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Legalities of bank transfers

Published on : March 2015
Author(s):Ashraf Ibrahim

Imagine that X transfers some money to Y online. After a couple of months, X approaches Y and asks him to repay the debt. However Y refuses, alleging that the money had been a gift and he was under no obligation to repay it. Neither X or Y are able to provide any evidence proving that his understanding of the transfer is the correct one – therefore how do the courts decide whether Y must repay the money or not? Understand the nuances of UAE Banking Law in this article written by STA's Banking Lawyers in Dubai 

The reason this question has been asked is obvious – throughout the world thousands of people have been subject to fraud. Despite the oral and undocumented agreement that may have been reached between parties, if funds are transferred from one party to another there is often no way of proving the intention of the proceeds of the transfer. What happens in the following scenario: –

THE LEGALITIES
 

a– An act of someone transferring money to other in a case where no contract exists between the sender and receiver;

b– or case where someone transfers monies towards investment in a project and no contract exists between the sender of monies and the beneficiary thereof ; and

c– can the sender claim refund of monies once the transfer has been effected?

The objective of this article is to answer questions posed above and other technical matters surrounding bank transfers, indebtedness, and related aspects.
At the outset the matter relates to law of evidence in the first place as it is required that the transferor asks the beneficiary to confirm the value or amount that may need to be transferred. If transaction relates to loan or investment in project or; a case where payment is a consideration towards sale of goods or services, the burden of proof shall be on the transferor, who should provide evidence to confirm his claim is bonafide. To this effect, one must place reliance on Article 1 (1) of the Federal Law number 10 of 1992 on the Issuance of the Evidence Act for Civil and Commercial Transactions which sets out that any personintending to bring an action against another shall be responsible and must prove his claim with satisfactory evidence.

Article 1 (1) – reads as “The plaintiff shall prove his claim and the defendant shall rebut it.”

The plaintiff here is not only any natural or moral person bringing the claim, but it is any person making a legal allegation, either plaintiff or defendant. The court of cassation rules in this regard:

“The court has ruled that the plaintiff is obliged to present an evidence for its claim either as an original plaintiff or a defendant in the claim”.

Clearly, evidence must be provided in any claim failing which recipient of money does not acquire status of debtor. To this effect, one may place reliance to Article 37 of the UAE Civil Transactions Law (Federal Law number 5 of 1985) (or; the UAE Civil Code) stipulates:

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“There is a presumption that an obligation has been discharged.”

Of course, pursuant to the rules of evidence X shall not only need to prove that he is owed a debt by Y, but shall additionally need to evidence the value of the debt. Traditionally bank transfers are not a method of signifying indebtedness, because they are payment instruments, rather than indebtedness bonds. However nowadays people pay their debts via bank transfer instead of giving cash money. Article 380 (1)  of UAE Federal Law Number 18 of 1993(the Commercial ….. “operation pursuant to which the bank enters a specified sum in the debit side of the account of the person who has ordered the transfer following a written order from such person, and in the credit side of another account.”

The Commercial Transactions Law has caused bank transfers to be regarded as a payment method and not an indebtedness bond under more than one provision, including:

1) Article 380 (3) …. the transfer of a specified sum from the account of one person to another person’s account, each of whom having an account with the same bank or in two different banks”

2) Article 384 (1)…. which sets out that, “The beneficiary shall acquire ownership of the bank transfer value as of the time it is entered in the debit side of the account of the person ordering the transfer; the latter may countermand the transfer order until the foregoing entry is made.”

Accordingly, the law considers bank transfers as means to pay and is not in effect an indebtedness bond. To this effect, it must be highlighted that the transfer order may be cancelled by the transferor at any time prior to the debit being made. And although the beneficiary will assume ownership of the funds at the point of transfer (not receipt),

Article 385  states that “ if the transfer has been arranged in pursuance of settlement of a debt, the debt shall remain outstanding (with all securities and supplements) until such a time that the funds are received in the account of the beneficiary.”

The Court of Cassation in case number 254 of 2012 and dated 6 March 2013 has held as under:

‘the fact that a bank transfer is originally made through the transferor in fulfillment of its obligation towards the beneficiary does not fit just upon proving the indebtedness of the beneficiary in its value paid to the transferor.’ In other words, if the sender transfers monies to the account of recipient, the general presumption would be that such payment by sender is towards settlement of debts owed to recipient or in return for goods or services provided by recipient to sender.

Pursuant to the foregoing, we may conclude that in cases whereby X makes a pure bank transfer without giving reasons, X may not seek a refund of the same on the grounds that the bank transfer originally pays the debt. The payment transfers from the debtor to the transferor to creditor to the beneficiary.

The question posed now is“Is this provision absolute,with no exceptions”?

The answer is no, as the previous rule may establish the opposite, namely the proof that a bank transfer is made for other purposes or reasons save for the payment of a debt. Accordingly, the previously referenced award concluded the rule stating: “…. And it [the transfer] does notprove the indebtedness of the beneficiary,unless the transferor presents an evidence for that”.

The Court of Cassation has also affirmed that the previous order in its award issued on 25 June 2007 same for in case 63, 75, and 86 of 2007 stipulates “it is stated that the bank transfer shall originally pay the obligation of the beneficiary by the transferor, and it does not fit for the proof of the indebtedness of the beneficiary for the value to the transferor unless the transferor provided a proof for that”.

In the event the transferor desires to demand the amounts transferred by proving that the receiver did not fulfill his part of the obligations, the transferor is legally bound to prove that he did not ‘owe’ any monies to the receiver for funds transferred. In other words, the transfer was effected by way of consideration and in return for goods or services promised by the receiver which receiver failed to provide.

In the light of such reason, if funds are transferred as sale consideration towards a particular item, service or real estate, the burden of proof shall be on the transferor to demonstrate that the specific funds in question were transferred in payment for that particular item in cases whereby ownership was not transferred in keeping with the terms of the sale. If the transferor is able to do this then the balance must be refunded.

The rule that can be concluded is that the transferor, if able to prove that he  is not paying a debt may claim a refund where he can additionally prove that the transferred funds have not been used for the agreed purpose by the beneficiary (where he has evidence of the said agreed purpose). In other words, if X makes a bank transfer to Y for investing such funds in a certain project, and X can prove that the bank transfer is made for the sake of investment, the Court may order Y to refund the value of the bank transfer if Y has not invested the funds as agreed. Such refund is subject to the terms and conditions of this investment.

If the agreement states that X incurs the loss and gain, namely if the investment brings profits, Y will refund the value of the bank transfer in addition the share of X in the profit. But if the investment incurs loss, the loss portion of X is deducted from the returned bank transferthereof. Each case will have its own facts and circumstances.