Legal scholars define retention as "the holding of a debtor's property by his creditor until the debtor has duly settled his obligation in connection with the property".
Nature
The right of retention is an enforceable security interest which allows the creditor who himself stands as debtor in relation to his creditors to withhold the per formance of his obligations until his debt has been satisfied. As such, retention serves as a means of forcing the debtor to per form his obligation. Under the rules of equity and law, the creditor can satisfy his debt out of money he owes the debtor.
The UAE Courts have established this principle in a decision that was handed down in Appeal No. 159-16 at the hearing on 12.02.95. unherby the courts held that: "The Second Respondent was enlisted to repair the vehicle for a fixed fee. The Second Respondent seized the vehicle after per forming repair as security for the settlement of its fee, invoking retention as a legal means of obtaining security which does not require that the value of the seized thing be proportionate to the amount of the claim of the creditor/ person claiming the right."
Criteria for Retention
Article (414) of the Civil Law provides: "A person who is obliged to per form a thing may refrain from so doing so long as the creditor has not discharged an obligation of his arising by reason of an obligation of the debtor and connected therewith".
Article (415) of the same Law states: "Each of the contracting parties in a commutative contract generally involving property may retain the thing contracted for while it is in his possession until he receives the consideration due".
Article (416) of the Civil Law provides: "A person who has incurred necessary or beneficial expense on the property of another in his possession may refuse to return such property until he recovers what is due to him by law, in the absence of an agreement or provision of law to the contrary".
Based on the above provisions, the requirements that need to be established to meet the burden of proving an entitlement to exercise a right of retention are as follows:
The person claiming the right must owe an obligation:
To have a right of retention, the person claiming the right must be under obligation to per form the thing he seeks to withhold i.e the subject matter of the retention must be an obligation that is due and payable by the person claiming the right.
The person claiming the right must have a claim against the person to whom he owes the obligation:
The claim of the person seeking the remedy of retention against his debtor must meet the following criteria:
The claim should stem from a civil obligation, not a natural obligation; and
The person seeking retention must have an existing claim. Any dispute over the existence or quantum of the claim would preclude the person seeking retention from withholding per formance of his obligation; and
The claim of the person seeking retention must be due and payable.
The person claiming the right can only withhold a thing that is due and payable.
The Federal Supreme Court has, in Appeal No. 81 of 17 at the hearing on 31.03.06, ruled according to this principle as follows: "While the seller has a right to retain the thing sold until the price due to him is paid, his right to retain the thing sold shall lapse if he has agreed to defer the price and he shall be obliged to deliver it to the purchaser in accordance with Article 557-2 of the Civil Transactions Code. Price in a contract of sale, within the meaning of Article 503 of the same Law, is the price the contracting parties have agreed in consideration of the sale and is immediately due and payable unless the parties have agreed or it is customary for the price to be deferred or paid in installments over a fixed period of time."
There must be a connection between claim of the person seeking retention and his obligation:
An existing connection between the claim of the person seeking retention and his obligation is required in order to exercise a right of retention. Therefore, the claim of the person seeking retention must have arisen by reason of his obligation to per form the thing and must be connected therewith.
The connection which legally exist as a precondition for exercising a right of retention and can be be either a legal or real connection.
Legal Connection:
A connection arising from a legal relationship between a creditor and debtor.
Real or Substantive Connection:
A real or substantive connection arising from a reciprocal relationship between the two debts and based on the actual possession or ownership of the thing.
The person claiming the right must have lawful possession of the thing:
The thing must be in the lawful possession of the person claiming the right or have been lawfully transferred to him!
The retained thing must be negotiable:
The law does not permit dealing with a retained thing that is not negotiable.
Therefore, the thing may not be retained even in respect of claims against the creditor relating to the thing.
The Retained Thing must Remain in the Possession of the Person Claiming the Right: The retained thing shall remain in the possession of the person claiming the right as long as it is in his custody. Upon losing possession of the thing, whether voluntarily or involuntarily, for reasons not due to an act on the part of the person to whom he undertook to deliver the thing, the right of retention shall lapse.
Obligations of the Person Claiming the Right
Article 417 of the Civil Transactions Code states:
A person who retains a thing must preserve it and must give an account for any yield derived there from.
He may seek leave of the judge to allow him to sell the thing retained if he fears that it may suffer loss or deterioration, in accordance with the procedures laid down for the sale of goods held by way of possessory pledge, and the right of retention of the thing shall attach to the proceeds of the sale thereof.
The Explanatory Notes mention that the person claiming the right may seek leave of the judge if the retained thing is likely to suffer loss or damage. When such leave is granted, the right of retention shall attach to the price of the retained thing.
From the above Article it is clear that the obligations of the person claiming the right are as follows:
To preserve the retained thing.
To give an account for any yield derived there from.
To deliver the retained property.
Rights of the Person Seeking Retention:
Article 418 of the Civil Law states: A person who retains a thing in the exercise of his right of retention thereof has priority over other competing creditors in satisfying his claim thereon.
On that basis the rights of the person claiming the right can be listed as follows:
To invoke a right of retention against the debtor;
To invoke a right of retention against others;
Priority over ordinary creditors;
To sell the retained thing if necessary;
To substitute in kind the price of the sold property; Accordingly, the person claiming the right may sell the retained property with leave of court if he is concerned that the property might suffer loss or deterioration in accordance with the procedure applicable to the sale of mortgaged property. However, if the person claiming the right finds that the goods are at risk of damage, he may sell them without obtaining leave of court in accordance with public good and general rules.
Similarly, if the property is about to depreciate in value to the detriment and substantial loss of the owner, he may sell the property with leave of the court.
Lapse of the Right of Retention:
Article 419 of the Federal Civil Law states:
The right of retention shall lapse if the thing passes out of the hands of the person in possession or control, in the absence of any provision of law to the contrary.
Nevertheless, it shall be permissible for a person who retains a thing which passes out of his possession either without his knowledge or despite his objection to require within thirty days from the time he learns of its having so passed and prior to the expiration of one year of its having so passed that it be restored to him.
It is clear from the above article that the right of retention lapses either incidentally or directly.
Incidentally:
The right of retention lapses incidentally upon the lapse of the claim giving rise to a right of retention.
Directly:
This occurs: When the thing voluntarily passes out of the hands of the person claiming the right. The right of retention of the person claiming such right shall lapse if the thing voluntarily passes out of his hands without his objection.
However, if the property passes out of his possession without his knowledge or forcibly, then he has the right to reclaim that right within 30 days of learning of the passing of the property out of his possession or within one year after the passing of the property if he is not aware of the fact. At the end of the period, the person claiming the right will for feit his right to recover the property.
Upon loss of the retained property.
Breach of obligation by the person claiming the right.
By Akram Ahmed
© Al Tamimi & Company 2006
