There is a wide range of precautionary attachment options in the UAE which creditors in the region should take into account.
Precautionary attachments are governed by the UAE Civil Procedure Law (CPL). Article 252 is the main provision granting provisional attachment rights. A creditor may apply to the UAE courts for a precautionary attachment order over the real estate and/or moveable assets of the debtor if he fears he will not be able to secure his claim or enforce his arbitration award/judgment against the debtor’s assets. Article 252 provides that in order to obtain an attachment, one of the following requirements (which are not an exhaustive list of examples) must apply:
- The debtor has no permanent residence in the country.
- The creditor fears that the debtor will escape, or will smuggle out or conceal his properties.
- The securities of the debt are under threat of loss/dissipation.
An award creditor can seek a precautionary attachment order before ratifying its arbitration award. Furthermore, if the creditor holds a cheque or bill of exchange issued by the debtor, the attachment order should be granted by the court without needing to show that there is a fear that assets will be dissipated (Article 252(2) of the CPL).
Article 253 provides that a creditor can attach his own assets, if held by a third party, if these assets are at risk. Article 257 of the CPL also provides the option of securing the debtor’s assets that are in a third party’s custody (for example in a warehouse).
In practice, bank accounts and real estate properties are the most common form of assets attached. Other options include attachments of equipment, cargoes, cars/vehicles, furniture, shares and office equipment. Because there are a lot of expatriate owned businesses in the UAE, precautionary attachment orders are commonly obtained against foreign owned assets.
Article 252 of the CPL does not govern precautionary attachments of vessels. These are governed by the UAE Maritime Law (Article 115).
Evidentially, the onus is on the claimant to specify or identify the assets for which an attachment order is sought and to present a credible claim against the defendant.
It is worth highlighting that certain assets may not be attached. Firstly, it is not possible to obtain an attachment order against state owned assets (Article 274 of the CPL). It is also difficult to obtain an attachment order against a UAE national. This is due to the difficulty in establishing the risk of dissipation of such assets, as such debtors have a permanent address in the UAE and are not likely to leave the country (Article 252 of the CPL).
Further, the debtor’s home and anything in the home that the debtor and his legal dependents reasonably need, for example land or agricultural equipment necessary for a farmer to earn a sustainable living, or books and equipment necessary for the debtor to perform his profession, cannot be attached.
Before an attachment order is executed, a judge may prescribe certain conditions for enforcement. These typically include proof of ownership of the asset or a copy of the trade licence to prove that the business being attached belongs to the defendant. Sometimes the judge may order that the claimant provides countersecurity or an undertaking to cover any damages that the defendant may suffer should the action prove unjustifiable.
If a precautionary attachment is granted, the applicant must commence the substantive proceedings for confirmation of his right within eight days of obtaining the attachment order, otherwise if the debtor challenges the order by filing a grievance, the court will probably revoke it. Moreover, the substantive claim before the UAE court can be stayed in favour of foreign or local arbitration proceedings. In addition, where the UAE court does not consider that it has jurisdiction to hear the underlying claim, it should in theory be possible to stay the substantive proceedings in favour of a foreign court’s jurisdiction.
Lastly, if the defendant fails to pay the amount awarded by the court after final judgment, the creditor can request that the enforcement court sells the attached assets through public auction, the proceeds of which will be distributed to the creditors.
In summary, a precautionary attachment order in the UAE is a quick and effective tool by which a creditor can protect its rights and put pressure on the debtor to make settlement.