UK Court Enforces Dubai Court Judgment Against UAE National And Finds Cannot Escape Liability By Transferring Assets To Family | Dechert LLP

• The High Court of England and Wales ruled that a court judgment in Dubai in favor of Emirates NBD Bank enforcing a personal guarantee against a UAE national was enforceable in England and Wales, allowing the bank to recover against the individual’s assets . U.K. This judgment follows the judgment of: Rencol¹ The court found that judgments of UAE courts were enforceable in England and Wales. Given the prevalence of personal guarantees for business loans and borrowings by banks in the region, this could pave the way for further enforcement action against the assets of foreigners in the UK, particularly UAE nationals.

• This case demonstrates increased reciprocity and legal cooperation between the courts of the two jurisdictions.Although the judgment of the English court has not yet been enforced in the courts in the UAE, the UAE Ministry of Justice issued a letter in September 2022 asking the courts in Dubai to take note of the Runkel Judgment And in return for the execution of future English court judgments.

• There have also been recent changes to the UAE’s laws regarding personal guarantees, which may make it more difficult to enforce personal guarantees in the UAE, as loans must be conditional on “adequate collateral”.The Central Bank of the United Arab Emirates issued a notice², of which Article 121bis requires banks to obtain necessary or sufficient guarantees from individuals or sole proprietorships before providing bank financing, and personal guarantees by themselves are no longer sufficient. The provisions of this notice have been considered public order, which means that the Bank cannot waive its requirements.

• Abu Dhabi courts have recently moved in favor of personal sureties, suspending proceedings and/or enforcement against them if they do not provide adequate security. This could lead to a major shift in the region’s banking and lending businesses, which have historically been relationship-based.

• The court also held that the transfer of certain property and money in the United Kingdom by the UAE national to his son violated section 423 of the Bankruptcy Act 1986 and was therefore a transaction to defraud creditors and to “Prohibited purpose“Placing assets beyond the reach of creditors, including Emirates NBD Bank. The Court of Appeal recently considered the scope of Section 423 more deeply in the following cases: Investment Bank PSC v El-Husseini et al [2023] EWCA Civilization 555you can read about the decision in Dechert’s OnPoint here.

• The court rejected Emirates NBD Bank’s contention that the transfer of property and money to his son formed a trust in favor of the UAE national and that he retained beneficial ownership of the assets, arguing that there was insufficient evidence to rebut this A presumption applies to transfers between parents and children.

background

Rashid Abdulaziz Al Mahavi (“Mr Al Mahavi”), a UAE national, is System Construct Dubai, LLC (“Dubai system construction” or”company”) went into liquidation on September 28, 2014. Mr. Almakhawi and other directors (“guarantor”), providing a personal guarantee to support the company’s borrowing from Emirates National Bank PJSC (“national bank of the emirates”). Following the liquidation of the company, Emirates NBD Bank initiated proceedings against the company and sureties in the Dubai courts (“dubai meeting minutes”) to recover the unpaid amount and obtained a judgment in favor of the Dubai Court of First Instance. The case was unsuccessfully appealed to the Court of Appeal, followed by a further unsuccessful appeal to the Dubai Court of Cassation (Supreme Court), which ordered the surety to pay approximately 2.113 million dirhams (approximately £47.5 million) plus interest (this”dubai verdict“).

What is a personal guarantee?

A personal guarantee is a legal obligation whereby an individual (usually a shareholder or director) agrees to be personally liable for the lender’s debts in the event of default (including bankruptcy) by the corporate debtor.

According to the UAE Civil Code, Article 1057 defines a surety as a security that combines the liability of the guarantor (guarantor) with the liability of the debtor (principal debtor) in the performance of its obligations. It distinguishes between personal guarantees and personal financial guarantees.

Following the limited amount recovered following enforcement of the Dubai Judgment, Emirates NBD Bank sought recognition of the Dubai Judgment in England and Wales by launching a common law action against the judgment. In addition, Emirates NBD Bank seeks relief in relation to the London property and certain monies transferred by Mr. Almakhawi to his son (“Pick-up service”) on the grounds that such transfer: (i) created a trust in Mr Almakhawi’s favor and Mr Almakhawi retained beneficial title to the assets transferred; or (ii) the transfer was intended to defraud creditors under Section 423 of the Bankruptcy Act 1986 transactions (“Article 423IA“).

Mr Almakhawi argued that the Dubai Judgment was obtained as a violation of natural justice because certain misreferences to outdated UAE law were contained in the two expert reports which formed part of the evidence during the proceedings in Dubai.

He further argued that the transfer of the representative’s gift was primarily for succession or succession planning purposes and not for one of the purposes prohibited by section 423 IA.

judge:

Enforceability of Dubai Judgments

The Court held that the Dubai Judgment was enforceable as a common law issue under English law. A foreign judgment in person by a foreign court of competent jurisdiction, if the judgment is for a debt or an amount and is final and conclusive. There are certain exceptions to this principle, including where the procedure by which the judgment is reached is contrary to natural justice. Natural justice involves procedural fairness, and it is not enough to prove that a foreign court has violated the rules. The availability of remedies in foreign courts is also a relevant factor in determining whether substantial injustice has occurred.

In this case, the court held that the misrepresentation of outdated law in the expert report was not sufficient to violate natural justice. Mr Almaqawi had several opportunities to challenge the Dubai courts’ reliance on the reports, or to argue that the reports were invalidated by erroneous citations, which he did not do. Accordingly, the Court declared the Dubai Judgment enforceable in England and Wales and entered a monetary judgment against Mr Almakhawi.

Pick-up service

the resulting trust

The transfer is gratuitous, and the general rule is that a gratuitous transfer can be presumed not to be a gift³. This presumption is “easily refuted⁴” By evidence and counter-presumption, it applies to transfers between parent and child, even though in the case here, the child is not a minor⁵. The point is the intent of the assignor, and previous, contemporaneous or subsequent (so as to form part of the same transaction) acts and statements may be relied upon to rebut or support a presumption.

In the Court’s view, there was insufficient evidence to rebut the presumption of promotion. In particular the transfer of property, from the outset having written evidence from advisors and lawyers that Mr. Almakhawi intended that the property was intended to be a gift and that a gift deed had been entered into although it was dated later than the transfer of property . Accordingly, the Court rejected this grounds for relief.

Section 423 Bankruptcy Act 1986

s.Chapter 423 Bankruptcy Act 1986 – Undervalued Transactions

Require:

• do one by one Gift give to others or otherwise enter trade terms with the other party Not consider.
• The court was satisfied that he entered into such transactions in order to Purpose:
  • Keep assets out of reach a claim is or may be brought against him; or
  • Otherwise harm the interests Information about such persons in connection with the claim.
• The court may make such order as it thinks fit restore location What would it look like if the deal didn’t go through protect interests those people victim transactional.

The terms of these assignments do not provide consideration, so the key question is whether these assignments are for “Prohibited purpose“.

This requires proof that Mr. Almakhawi had a subjective, positive intent to achieve “Prohibited purpose’ That can be, and often is, inferred from the circumstances.”Prohibited purpose“It does not have to be the sole or principal purpose, however, it must be a genuinely substantial purpose and it is not sufficient that the consequence, by-product or result of the transaction is to place assets beyond the reach of creditors. It is possible”The motivation to defeat the creditor and the motivation to obtain family protection coexist to such an extent that even the assignor himself may not be able to say what his most important thoughts are“.

The court held that while one of the purposes of the assignment was to preserve assets and succession planning for his children, another purpose (and not just consequences) was “Prohibited purpose“(i.e., placing assets outside the reach of, and to the detriment of, the Emirates National Bank and its other creditors).

The main factor determining this was the timing of the transfer and certain other divestments by Mr. Almakhawi around the same time. These all came after the judgment against him by the Dubai Court of First Instance, especially the assignment after his appeal failed. Accordingly, the court held that the assignment was “Responding and reacting to, and I infer motivated by, the failures and reversals in the Dubai proceedingsThe court held that Mr. Almakhawi had good reason to foresee and hoped that the effect of the transfer would put his assets beyond the reach of his creditors. The evidence relating to the circumstances of the transfer was also unsatisfactory and contradictory, and this was what the Court did to Mr. Almakhawi. further factors to be taken into account in making an adverse judgment.

The Court of Appeal has recently considered the scope of Section 423 in greater depth in cases such as Invest Bank PSC v El-Husseini, particularly as it applies to assets held through corporate structures [2023] EWCA Civ 555, you can read about the decision in Dechert’s OnPoint here.

1. Lenkor Energy Trading DMCC v. Puri [2020] European Health Committee 75

2. Circular No. /3/2023, pursuant to Federal Decree No. 1. 23/2022 amending Federal Decree No. 1/14/2018

3. West German State Bank Girozentrale v Islington LBC [1996] 2 AC 669 at 708A-B

4. Van der Veer v Commissioner of Inland Revenue [1967] 2 AC 291, 312F

5. Wood v. Watkin [2019] EWHC 1311 (chapter), [2019] BPIR 82-93