Hadef in the Courts: Garnishment Applications – Security and Recovery from Third Parties
Authored by: Walid Azzam and Karim Mahmoud
In the UAE’s globally connected marketplace, it is not uncommon to do business with an entity that has no presence in the UAE or has limited, if any, assets in the UAE. In the event of a claim against it can be difficult to recover amounts owed. It may also be that any potentially available can be liquidated, transferred out of the country, or otherwise hidden from potential judgment creditors. As a result, it is possible to achieve a court judgment in respect of an outstanding obligation but with no immediate or easy way to recover.
There is, however, a legal mechanism for recovering funds due to the debtor from third parties. This is provided for in the UAE Federal Law No. 11 of 1992 promulgating the Civil Procedures Law (the “CPL”) in the form of garnishment applications.
Specifically, article 257 (1) of the CPL states that any creditor may apply to the concerned court or to the emergency judge for the garnishment of chattels and debts even if they are deferred or conditional. Such an order is subject to certain requirements defined in the CPL.
In one of our recent cases, our client was owed money by a defendant. The defendant appeared to have few assets in the UAE and a “virtual office” that left our client with very little in terms of potential direct recovery. We applied for and obtained a garnishment order on the outstanding payments owed to the defendant by a third party for both prior work completed as well as ongoing projects.
Procedurally, the third party was ordered to direct the payments to court under article 259 of the CPL, which states:
“The garnishment shall occur, without a need for prior notice to the debtor, by an order signed by the judge and served upon the garnishee by the enforcement officer….”
In fact, it is only after the third party is notified of the obligation to pay the court instead of the debtor that the debtor is considered to have been notified. Article 261 of the CPL provides that “the garnishment shall be notified to the debtor after being notified to the garnishee.” (Emphasis added)
In a different case the court ordered the employer of an individual defendant to transfer a percentage of an employee’s salary (up to one quarter of the salary) in order to cover the judgement debt which the employee was attempting to avoid.
Practically speaking, this process requires identifying assets subject to garnishment. To do this, the relevant court may send letters to third parties requesting confirmation of monies due to defendant. Any such third party that receives such a letter is obligated to answer even though it has no direct obligation to the claimant.
If a potential third party garnishee fails to respond to the court inquiries, “or provides an inadequate or untrue report, or conceals the documents that he is required to deposit in support of the report…” then the claimant is entitled, under article 266 of the CPL, to pursue a direct claim against the obstructing third party.
We note that garnishment could be requested as either a precautionary attachment or at the execution level after a judgment is obtained. This provides the option to garnish an upcoming payment from the third party before defendant has chance to receive it and dissipate the funds.
Generally, attachment and/or garnishment requests are relatively difficult to secure and are at the discretion of the presiding judge. The application for a precautionary attachment and/or garnishment is presented to the Dubai emergency court judge for ruling. The judge will consider the application and assess the existence of a credible risk that the claimed monies will not be available in the event of a successful award.
In case of execution, the matter is presented to the execution judge who can then order for inquiries to be issued to third parties regarding any monies owed to the defendant.
While garnishment applications may not be easy to secure they provide a potential alternative means of securing recovery where the opposing side does not have clear assets to seize. In order to increase the chances of recovery in a case, it is recommended to gather as much information as reasonably possible on business partners’ various business activities. This enables the identification of assets in the event that such procedure is required for a specific case.
This article, including any advice, commentary or recommendation herein, is provided on a complimentary basis without consideration of any specific objectives, circumstances or facts. It reflects the views of the writer which may, in some cases, differ from those of the firm, especially in the developing jurisdiction of the UAE.