Article on Class Action in the UAE

Business 24-7 recently did a Q&A with 5 lawyers – on Class Actions, and the rights of an investor in taking a bankrupt developer to court. Like everything else – it doesn’t look good for the investor.

Here is a link to the article in Business 24-7:

PDF of above article from Business 24-7
Bankruptcies_ Little scope for class action suit

Jul – Update – Termination Agreement

Finally closed one chapter. Got my PDC’s back. My direct communication with Sweethomes came to a complete halt.

The law firm kept a more unemotional tone through the whole thing and brought things to a close. They collected the Post Dated Cheques, and had the termination agreement signed. Of course, while these discussions were underway, Sweethomes presented two more cheques twice – an old uncleared one for the second time, and a new one. Duh!

Crooks or Clowns – I can’t tell?

Here’s what I lost so far:
Forfeited Payments -175,000 AED
Legal Fees – 21,000 AED (not counting at least 7 visits to SH Homes Office, phone calls, headaches)
Courier, GPA etc – 1,000 AED
===================================
197,000 AED or US$53,600
===================================

I have to wait until Dec 2010 at the earliest to get AED 175,000 back (50% of total paid). Something tells me that it will involve another lawyer and more chasing – unless Sweethomes has a miraculous change in their corporate culture.

Very very painful, but not to have to deal with their unscrupulous practices, an absent regulator & system, near impossible court system and finally the stupid laws around post dated cheques is Priceless.

Jun 09 – Post Dated Cheques – Observations by a commenter

This was one of the comments on the Zawya website – commenting on the flight of Mr. Ford / BlueBannana – and Post Dated Cheques.

By the way, I am told that when you get a credit card issued by the bank in the UAE, they ask the card holder to make out a blank Post Dated Cheque – which the Bank holds as security. You guessed it – if they think the revolving amount will become a bad debt, the bank presents the cheque. If it bounces, that turns it into a criminal incident.

Same for a car loan etc…. the bank holds a blank Post Dated Cheque as ultimate security.

Partial reposting -
————————————————————————————

Post Dated Cheques / PDC by John smith – 13 hours ago
The Post Dated Cheque Laws are in the UAE are antiquated, and each passing day that these laws are not addressed, means the cancer keeps spreading through the system. This goes beyond businessmen. Getting caught up in the mess in the UAE can be very Kafkaesque.

Here’s my experience:

1) Once you issue a Post Dated cheque – there is no system for the account holder / issuer to put a stop on the cheque. Closing the account is illegal, even if it is because you are being defrauded. Draining the funds out of the accounts, to let the cheque bounce is illegal. The only way to get the bank to put a stop is to get a court/police order. That court case can cost Tens of Thousands of Dirhams.

The bank permits cheque stops in the event – get this – cheques that have not been issued.. if one has lost their cheque book. Big deal.

2) Very common practise for developers to advertise projects with payments seemingly linked to construction milestones which should occur by certain dates. The Developer then pushes people to write post dated cheques, which they cash with regularity while construction does not start or is on terminal hold. In this scenario, there is no truth in advertising laws, so the developer hasn’t violated anything. If you let the cheques bounce, you are guilty.

3) Developers who have abandoned projects, or are near certain to abscond – are cashing cheques. Even in this scenario, it is the developer that has the upper hand. If the buyer lets the cheque bounce, he commits the first illegality.

4) Developers present cheques to non-escrow accounts. While that is illegal – if you let the cheque bounce, the developer – by walking into the local police station – can get you put on an immigration watch list. You think the police, who detain you at the airport, understand anything about escrow accounts…?

… fortunately, they’re now swamped by the sheer volumes. Over 500K in the 1st 4 months of 2009 or 6% of the total issued.

A few things that can be done – just as an observer

5) Bouncing a cheque is a criminal act in the UAE. The law should be changed to make it a civil / commercial act, or at least introduce a threshold or cutoff amount. Or even start by segregating between business & personal accounts.

6) Since the laws don’t get published openly, people keep writing cheques not knowing the consequences or limitations. Banks should give every cheque book owner a one pager on the consequences of cheque bounces in the UAE. Lots of people from the West automatically think that a cheque can be stopped, like in their home countries.

Welcome any banker or lawyer to correct my understanding… or even present the alternate side – the positives of the current system. I can’t think of anyone but a small minority that benefits from the status quo.

I am stuck with a developer there – who advertised 50% payment until completion, 25% on handover, and 25% in installments after handover. Construction start was delayed for 12+ months, while, the developer helped himself to 40%, in some cases 60% of total payments by mid 2009. Having approached a law firm for help, their advise was to give us a lecture on the PDC system in the UAE, and the dire consequences of letting the cheques bounce………

June 09 – Success Story ends in Flight

The attached story – Success story ends in Flight – will give some of you an idea of why all the ranting about Post Dated Cheques.  Take an outfit like Sweethomes, who is holding post dated cheques and you get an idea of the mess that they can create for buyers who issued them. Expect more of these stories unless the laws are changed.

Full story at:
http://www.zawya.com/story.cfm/sidZAWYA20090625045831/Blue%20Banana%20Slips

Zawya.com – 25th June ’09

Here is a portion of the article / some excerpts:

Simon Ford rode into Dubai in 2004 with little to his name but an entrepreneurial spirit and a couple of suitcases. Within three years, he had met his wife, started a family and founded a “gift experience” business, Blue Banana, that grew with the emirate’s booming economy. He was named one of the country’s “Hot 100” entrepreneurs by the socialite magazine Ahlan! in 2007.

But this week, with debts mounting in the wake of the global financial crisis, he fled back to the UK with his pregnant wife and three children to escape potential criminal charges and alleged threats on his life by creditors.

Mr Ford’s situation is a high-profile example of the dozens, if not hundreds, of cases in which businessmen face criminal charges for bouncing cheques or having difficulty making payments as a result of the downturn, lawyers say. In an emotional “letter to the Dubai public” circulated yesterday, he sought to explain the “desperation” that had led him to leave and pledged to “repay every last dirham to everyone who is owed money from bluebanana.com”.

Mr Ford, 34, said he had been forced to leave because bankruptcy laws were not developed enough to handle his situation without considering him a criminal.

“I am not running away from debt, I am purely protecting those dearest to me and getting out of a country which, due to the lack of structured bankruptcy laws and a banking system which has zero flexibility on loan repayments, drives people to make horrible decisions,” he wrote.

“The real core of the issue is that fraud, which is criminal in all countries, is linked here to bounced cheques,” said Sameer Huda, a partner at the law firm Hadef & Partners.

“But fraud requires criminal intent, effectively deception to secure an unfair or unlawful gain. If a business suffers a downturn because of the macroeconomic climate or failure of its own business model, then this shouldn’t be linked to fraud if there was no intent to deceive on a payment obligation.”

This issue is prevalent in the UAE because businessmen and other borrowers tend to use postdated cheques as a form of security of future payments.

End May 09 – Follow Ups on Termination Agreement

Chased down the status of the Termination agreement with Sweethomes a couple of times.

———————-FOLLOW UP 2———————–
May 20th 2009:
To:husain; ivy; Saher; shalin; rafail; Tabis; ahmed2; resine; mukhtar; fahad; commme@emirates.net.ae
Subject: Re: B Ajman Uptown – Termination of Agreement – 2nd Request
Dear Sir / Madam:
Appreciate if one of you can let me know the status on this?
Thank you

———————-FOLLOW UP 1———————–
On 18 May 2009, at 2:06 PM:
Dear Mr.:
I am writing to follow up and see if you can close this matter – ie process the cancellation of Unit B- in Ajman Uptown.
Look forward to your response,
thank you

Sweethomes – Got me once, Got me twice….not quite

Given their business practices, and my experience with these saints – I go back to the Legal Firm to draft a termination agreement.

My concern, if I simply cancel and return all the documentation – without a termination agreement;
- Sweethomes would just stall on returning the PDCs (Post Dated Cheques) after I’ve fullfilled everything I am supposed to. I’d be on Terminal Hold, waiting for the 50% refund. After all, this is how I got trapped in the first place…. did everything I was supposed to – like making every payment – while they twiddled their thumbs.

So, off to the lawyer, for a Termination agreement…. more expenses, more crap….. but what to do.

March 2009 – Sweethomes Response to Law Firm

Sweethomes responded the next day – agreeing to not attempt to cash cheques until the escrow account had been set up.

March 2009 – Letter from the Law Firm to Sweethomes/Ajman Uptown

The attached letter – was sent to both Mr. Fahad Sattar Dero & Mr. Saleh Al Beiti. The latter was the Claims & Recovery Manager. If you read other forums like www.emiratescity.org – he is mentioned there in far more colorful terms than I would care to. Playing in the gutter, with the finesse of a crocodile, comes to mind when I think of his style.

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March 1, 2009
By fax: 04 – 295 5641 (Dubai)
04 – 746 5662 (Ajman)
And By registered post

M/s Sweet Homes Holdings
Khaliefa Bin Zayed Street
P.O. Box 6666
Ajman,
United Arab Emirates

Dear Sirs,

Sub: Plot No. 92 located at Al-Helio Emirates Road

We refer to the above subject matter.

We act on behalf of Mr. ____________ (“our Client”) who has instructed us to serve you with this legal notice and take such other steps as may be deemed necessary.

As you are aware an agreement was signed between M/s. Sweet Homes Holdings (“the Developer”) and Mr._____, our Client dated August 4, 2007 to purchase Plot no. 92 located at Al-Helio Emirates of Ajman (“the Agreement”).

You are moreover aware that our Client was obliged to forward to you 14 (Fourteen) post dated cheques representing the instalments of the purchase price. You are also aware that 5 of these post dated cheques have been deposited by you.

You are finally aware that since the date of the Agreement the Emiri Decree No. (8) of 2008 came into effect. Article 11 (6) of this Decree requires a developer to open an escrow account for each project. As you have not opened an escrow for this project you are requested not to deposit any further post dated cheques signed by our Client, until such time as an escrow account has been opened for this project.

Our Client has offered to replace the remaining 9 post dated cheques in your possession with new cheques made payable to the escrow account once this account has been opened.

Yours sincerely,
Law firm

New Ajman Laws (introduced Jan 09)

Around the time I went and hired the lawyer, Ajman introduced new laws – govering property in the Emirate. The lawyer waited months to actually get a copy of the new law. I’ve never actually seen a copy of the new laws – it is supposed to be investor friendly, but not to be seen by investors.

I saw a summary online – see below for the link.

www.clydeco.com/knowledge/articles/uae-real-estate-update-ajman-introduces-new-property-laws.cfm

Hiring a law firm / Questions for Sweethomes

I went looking for law firms – emailed several. Most are unresponsive, probably have tons of cases to even bother writing back. Others want serious money to review the materials, prior to even deciding whether to accept. Bad enough getting screwed by AjmanUptown / Sweethomes in the whole process – didn’t want to subject myself to it again with the lawyers.

Decided to go with one in Dubai – well known & good reputation, but pricey.

Questions the lawyer wanted answered from Sweethomes (with documentation). See below this for the answers’ from Sweethomes, when it was finally sent.
——————————————————–
From:
Subject: Re: Ajman Uptown – Begonya – B###
Date: 25 January 2009 3:19:36 PM GMT+07:00
To: ivy
Cc: ahmed2, mukhtar, tabis, resine, saher

Dear Ivy:
I just want to understand the status of the project a bit more. Another 5%, will be cashed on February 1st and will bring the total paid to 40%.
1) Does Sweet Homes Holdings or “R” Holdings own the land where the villas will be constructed?
2) Can you let me know the project – construction – status?
3) Has Sweet Homes Holdings or “R” Holdings registered with the land registrar appointed by the land department i.e. have you obtained licenses for the construction?
4) Is there an escrow account opened for the project?
5) Is the project registered with the land department?

Thank you in advance,
————————————————————————-

Answers’ when they finally came from Sweethomes……

Query: Does Sweet Homes Holdings or “R” Holdings own the land where the villas will be constructed?
Reply: Sweet Homes Holdings own the land where the villas are under construction.

Query: Can you let me know the project – construction – status?
Reply: As per the construction updates please find the enclosed attachments (pictures).

Query: Has Sweet Homes Holdings or “R” Holdings registered with the land registrar appointed by the land department i.e. have you obtained licenses for the construction?
Reply: We (sweet homes) are registered with land department i.e. have licenses for the construction.

Query: Is there an escrow account opened for the project?
Reply: As per Ajman Government Escrow Account is compulsory for all Developers, so we are working on it and as soon as it will be finalize we will inform our clients.

Query: Is the project registered with the land department?
Reply: We are Registered with the land department.