Moye White has been a part of Ally Law since 2005. This membership allows us to access and collaborate with dozens of firms across the globe to provide our clients with local intelligence with a global breadth. We are partnering with fellow Ally Law member firms around the world for our International Insights blog series. Every other month, one of our Ally Law partner firms will share insights and tips for doing business in their home country.
This month’s blog is written by Amal Qattan, a Senior Associate at Kalbian Hagerty. The firm is headquartered in Washington, DC, with branch offices in Abu Dhabi and Dubai in the United Arab Emirates. Kalbian Hagerty provide services in civil litigation, arbitration and mediation, business planning, contract negotiation, and transactions in diverse legal systems, including both common and civil law jurisdictions.
- Paul Franke, President of Ally Law
In September 2021, the UAE announced the decriminalization of bounced checks. This decision was welcomed by both prosecutors and ordinary residents of the UAE. For prosecutors, bounced check cases were unduly burdening the criminal court docket. For residents, who were constantly forced to provide post-dated checks for everything from residential leases to car loans, the risk of dealing with a criminal complaint for even an accidental bounced check (i.e., when the bank failed to correctly verify a signature) remained constant. Thus, decriminalization was greeted with great fanfare.
This legal change does not mean the UAE financial system will be drowning in bounced checks. It is true that the UAE authorities removed criminal penalties for bounced checks from the UAE Penal Code and, thus, out of the jurisdiction of the criminal courts. However, a swifter procedure with similar penalties for bounced checks remains under the jurisdiction of the civil and execution courts.
UAE courts are courts of limited jurisdiction handling specific subject matters: criminal matters are litigated before the criminal courts and labour matters are litigated before the labour courts. In this system, an execution court handles the enforcement of civil judgments exclusively. That is, once a party wins a civil claim, it must file its winning judgment with an execution court to seek enforcement of that judgment.
Previously, if a person wanted to enforce a bounced check, they could either do so as a civil or criminal claim. While the civil claim would result in monetary damages for the bounced check, almost everyone pursued the criminal claim instead. This was done for two reasons. First, beneficiaries sought to avoid the cost and time of litigating a civil case.
Second, it was generally believed that filing a criminal case would sufficiently pressure the maker to obtain a quick resolution. This is because upon filing a criminal case, the public prosecutor would seize the maker’s passport, impose a travel ban and issue an arrest warrant. Usually, just this preliminary brush with the UAE authorities was sufficient to force a maker to make good on the bad check. This tactic was extensively used—and abused—resulting in a criminal record for bouncing a check.
Taking this into consideration, the UAE sought to synchronize its enforcement remedies with international norms by decriminalizing bounced checks. Thus, on January 2, 2022, the passing of the new UAE Penal Code (Federal Law No. 31 of 2021) removed criminal liability for writing a bad check. Instead, the UAE offers a quicker mechanism to apply penalties or coercive actions for bounced checks.
Specifically, administrative penalties, such as fines, are covered under the UAE Commercial Transactions Law (Federal Law No. 18 of 1993) in cases of bad faith, such as providing a check knowing that there are insufficient funds to honor it. In addition, coercive actions equivalent to those under the Penal Code still exist under the Implementing Regulation of the UAE Civil Procedures Law (Cabinet Decision No. 57 of 2018).
Under the Implementing Regulation, a beneficiary can take a bad check straight to an execution court and claim it as an “execution writ.” An execution writ in the UAE is a judgment, authenticated document, ratified settlement, or other document accorded the same force by law; and Article 635 of the UAE Commercial Transactions Law, explicitly accords bounced checks the status of an execution writ.
Consequently, with a bounced check, a party merely needs to file it as an execution writ, instead of a criminal or civil complaint. Once this is granted, a party can seek enforcement by pursuing coercive actions identical to a criminal case (i.e., obtaining a travel ban and arrest warrant).
Thus, it is true the UAE decriminalized bounced checks. But this action precipitated use of legal procedures that are quicker and just as coercive to enforce bounced checks.