due, evidenced electronically or in writing, and the entire claim consists of a fixed debt amount or a specific type and quantity of movable assets. Article 62(2) specifies that this procedure also applies to financial claims arising from the enforcement of commercial contracts or related to commercial papers (e.g., promissory notes or cheques). It is important to note that a Payment Order does not preclude the creditor from seeking compensation, interest, or other precautionary measures as part of their claim (Article 62(3)).

Legal Standard for Written Admission of Debt

Based on judgments rendered by the courts, an acknowledgment of a debt is deemed to be an individual’s recognition that they owe a particular right to another party, intending to treat that right as proven and relieve the creditor from presenting further evidence. To be considered valid, the acknowledgment must be definite and assertive. Any uncertainty surrounding the acknowledgment may render it incorrect or invalid in the eyes of the court. The value and significance of such an acknowledgment, particularly in relation to the termination of limitation periods, are subject to the court’s discretion, as long as the court’s inference is reasonable and sound.

Procedure for Obtaining a Payment Order for Debt Collection in UAE

Article 63 of Cabinet Decision No. 57 of 2018 outlines the procedure creditors must follow to apply for a Payment Order.

A. Serving the Payment Demand

First, the creditor must serve a Payment Demand upon the debtor, setting a prescribed time limit (at least five days) for payment. The Payment Demand can be served through various means specified in Cabinet Resolution No. 57 of 2018, with issuing it through the Court or Notary Public being a prudent option to prevent the debtor from denying receipt.

B. Filing an Application for a Payment Order

If the debtor fails to make the payment within the specified time limit, the creditor can file an application for a Payment Order before the Payment Order Judge. The application should include details of the claim and must attach the debt instrument and evidence of the Payment Demand.

C. Filing Fee and Granting of the Payment Order

The filing fee for a Payment Order is the same as the regular court fee, currently set at 6 percent of the claim value, with a maximum of AED 40,000 in Dubai. Article 63(4) stipulates that the Payment Order shall be granted within three days of filing the application and must indicate the specific amount to be paid by the debtor.

Mandatory Status of the Payment Order Procedure for Debt Collection in UAE

Previously, there was uncertainty whether the Payment Order procedure was mandatory. However, Decision No. 2 of 2019 by the General Assembly of the Dubai Court of Cassation clarified that the process is obligatory for creditors if the criteria for a Payment Order are met. Exceptions exist only if there is a significant dispute regarding the evidence or the debt’s value, in which case, the matter may be admissible before the Court of First Instance.

A. Jurisdiction of the Court of First Instance

Article 68 (bis) of Cabinet Decision No. 75 of 2021 confirms that the Court of First Instance retains jurisdiction over claims that satisfy the criteria for a Payment Order. This development provides greater clarity for creditors who can now initiate their claims before the Court of First Instance without the risk of dismissal due to the absence of a Payment Order application.

Rights to Appeal or Challenge a Payment Order

Article 66 of Cabinet Resolution No. 75 of 2021 outlines the mechanisms available to challenge a Payment Order.

A. Threshold for Filing a Grievance

Article 66(1) allows parties to file a grievance against the Payment Order before the Payment Order Judge within 15 days from the date of notification of the order to the debtor, or within 15 days from the issuance date for the creditor. However, if the Payment Order’s value is below the threshold for regular appeals to the Court of Appeal (currently AED 50,000), the decision on the grievance is final and not subject to further appeal.

B. Appeal for Payment Orders Exceeding the Threshold

For Payment Orders whose value equals or exceeds the minimum threshold, Article 66(2) grants parties the right to appeal within 30 days.

C. Grounds for Appeal

Under Article 66(3), the appellant must submit the grounds for appeal simultaneously with the appeal filing; otherwise, the appeal will be dismissed. Unlike regular appeals, which allow appellants to submit grounds up to the date of the first hearing, Payment Order appeals demand immediate grounds presentation.

D. Court of Appeal’s Decision and Recourse

The Court of Appeal must consider the appeal in a week from its notification and make a final determination. If the Payment Order is dismissed due to procedural non-compliance, the creditor’s only recourse is to initiate a new claim. However, if the case was initially submitted in the regular manner and transferred to the Payment Order Judge, the Court of Appeal may remand the case to the Court of First Instance for an ordinary determination if the Payment Order criteria are not met or for substantive reasons (Article 66(4)).

Legal Framework and Court Decisions

Article 17(8) of Cabinet Decision No. 57 of 2018 states, “If the Case Management Office receives a claim that satisfies the conditions of the issuance of the payment order set forth in Article (62) hereof, the Case Management Office shall refer the same to the Supervising Judge immediately for referral to the competent judge having jurisdiction over the payment order, in order to adjudicate the claim within the time limit specified in Article (63.4) hereof.”

Moreover, in Decision No. 2 of 2019, the General Assembly of the Dubai Court of Cassation clarified that the Payment Order process is indeed mandatory for creditors. It emphasized that if the criteria for a Payment Order are met, creditors are not allowed to proceed with their substantive claim in the usual manner unless there is a serious dispute regarding the evidence or the debt’s value. In such cases, the matter may be admissible before the Court of First Instance.

Impact on Substantive Claims

The pronouncement by the General Assembly has significant implications for creditors seeking relief through the Payment Order process. Several judgments by the Court of First Instance have been issued, dismissing substantive claims where the criteria for a Payment Order are satisfied. This has posed a dilemma for creditors as they had to decide whether to appeal the dismissal, which carries the risk of the judgment being upheld, or accept the judgment, making it final, and subsequently apply for a Payment Order. The uncertainty surrounding the success of the Payment Order application has added complexity to the process.

Recent Clarification and Resolving the Issue

Fortunately, Article 68 (bis) of Cabinet Decision No. 75 of 2021 has provided some clarity on this matter. It expressly confirms that the Court of First Instance retains jurisdiction over claims that satisfy the criteria for a Payment Order, even if the procedure for obtaining a Payment Order has not been followed.

The article states, “As an exception to the provisions of this Chapter, if the case brought before the court meets the conditions for obtaining a payment order, it shall be resolved in accordance with the rules and procedures stipulated for the resolution of [regular] cases.”

Welcome Development for Creditors

This recent amendment is a welcome development for creditors. It mitigates the risks and procedural uncertainties previously faced when determining whether their claim satisfies the criteria for a Payment Order. Now, creditors can initiate their claims directly before the Court of First Instance without the fear of dismissal based on technicalities related to the Payment Order process.

The recent developments in the legal framework have clarified the mandatory nature of the Payment Order procedure for creditors. The General Assembly’s determination and subsequent amendments have reinforced the importance of the Payment Order process in seeking swift judgment for straightforward debt cases.

Creditors can now approach the Court of First Instance confidently, knowing that their claims will be considered on their merits, without the procedural hurdles related to the Payment Order application. This should lead to greater efficiency and transparency in the UAE’s debt resolution process.

Key Requirements for payment orders

For the competent court in UAE to approve a payment order application for collecting debt in UAE, the following requirements must be met:

  • the creditor’s right must be confirmed by the debtor (although the Cabinet Decision does not offer specifics, generally, an unambiguous admission of liability is required); 
  • the creditor’s right must be urgent;
  • the whole claim is a debt of a specified amount or a movable of a specified type and amount; and
  • the subject of the application is the enforcement of a commercial contract or commercial paper.

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Considerations for Legal Notice

Submitting a legal notice for debt collection in UAE requires a number of considerations:

1. Legal Notice 

Before applying for a payment order for Debt Collection in UAE, the creditor must send a demand letter to the debtor demanding settlement within 5 days. The notice must be given in the form specified in the Cabinet Decision. If the outstanding debt is not settled, the creditor may apply for a payment order.

2. Proper Jurisdiction 

The application must be submitted to the Court of First Instance in the jurisdiction of the debtor’s domicile. This means that even if the transaction occurred in another Emirate, the payment order can only be filed at the court of the debtor’s registered office.

3. Application Format 

The application must include a statement of claim, the demand notice issued to the debtor, and evidence of the admission of debt. The judge will then grant or deny the order within 3 days. In practice, these timeframes are not strictly followed.

4. Judicial Decision Making 

The Cabinet Decision has added a burden on the judge to provide reasons for rejecting a payment order application. The creditor is given 3 months to inform the debtor of the court’s decision in person, failing which the payment order will be voided.

5. Appeal 

The debtor is permitted 15 days to file an appeal which should be addressed by the court within a week. Previously, appeals would require 30 days and the parties would be permitted 15 days to file a grievance against the court ruling before filing an appeal.

Positive Changes

The Payment Order process in the UAE serves as a swift and efficient means for creditors to obtain judgments in straightforward debt cases and for for Debt Collection in UAE. Recent amendments have addressed uncertainties and clarified the mandatory nature of the procedure. Creditors can now initiate claims in the Court of First Instance without the risk of dismissal based on Payment Order criteria. Parties have specific rights for challenging Payment Orders, and the expedited execution process further streamlines the enforcement of judgments, ensuring creditors can pursue timely relief.

The Cabinet Decision improves the process for payment order applications in a variety of ways.

Summaries of the Cabinet Decision:

  • permits a claim for interest to be made under the payment order procedure;
  • permits the confirmation of creditor’s right electronically, including by email;
  • extends the use of payment orders to all admitted debt, rather than simply debt admitted through financial instruments. This means that contractual debt admitted by email correspondence likely qualifies for the payment order procedure; and
  • makes clear that an application for a payment order does not preclude the creditor from seeking provisional relief such as an attachment on debtor assets.

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Theory vs. Practice

Recent amendments to the payment order process offer some improvements for creditors seeking swift action against debtors.

However, procuring and enforcing a payment order in an expeditious manner remains challenging for a number of reasons:

1. Court Costs in UAE 

Most courts in the UAE cap filing fees. However, courts in some jurisdictions within the UAE, including Ras Al Khaimah, do not do so. This can lead to court costs of up to 10% of the claim value which may prove prohibitively expensive to claimants.

2. Service of Process 

Creditors will likely face hurdles when trying to serve the payment order on recalcitrant debtors. This is especially the case if the debtor is close to, or in a state of, insolvency. If the debtor cannot be located, publication of notice via newspaper is the creditor’s remaining option. This further delays execution of the payment order.

3. Appeals 

Recent experience shows that judges are reluctant to rule against appealing debtors without additional review even if the debtor’s claim facially lacks merit. This usually means that the judge will appoint an accounting expert to review the parties’ claims before issuing a final decision. As a result, the appeals process involves additional expense and takes time far in excess of that prescribed by the law.

4. Execution 

As a final point, procuring a payment order is the first step in securing the outstanding debt. The creditor must still apply to the relevant execution court to enforce the payment order. This opens additional avenues for challenge and delay by the debtor.

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Debt collection in UAE via courts is an expensive process.Creditors should be prepared to expend additional funds and time to proceed through the execution process. Even with an execution order in hand, and especially if the debtor’s proverbial cupboards are “bare,” the creditor may not recover anywhere close to the judgment amount.

Before initiating legal action for debt collection in UAE, creditors should always conduct a thorough legal analysis of: risks; the likelihood of recovery; and the costs associated with litigation.

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