Barclays Property Case Succesfully Navigates Dubai Courts
Global financial services provider and consumer bank Barclays [Piccadilly Circus branch, pictured above] recently won favorable ruling in a residential property foreclosure case in Dubai, where the struggling real estate sector and pressured capital markets is being felt worldwide. However, with the opening of the world's tallest building, the Burj Khalifa [pictured below] -- renamed after the emir of Abu Dhabi, Sheikh Khalifa bin Zayed bin Sultan Al Nahyan, who approved the recent central bank bailout of Dubai and holds the presidency of the United Arab Emirate -- Dubai is telling the world it remains very much open to business: Yet, one of the detractions to doing business in Dubai is the perception that the judicial system is underdeveloped by Western standards. In such a potentially conflicted environment, investments banks are learning to gingerly tread legal waters. "We understand that the global financial situation may have impacted some of our customers and they may face challenges in meeting their financial commitments," a Barclays spokesperson said in a statement e-mailed from the London office. "As a responsible lender, we are willing to listen and to find mutually acceptable solutions to customers willing to meet their financial obligations as long as their situation is well-substantiated and within reasonable boundaries," Barclays said in the statement. "In some cases, however Barclays has sought to exercise its legal rights in line with recent enactments of property and mortgage laws that safeguard both lenders' as well as borrowers' interests." There are a number of ways lenders operating in Dubai can pursue borrowers, both through civil and criminal proceedings, according to Richard Bell, a senior associate based in the Dubai office of international commercial law firm Clyde & Co. "In cases of bounced checks or nonpayment of loan obligations and other debt, it's possible to file criminal complaint," Bell tells HousingWire. "That happens quite a bit in this region, and it can lead to sentences of imprisonment." He adds: "It's also quite common for people who owe debts simply to leave the country," as Dubai's financial sector is typically populated by foreign workers. Indeed, residential housing is often segregated according to occupation in order to draw outside talent. A telecommunications-centered apartment high rise, for example, would offer tax-exempt status to foreign workers who live in the building and work in that specific industry. The living accommodations are also catered to that crowd, for example, with free wireless throughout. One of HousingWire's sources familiar with the Dubai situation called Bell's comment on borrower behavior the "Dubai escape clause;" abandoning cars at the airport with the keys to their property in the glove compartment. In the States, the strategic default situation is less extreme, with one borrower communicating openly with the lender about the unwanted asset, as HousingWire reports in an upcoming magazine issue. While there are provisions on the civil complaint side of the law that provide for actions against debtors, those remedies are hardly ever invoked by lenders operating in Dubai, Bell says. More often than not, if only a civil complaint is filed, the debtor remains free to flee the country. "That's why you find that often a criminal proceeding is the most effective way of getting a result, because it will essentially frighten anyone brave enough to stay in the country into paying up," Bell says. Lenders have "limited" options to defend their interests in property cases, he tells HousingWire. If the lien is secured by the property, the asset can be seized and sold through the court system. A judgment debt can be obtained against the borrower by default and then enforced, similarly to the system seen in the US, Bell says. But if the lien is not secured by the property - as many loans were made based solely on the borrower's income - the options are limited, unless the threat of borrowers fleeing the country is imminent. "If you can prove a flight risk and identify the assets with sufficient specificity, it's possible to get an attachment order - similar to a freezing or injunction in the UK or US - over those assets, even though the case is yet to be decided," Bell says. "That can be a useful tool, because there is no requirement the assets have to be the subject matter of the dispute. So a financier can potentially get an attachment order on all the assets including land, regardless of whether the lien is secured." The exercising of lenders' legal rights paid off for Barclays, although the firm could not disclose the value of the residential property involved in the court decision, nor any other details before this story was published. "The courts decision in Barclays favor strengthens our belief that the UAE [United Arab Emirates] property market is evolving in line with other mature markets," Barclays said in the statement. Write to Diana Golobay.