In Brief:
Recent legislative amendments, including Federal Decree-Law No. (14) of 2020 and Federal Decree-Law No. 50 of 2022, have recognized cheques as enforceable instruments in the UAE, allowing their execution in cases of non-payment due to insufficient or unavailable funds.
- Judicial interpretations in the UAE have diverged on whether the enforceability of cheques extends beyond lack of funds or insufficient balance, with some courts also recognizing account closure as a valid reason for enforcement.
- The Judicial Principles Unification Committee ruled that account closure should be treated similarly to having an insufficient balance or no funds entirely, expanding the conditions under which a cheque is enforceable.
- A subsequent ruling from the Abu Dhabi Court of Cassation clarified that account freezing is not equivalent to account closure, and thus, a frozen account does not render a cheque enforceable.
- It could be argued that cheques should be enforceable in all cases where they cannot be cashed, including those involving criminal offenses, as supported by Article (682) of the Commercial Transactions Law.
The cheque, as an instrument of payment, plays a significant role in commercial transactions. However, its legal standing as an enforceable instrument has historically been a subject of debate. While some legal systems grant the cheque executory power, others require additional legal processes before enforcement can occur. In the UAE, legislative amendments have now recognized the cheque as an enforceable instrument, though variations in judicial interpretation persist regarding the conditions under which a cheque can be executed. This divergence in judicial applications continues to shape the evolving legal landscape surrounding cheques and their enforceability.
Historically, in the UAE, if a cheque could not be cashed from the bank it was drawn on, the beneficiary was required to resort to the judiciary to obtain an executory instrument, such as a judgment or an order for payment, to collect the amount stated. This process, however, changed with recent legislative reforms, which have reshaped how cheques are treated in cases of non-payment, marking a shift towards simplification of the enforcement process.
Indeed, it was the issuance of Federal Decree Law No. (14) of 2020 Amending Certain Provisions of the Federal Law No. (18) of 1993 Concerning the Commercial Transaction Law whereby the UAE legislator, for the first time, recognized the cheque as an enforceable instrument. Article (635) Bis of the aforementioned new law stipulates:
A cheque, which bears the drawee’s stamp as non-paid for unavailable or insufficient fund, shall constitute an executive instrument as per the Executive Regulation of the Federal Law No. (11) of 1992 and its bearer shall have the right to demand the coercive enforcement, wholly or partially. With respect to its enforcement and dispute related to it, provisions, procedures and rules provided for in the said Executive Regulation shall apply.
Similarly, the legislator confirmed and upheld this ruling in the subsequent amendment under Federal Decree-Law No. 50 of 2022, thereby preserving the cheque's executory power, as demonstrated in Article (667) of the law, which states:
- A Cheque bearing a statement by the Drawee denoting that it was not paid due to insufficient or lack of balance is deemed an executive document, and its Bearer has the right to request its execution, in whole or in part, by compulsory means.
- The provisions, procedures and rules contained in the Civil Procedures Law shall apply in matters related to the application for execution and the disputes related thereto.
Key Issue:
The divergence in judicial interpretations within the UAE regarding the circumstances under which a cheque qualifies as an enforceable instrument necessitates further analysis. While some rulings confine these circumstances to two specific cases, others extend to a third, prompting a closer examination. This article will first review the position of the UAE judiciary on the conditions under which a cheque is deemed enforceable, followed by an analysis of the relevant legislative provisions in order to offer our interpretation on the matter.
The UAE Judiciary’s Stance on the Cheque as an Executory Instrument:
As mentioned earlier, the courts have reached conflicting judicial rulings in cases determining whether cheques may be used as enforceable instruments.[1] Certain judgments of the Abu Dhabi Court of Cassation have limited those scenarios to the two mentioned in Article (667) of the Commercial Transactions Law outlining a failure to cash a cheque due to an absence of funds or due to insufficient balance present in the drawer account. Meanwhile, in another ruling, the same court added a third scenario: failure to cash the cheque due to the account being closed (Appeal No. 460/2023 Commercial – Hearing of 21/06/2023).
In light of the inconsistencies between judicial principles issued by the Court of Cassation, the matter was referred to the General Authority of the Court under Request No. (4) of 2023. On 30/10/2023, the General Authority decided to adopt the judicial principle restricting the executory force of the cheque to include only the initial two scenarios whereby there are no available funds or an insufficient balance.
Similarly, the Dubai Court of Cassation upheld the principle that limits the enforceability of a cheque to cases where there are no available funds or an insufficient balance (Appeal No. 888/2023 Commercial).
On 01/08/2023, prior to the General Authority of the Abu Dhabi Court of Cassation issuing its decision on Request No. (4) mentioned above, the discrepancy between the judicial principles of the Abu Dhabi Court of Cassation and the Dubai Court of Cassation were referred to the Judicial Principles Unification Committee of the Federal Supreme Court. On 21/12/2023, the committee ruled in Request No. (1) of 2023 that the closure of an account is equivalent to having no funds or an insufficient balance as stipulated in Article (667) of the Commercial Transactions Law. In other words, the committee decided that the cases in which a cheque is considered an enforceable instrument extend beyond the scenarios of having no funds or an insufficient balance and shall also include closure of the account.
It is worth mentioning that after the Judicial Principles Unification Committee issued the said ruling, the Abu Dhabi Court of Cassation issued a judgment in Appeal No. (767/2024) Commercial on 27/08/2024, in which it concluded that freezing an account does not constitute account closure and would not mean that a cheque can be considered an enforceable instrument. The court justified the ruling, stating that freezing an account should be differentiated from account closure. The closure of an account corresponds to absolute termination of the account and the cessation of all banking operations in respect of it, preventing new deposits or withdraws. Freezing or suspending an account, on the other hand, temporarily halts its operation for a specific period, after which the account resumes activity, and the frozen account is not considered closed during such period.
Findings:
While one may recognise that the above judicial rulings and principles limiting the scenarios in which a cheque is considered an enforceable instrument pursuant to Article (667) of the Law (failure to cash cheques due to having no funds or an insufficient balance), we do not necessarily agree with the rulings that consider the closure of an account as the only additional scenario of the law. We believe that a cheque should be considered an enforceable instrument in all cases where the cheque cannot be cashed, including where the reason relates to one of the criminal offenses stipulated in Articles (673, 674, and 675). Our reasoning can be summarised as follows:
It is established that the provisions of any law are not independent or separate from one another. There is often a close connection between such provisions, especially when they address the same issue. In such cases, it is not always possible to understand or interpret a particular provision in isolation from related provisions. Although a provision may seem limited in scope, when connected with other related provisions, its scope becomes broader and includes the case in question.
Thus, if a judge, in interpreting a particular provision, confines himself to that provision’s literal wording and ignores other closely related provisions, he may not be properly and accurately interpreting the law, and his ruling may be flawed.
The aforementioned judicial rulings restricted the scenarios in which a cheque could be considered as an enforceable instrument pursuant to Article (667) of the Commercial Transactions Law (the presence of no funds or an insufficient balance) and extended the principles to the closure of an account, considering it equivalent to those two cases. However, these rulings failed to consider Article (682) of the same law, which clearly states that criminal offenses related to cheques do not affect the enforceability of the cheque. Article (682) stipulates:
If a criminal action is filed against the drawer, in either of the cheque crimes provided herein, this shall not prejudice the force execution of cheque or taking the judicial measures, according to the provisions, procedures and rules referred to in Article (667) hereof, or the right of the beneficiary or the cheque bearer to claim remedy, according to the procedures provided in law.
Article (682) clearly indicates that cases in which a cheque is considered enforceable are not limited to the two scenarios mentioned in Article (667). Such cases also include those in which non-payment of the cheque leads to the filing of a criminal case against the drawer, as provided in Articles (673, 674, and 675) of the Commercial Transactions Law. The reasoning is clear from the text of Article (682), which provides that the filing of a criminal case does not affect the enforceability of the cheque.
Finally, it should be noted that this conclusion is supported by the clear language of the law, together with considerations of justice and logic. It is surely unreasonable for persons committing cheque-related criminal offenses to be shielded from civil enforcement proceedings, while an individual issuing a cheque without funds (which is not a criminal act) is subject to immediate enforcement without court ruling.
For any further information in this regard, please contact Khalid El Sherif (k.elsherif@hadefpartners.com).
[1] Appeal Nos. 173/2023 Commercial Hearing of 07/03/2023, 301/2023 Commercial Hearing of 11/04/2023, and 333/2023 Commercial Hearing of 18/04/2024)