A decision of the Federal Supreme Court in 2003 (362/24 and 430/24) contains various rulings that will be of interest to banks. There is no binding system of precedent in the UAE, but it is likely that this decision will be considered in subsequent court proceedings.
The proceedings arose out of various facilities that a UAE licensed bank had made available to an individual and to various businesses owned by that individual. The customer instituted proceedings maintaining that it should not pay the amount demanded by the bank, relying on the assertion that it was paying an exorbitant amount of interest (alleged to be 25%). The bank in turn commenced proceedings to recover the amounts due to it.
The Federal Supreme Court judgment considered various issues (including whether a lower court could order the payment of interest for a bank's breach of duty) but also made rulings on the following points:
- A customer's failure to object to the contents of bank statements is not fatal. Even if a customer acknowledges the contents of a statement, this is not binding unless the customer's action was a clear and unambiguous admission of their accuracy.
- A bank's records cannot be accepted as conclusive evidence in court proceedings if the judge or the court-appointed expert finds that the records are inaccurate and the customer challenges them.
- A bank has a duty as the agent of the customer in relation to banking instruments where the customer is a beneficiary. In particular, a bank can incur liability if it fails to advise its customer that there has been a failure to collect on a banking instrument and to return that instrument to the customer.
It is common practice in banking documents to state that a customer must refer back to its bank within a certain number of days if there is an error in the bank statement but it is clear that, if the Courts follow this ruling, such a contractual provision might not be conclusive. Also, most bank documents will have a provision that bank records are conclusive although generally there will be a caveat to cover manifest error. That caveat seems to be warranted by this court decision although the court seems to be willing to deviate from such a contractual provision simply on the basis that the records are incorrect.
The final principle expounded by the Court is in many ways a reminder to banks of their obligations when acting as, for example, the collecting agent of a customer and the liabilities that can follow if those responsibilities are not properly discharged.
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