Dubai court: Property gifted to wife during Dh34 million debt dispute declared unenforceable

Dubai: The Dubai Civil Court of First Instance ruled that a property gift to a creditor was not valid, after it was found that the debtor had transferred ownership of the property to his wife without compensation, at a time when he was facing a financial claim exceeding Dh34 million. The court concluded that the transaction reduced the general guarantee for the creditor, who later obtained a ruling obligating the debtor to pay the amount. In detail, a man filed a lawsuit against another man and his wife, because the first defendant, who is the debtor, gifted his wife, the second defendant, a real estate unit he owned, without compensation. He demanded that the gift not be enforced against him, as he is a creditor of the husband, after it became clear to him that the transaction removed the property from the assets that can be seized to satisfy a debt exceeding Dh34 million. According to the lawsuit papers, the property in dispute is a unit that the first defendant transferred to his wife, the second defendant, by way of a gift without consideration, while the financial dispute between the creditor and the debtor was ongoing, and after the issuance of a supplementary expert report in the original lawsuit in favour of the creditor. The creditor maintained that the transfer of the property was not merely an ordinary transaction, but rather led to the dissipation of one of the elements of security that could be enforced to satisfy his right, and requested that the gift not be enforced against him, with the property being returned to the name of the debtor, in preparation for enforcement against it, stressing that the transaction harmed his right after the debt became established and due, and that the debtor no longer possessed apparent assets sufficient to pay the debt. The court explained that all of the debtor’s money represents a guarantee for the fulfilment of his debts, and that this general guarantee allows the creditor to monitor the debtor’s money, what enters his account and what leaves it, so that the debtor’s actions do not reduce the guarantee and harm the creditors’ rights. She pointed out that the law allows the creditor, when his right becomes due, to request a ruling that the debtor’s action is not enforceable against him if the action leads to a decrease in the debtor’s rights or an increase in his obligations, or results in his insolvency or an increase in his insolvency. The law also emphasised the case of a donation that is not binding on the debtor and is not customary, as this action is not enforceable against the creditor, even if the recipient of the donation was in good faith and the debtor did not commit fraud. The court said that the claim of non-enforceability of the transaction represents a means of protecting the creditor from the consequences of the transaction that reduces the general guarantee, explaining that its effect is not to cancel the transaction between the debtor and the one to whom the money was transferred, but rather to prevent it from being used as evidence against the creditor, so that the money, which is the subject of the transaction, returns to the general guarantee in preparation for executing against it. She affirmed, based on the rulings of the Court of Cassation, that the creditor who uses this lawsuit must have a right that predates the disputed transaction, is due and payable, and is free from dispute, and that the determining factor is the date of the right’s creation, not the date of its due date, the date of determining its value, or the date of settling the dispute concerning it. By applying these principles, the court concluded that the debtor deliberately disposed of the property in a way that harmed the creditor’s right and reduced the general guarantee, especially since he did not appear before the court and did not provide evidence that he possessed other apparent assets sufficient to pay off the debt, while the creditor’s right had arisen before the disposition subject to appeal and had become due. The court concluded by ruling that the gift was not enforceable against the creditor, up to the amount of the debt, and rejected all other requests, and ordered the defendants to pay the fees and expenses, and the sum of Dh1,000 for attorney fees.