Dubai: The need for small businesses to initiate legal action against clients for unpaid claims can, more often than not, place them between a rock and a hard place. Filing a case with the local courts can often be an expensive and drawn-out process.
And if they do not go for a legal solution because of these considerations, it could well mean they have no recourse to claiming their due.
But a small-to-medium enterprise (SME) willing to put in the effort and make the right preparations may well now be able to free itself from a lot of legal hassles.
Being small, SMEs may not have the wherewithal to take their case to the DIFC Court of First Instance (CFI). Instead, the Small Claims Tribunal (SCT) at DIFC Courts caters to any company that is a DIFC entity or has invoices connected to DIFC. This can benefit SMEs.
"The SCT is a welcome addition to the dispute resolution framework in DIFC that seeks to enhance access to justice for SMEs and individuals with lower value claims that may not be pursued through the traditional court process due to cost and time factors," said Rita Jaballah, senior associate in the dispute resolution and DIFC Courts practice at Al Tamimi and Company.
"The filing fees for a SCT claim are lower than those of the CFI. The Registrar also has the discretion to waive such fees.
"In addition, lawyers are not permitted to represent parties before the SCT and the time taken for judgment to be handed down is also significantly reduced, which provides a more accessible avenue for the resolution of disputes."
The Small Claims Tribunal caters specifically to disputes where the value of the claim does not exceed Dh100,000, or, when both sides consent, between Dh100,000 Dh500,000. It also applies to employment claims.
Consultation
"First and foremost, we try and make people filing a claim over Dh100,000 aware of the SCT system and its benefits compared to opening a case at CFI," said Amna Sultan Al Owais, deputy registrar at DIFC Courts. "One side might be emotional and may not want to compromise. The claimant has no choice if the other side doesn't agree." The process begins with the claimant filling in a form and lodging it with the SCT Registry. The parties concerned then attend a consultation before an SCT judge, who attempts to mediate the dispute.
If the dispute is not resolved at the consultation, it is fixed for a hearing within one week of the consultation, at which point the judge issues dir-ectives.
According to the courts, the tribunal has resolved over 90 per cent of its cases within three weeks.
However, while it may cut the cost of hiring a lawyer, those filing a case will find themselves having to prepare their evidence and presentation from scratch.
"Without a lawyer, the time and energy needed to handle the case is increased and there is more hassle for the claimant or defendant," said Adrian Chadwick, an associate in the dispute resolution practice at Hadef and Partners. "They may not know the procedure for it and something that would take a lawyer a few hours to prepare may take the person a few days."
A Special Tribunal was set up in 2009 for claims relating to Dubai World and its subsidiaries, which include Limitless, Lesisurecorp, Nakheel and Dubai Drydocks. It was to oversee the restructuring process of Dubai World and is exclusively authorised to hear all claims against Dubai World or any of its subsidiaries unless there is a valid arbitration clause in the contract to which the claim relates.
Procedural rules
The Special Tribunal uses procedural rules almost similar to the DIFC Courts. A Small Claims Panel has been established for the Special Tribunal and follows almost the same procedures as the SCT of the DIFC Courts.
"The main difference between this Special Tribunal and the DIFC Courts is that although they use the same court procedure, most cases before the Special Tribunal are dealing with disputes which are governed by UAE law instead of DIFC law," Chadwick said.
However, if you are not an entity of the DIFC and there is no arbitration clause, you will have to take your claim to the Dubai Courts or, if appropriate, the courts of one of the other emirates. In the Dubai Courts, cases which have a value of less than Dh100,000 are handled by the Minor Courts.
Going to the wrong place can waste time and money.
To initiate a claim in the Dubai Courts, an SME would need to appoint a local advocate, registered with the Ministry of Justice, to act on its behalf.
The local advocate will prepare written pleadings in Arabic which will be accompanied by supporting documents translated into Arabic (if in another language) and submit these to the court together with a power of attorney from the SME to the local advocate and the court fees.
"Court proceedings are often lengthy — for example, it is common for court cases to be subject to two appeals and in such circumstances, sometimes a final judgment will not be made earlier than two years after the initial filing of the claim," said Sarah Standish, an associate at Taylor Wessing Middle East. "SMEs should be aware of the potential for claims to take anywhere between one to five years to reach an outcome."
The costs involved to pursue a claim in the courts of Dubai include local advocate fees, court fees and translation costs (unless the relevant documents are already in Arabic). However, if the company is not in a position to fund the cost of a lawyer, the most appropriate way forward is for the SME to negotiate with a local advocate as to the fee structure.
In some cases a local advocate will accept a low upfront fee to take the case and cover its own costs and subsequently an agreed percentage of the award if the party is successful in its claim, according to Standish.
Debt recovery
The Dubai Court of First Instance will hear the claim and — in a debt recovery claim, for instance — it is possible for the claimant to seek interest on the outstanding amount, compensatory damages and arrest, or attachment over an asset of the respondent.
Claimants should make sure to prepare a detailed letter backed by evidence.
"When filing a claim you should not inflate the claim amount. If the claim reflects what is genuinely due and is properly supported by evidence, not only is it more likely to succeed but you have a better chance of persuading the defendant to agree to pay the claim amount at an early stage," Chadwick said.
The majority of SME cases relate to unpaid invoices, debt collections or bounced cheques. But mostly it's not the payment amount that is in dispute, but the failure of repayment, or bounced cheques due to insufficient funds. "The impact of the global financial crisis has affected the ability of SMEs to recover payment for goods or services they have provided or undertaken," said Standish.
"In the circumstances, SMEs are increasingly being forced to pursue court proceedings in order to recover payments."
Points to ponder: Key options
- Appoint a reputed local advocate.
- Be aware of the costs involved in commencing a case including the need to cover the legal costs.
- Ensure all of the relevant documentation is in place to support the claim.
- Consider the likelihood of the debtor not being in a position to pay if the claim is successful (i.e. does the debtor own any assets? Are the assets within the UAE?)
- Bear in mind the uncertainty associated with judicial outcomes given thenon-binding precedent system in place in the UAE.
