Ijara Enforcement Judgments in Dubai

The Banking Litigation team at Al Tamimi continues to assist many of our clients with enforcement of finance documents before the UAE Courts. To date, we have obtained a number of successful judgments in relation to the enforcement of conventional and Islamic finance transactions for our clients. In terms of Islamic finance, the Dubai Court of First Instance has recently issued the first few judgments in connection with Ijara finance transactions. The Ijara finance documents considered by the Court related to property finance provided by an Islamic financial institution. The properties in question were located in the newly created free hold designated areas in Dubai. The following is a brief analysis of the facts of one of the cases and the judgment rendered by the Court. Facts of the Case The Ijara finance documentation included an Ijara (lease) agreement entered into between the financial institution and the customer (being provided with the finance), a purchase undertaking provided by the customer and a sale undertaking provided by the financial institution. The lease term under the Ijara agreement was equal to the finance period. The customer was required to service the debt by paying rental (consisting of fixed rental being the principal amount and variable rental being the profit element). The documents provided that if the customer complied with all of its obligations under the Ijara agreement, the customer would be entitled to exercise its rights under the sale undertaking provided by the financial institution and request the transfer of the property in its name in consideration of payment of the sale price (being a nominal amount). However, the customer defaulted on its rental payment obligations and as a result, the financial institution exercised its rights under the purchase undertaking requiring the customer to purchase the property from the financial institution for the outstanding amount. The financial institution requested the court for a judgment for specific performance, to require the customer to purchase the property and for removal of the interest of the customer from the title deed issued by the Dubai Lands Department. Summary of Judgment The Court held that the Ijara finance documentation described above constituted an agreement for sale of property, whereby, the customer had agreed...