Mortgage of Residential, Commercial, or Industrial Land and the Mortgagee’s Right to Attachment, Sale by Public Auction, and Recovery of the Debt After Deduction of Fees.

Facts

The facts of the case may be summarized as follows. A bank entered into a credit facilities agreement with the owner of an establishment in his capacity as a real estate developer, pursuant to which the bank extended a loan to finance a hotel and residential project constructed on a plot of land owned by him under a freehold title. As security for the loan, a first-ranking mortgage was created over the property and duly registered with the Dubai Land Department.

Upon the borrower’s failure to meet his obligations to pay the due installments, the bank initiated enforcement proceedings to protect its rights and those of its depositors. It obtained a judicial order authorizing the sale of the mortgaged property by public auction. The auction was awarded to one of the bidding companies, and the sale proceeds were deposited with the court treasury.

During the course of the execution proceedings, the borrower’s legal representative submitted a request attaching a decision issued by the Dubai Land Department dated 15 March 2021, stating that the land was subject to a property transfer fee of 30% pursuant to Decree No. 4 of 2010, on the basis that it constituted granted land. The bank objected, arguing that the land was owned under freehold title, was not granted land, and that the mortgage had been registered prior to the issuance of the said Decree. Accordingly, the bank filed a claim seeking annulment of the decision and disbursement of the full sale proceeds without deduction of any fees.

The Court of First Instance dismissed the claim, and its judgment was upheld by the Court of Appeal. The bank subsequently challenged the judgment before the Court of Cassation.

Grounds of Appeal

The appellant bank argued that the challenged judgment erroneously subjected the sale of the mortgaged land by public auction to the 30% property transfer fee prescribed under Decree No. 4 of 2010, notwithstanding that the land had devolved upon its owner for the purpose of real estate development and enjoyed the status of freehold ownership. Such status permits mortgaging and disposition without restriction pursuant to Decree No. 31 of 2016 concerning the mortgaging of granted lands in the Emirate of Dubai.

The appellant further contended that ownership of the land had been registered in the owner’s name prior to the issuance of Decree No. 4 of 2010, thereby precluding the application of the fee stipulated therein to the sale of the property by public auction for the purpose of satisfying the mortgage debt. It asserted that the relevant consideration should be the date of acquisition of ownership and registration of the mortgage, rather than the date of execution of the sale. In addition, the appellant maintained that the mortgagee bank’s rights should be satisfied from the sale proceeds after deduction solely of judicial and execution fees, without charging the disputed property transfer fee.

Court’s Opinion

The Court of Cassation rejected the appeal. It held that the trial court has full authority to characterize the facts presented before it and to determine the applicable legal rule, without being bound by the characterization advanced by the parties. The court further ruled that the application of the legal provisions governing the mortgaging of granted lands and their sale by public auction requires the deduction of legally due fees from the sale proceeds prior to satisfaction of the mortgagee’s debt. Such fees include the property transfer fees applicable to industrial and commercial lands under Decree No. 4 of 2010, where those fees were not paid at the time of mortgage registration.

The court reasoned that although Decree No. 31 of 2016 permits the mortgaging of granted lands to real estate developers and treats them as freehold lands capable of disposition, it does not exempt such lands from the fees payable upon transfer of ownership. Moreover, the sale of property by public auction constitutes a transfer of ownership that triggers the obligation to pay the prescribed fees at the time of registration.

As it was established that the land in dispute had devolved upon its owner by way of a grant from the Ruler of Dubai and that the property transfer fee had not been paid, the deduction of 30% of the sale value prior to disbursement of the bank’s entitlements was held to be legally justified. Accordingly, the challenged judgment was found to be consistent with the correct application of the law.