<p><strong>Overview of 2011</strong><br /><br />To date, 2011 has continued to offer  many milestones in the area of enforcement. The UAE Courts and regulatory bodies  have shown a unique willingness to cooperate with interested parties to reach  best practice in the field of enforcement and particularly in the banking  sector. By all accounts, the heightened success in enforcement reflected during  2011 will continue creating a safer and more transparent investment  jurisdiction.<br /><br /><strong>Background to the UAE legal  system</strong><br /><br />The UAE is a developing jurisdiction. As such the  enforcement of rights and obligations arising from legal relationships under the  Commercial and Civil Codes is continuously being tested in the  Courts.<br /><br />One must also remember that the UAE is a civil law jurisdiction.  In addition to there being no concept of binding legal precedent, many of the  principles applying to security in the UAE are different to those in common law  jurisdictions. Therefore security such as floating charges or hypothecations,  all monies guarantees and assignments of unidentified or future rights are not  recognized in the UAE.<br /><br /><strong>Enforcement in general<br /><br /></strong>As  a general principle, UAE law and procedure does not recognize the concept of  &lsquo;self help&rsquo; remedies and the general rule is that security can only be enforced  by way of a relevant Court order.<br /><br />Typically enforcement in the UAE  involves the secured party filing a claim for the entire amount outstanding and  then requesting the Court to both acknowledge the security and confirm the  secured party&rsquo;s preferred position.<br /><br /><strong>Mortgages and  enforcement<br /><br /></strong>One of the most common types of security utilized in  the UAE is the mortgage over immovable property (i.e. land).<br /><br />In terms of  enforcement procedures, the Emirate of Dubai has enacted Law No.14 of 2008  concerning Mortgages in Dubai (the &ldquo;Dubai Mortgage Law&rdquo;). The Dubai Mortgage Law  outlines the procedures for enforcement of mortgages, under which:</p>
<ol>
<li>the mortgagee (being a UAE licensed bank) is required to notify the  mortgagor of the default in payment by serving a legal notice through the notary  public requiring it to cure the default within thirty (30) days;</li>
<li>once the (30) days grace period is lapsed, the mortgagee may submit an  application/petition directly to the execution department of the Dubai Courts  seeking enforcement of the mortgage. In accordance with the Dubai Mortgage Law,  upon the failure of the mortgagor&rsquo;s to pay the overdue amount, the execution  judge may order an attachment against the mortgaged property so that it can be  sold by public auction.</li>
</ol>
<p>At present mortgage enforcement proceedings (to obtain approval to sell the  property) usually last between 4 to 6 months if no defenses are raised by the  mortgagor.&nbsp;&nbsp;<br /><br />If the mortgagee&rsquo;s application/petition is valid, the  execution judge will issue an order to sell the mortgaged property through  public auction. Public auction is organized by and conducted in the Dubai Lands  Department and can take a further 3 to 6 months. Once the mortgaged property is  sold through the public auction, all proceeds of the sale will be transferred by  Dubai Lands Department to the execution department of Dubai Courts. The  execution department of Dubai Courts will disburse the funds against the  liabilities of the mortgagor in accordance with priority. <br />&nbsp;<br />To date, more  than 100 cases have been filed by Al Tamimi for various lenders, with over 30  successful judgments issued, one of which resulted in the first sale by public  auction in Dubai (under the Dubai Mortgage Law) earlier this year.<br /><br />In  other Emirates such as Abu Dhabi, no specific mortgage laws have been  introduced.&nbsp; The main difference is that application for enforcement will go  through the Court of First Instance as opposed to, in Dubai, being lodged  directly at the execution department of the Court. In most other respects the  process is very similar, albeit we have not seen, as yet, the same level of  cases in Abu Dhabi.<br /><br /><strong>Islamic finance and  enforcement<br /><br /></strong>The UAE is governed by a civil law system, which  means that all relevant underlying commercial and banking laws are, to a large  extent, codified. There is no separate legislation within the UAE which codifies  Shari&rsquo;a law for commercial transactions. However, it can be said that large  portions of the UAE civil and commercial laws are underpinned by Shari&rsquo;a  elements and are therefore compatible with Shari&rsquo;a principles.<br /><br />One common  misconception in relation to enforcement is the application of &lsquo;Shari&rsquo;a law&rsquo;, or  the jurisdiction of Shari&rsquo;a Courts. Should a dispute arise in the UAE, the  matter would be brought before a UAE Court, and the Court is unlikely to apply a  different treatment to the dispute solely on account of the transaction being  Shari&rsquo;a compliant. The dispute will be subject to the same processes and  procedures as a conventional financing counterpart. The Courts will also apply  the laws of the UAE in determining the case. Notably, if a document purports to  be governed by Shari&rsquo;a law, Courts will likely disregard such choice of law, and  will instead apply the applicable UAE laws.<br /><br />Generally speaking, Islamic  financing products in the UAE are based on an underlying asset, which in a  majority of structures is purchased by a bank and sold/leased to a customer by  way of Ijara and/or Murabaha. One of the most commonly used Islamic financial  products in the UAE is the Ijara.<br /><br />In terms of Ijara enforcement, the  financier may have the right under its documents to terminate the lease and/or  exercise its rights under the purchase undertaking (to compel the customer to  purchase the property at an amount equal to the outstanding amount), however in  practice it is unlikely such remedies could be exercised together since the  Courts in Dubai (to date) have viewed the Ijara as a sale meaning it would be  difficult to terminate the sale and then to confirm, or ask the Court to  confirm, the sale through the purchase undertaking.<br /><br />If the financier&rsquo;s  sole goal is to obtain unencumbered title to and vacant possession of the  financed property and the financier does not intend to pursue the customer for  any shortfall, termination may be considered by the financier due to its  simplicity, in particular during execution. Alternatively, if a judgment for the  full amount is required, exercise of the purchase undertaking will be  preferred.<br /><br />To date, Al Tamimi has approximately 150 cases before the  Dubai Courts for enforcement of Ijara documents, a majority of which are based  on exercise of the purchase undertaking. To obtain a successful judgment, one  can expect a timeframe of 6 to 8 months, with over 50 successful judgments  obtained.<br /><br /><strong>Other enforcement options</strong><br /><br />It is common  in the UAE for banks and financial institutions to use post-dates cheques as  part of their security for lending.&nbsp; Usually post-dates cheques will be issued  and signed by the borrower and either dated or undated depending on the  procedures of the banks and financial institutions. Dishonored cheques in the  UAE carry civil liability, together with criminal liability for the signatory.  Criminal complaints are often registered with the police and within 24 hours the  name of the signatory of the cheque will be circulated to all borders of the UAE  with a request to prohibit the same from leaving the country. Issuers of  dishonored cheques can face imprisonment <br />for a period of 1 to 3 years.  Although there has not been a change in the law in this area, we note that the  UAE Courts in practice are no longer imprisoning the issuers of all returned  cheques, especially in real estate transactions. Rather, in certain cases, the  UAE Courts have issued fines to some offenders.<br /><br />Other very valuable and  effective tools of enforcement in the UAE include the use of travel bans and  precautionary attachments, which usually allow the lender to obtain an element  of leverage over defaulted customers and increase the likelihood of engagement  by the customer in negotiations with the lenders. Travel bans continue to be  granted by the UAE Courts and can be obtained within a matter of days.&nbsp;  Precautionary attachments over assets such as property, shares, bank accounts  and so on also remain a integral part of most enforcement proceedings, and are  invaluable in exerting pressure on the customer and ensuring assets are not  disposed of during legal proceedings. Although both are at the Court&rsquo;s  discretion, obtaining a successful order is likely where there is a clear  default in payment.<br /><br /><strong>Summary</strong><br /><br />Although painful for  some, the continued litigation of finance matters and enforcement proceedings in  the UAE has, and is, creating more understanding and certainty for industry  participants.</p>