UAE Supreme Court Overturns AED 4.4 Million Bank Judgment Over Compound Interest

The UAE Federal Supreme Court has overturned an appellate court ruling that ordered a client and a guarantor to jointly pay approximately AED 4.4 million to a bank, Emirates 24|7 reported. The top court remitted the commercial dispute back to the issuing appellate court for reconsideration.

According to case details, the dispute arose from a 10-year lease-to-own agreement in which the bank leased a 56.82% share of a multi-storey property to the borrower. The financing contract stipulated a fixed rent alongside variable rent pegged to the six-month EIBOR plus 3.5% (with a minimum rate of 6%), plus supplementary expenses covering maintenance, insurance, and taxes. Following payment defaults, the bank invoked an acceleration clause rendering all remaining instalments due without notice and filed a claim seeking AED 4,868,680.

The Court of First Instance ordered the defendants to jointly pay AED 4,414,713 along with judicial fees and AED 1,000 in legal expenses, a decision subsequently affirmed by the Court of Appeal. The defendants appealed to the Federal Supreme Court, contending that the case was procedurally inadmissible without legal breach notice and objecting to the financial expert's accounting method, which they argued inflated principal obligations by imposing compound interest.

In its ruling, the Supreme Court affirmed that licensed financial institutions are prohibited from charging interest on accrued interest regarding customer credit facilities. The court cited Article 121 of the Central Bank Law (amended by Federal Decree-Law No. 23 of 2022) and Article 88 of the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022), finding the lower court erred by failing to examine objections to the expert calculation.