Small and mid-sized businesses can seek redressal through DIFC Courts. And this can be done in a way that does not burden the claimant financially. Image Credit: Gulf News Archive

SMEs have been powerless and hamstrung in collecting debts in the UAE.

Unpaid invoices, unjustified delays in payments, expedient commercial disputes and so on - all to reflect a basic unwillingness to pay, has been the bane of SMEs. In many parts of the world, these businesses have specially designed laws to ensure robust protection to address this problem. But the UAE has no such systems in place - or so I thought until I discovered that some protection, albeit modest, exists.

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No early resolution

In the UAE, the legal process is daunting to most companies, especially SMEs, because of the expense involved (lawyers, of course), dealing with the problems of an emirate-based (not Federal) judicial process, and the resultant delays in resolution.

We too have been a victim of unwilling debtors and had to write-off significant sums owing to these real fears and an aversion to going legal. However, we recently faced a problem and I decided we had enough. This story is worth telling because there is a learning for business owners.

One of our Sharjah-based clients, for whom we had done substantial advisory work, unilaterally decided they had paid us “enough”, in direct violation of the contract and stopped paying us some eight months ago. They followed the usual pernicious strategy of earnestly promising to pay, every time we asked.

It took us six months to realise that this was a ploy to wear us down and make us disappear. There was simply no intention to pay.

Steps to a resolution

This was when I rediscovered something I had written into our agreement – that it was subject to UAE Law and to the jurisdiction of DIFC courts. Heartened by this, I perused the DIFC website and made another discovery – the existence of a Small Claims Tribunal (SCT), empowered by the DIFC, to hear and determine claims up to Dh500,000.

The entire process (including timelines) was clearly spelt out, including the heart-warming news that no lawyers were permitted. So, for a fee of Dh15,000 we filed an e-claim and uploaded all requisite documents and proof ourselves.

Instant wheels in motion

The process worked like clockwork, with promised deadlines being completely adhered to. It was quick, easy and transparent. Our claim was contested with a feeble attempt at a rebuttal, founded on dubious logic and falsehoods. This was patiently heard by the first judge at a quaintly termed “consultation”, followed by more submissions and a final hearing by a young Emirati judge a couple of weeks later.

Then came the crisp, clear and concise judgement – in our favour. An appeal by the defendant, again on unfounded grounds was quickly dismissed and we had our final judgment.

Speedy verdict

This was quite a remarkable eye opener – the entire process took two months and served as an enormous confidence booster in the efficacy of the DIFC legal process.

However, there still remained one catch. To get our money back we needed to “enforce” the judgment, in Sharjah, where our debtor was domiciled.

This meant obtaining a letter of enforcement from the Dubai Courts and then filing the same with Sharjah Courts to be able to enforce the judgment with all its punitive consequences (freezing of bank accounts, travel ban or whatever was applicable, all but debilitating the defendant manoeuvre room) if he still refused to pay. This would have entailed delays (six months at the least, we were told), costs (lawyers again and court fees).

Spread the word

However, it ended happily for us – the defendant paid with some pressure. On sharing this saga with some banker and business owner friends, I was astounded to learn that all were unaware of the existence of the SCT!

Business owners will be well advised to explore this further and consider clausing their contracts with the DIFC-jurisdiction condition. The process of obtaining a judgment is rapid, cheap and transparent.

There is something that needs fixing though. The execution of judgements outside the DIFC remains a painful and expensive problem, and the government will do well to streamline and unify the enforcement process across the emirates. A seamless single-window process – judgement and execution by the DIFC - is the need of the hour and will significantly contribute to further the ease of doing business in the UAE.

- Vikram Venkataraman is Managing Director at Vianta Advisors.