The Federal Supreme Court of the United Arab Emirates has referred a financial dispute between a bank, a client, and a guarantor back to the litigation circuit, following the overturning of an appellate judgment that had ordered them to jointly pay 4,414,734 dirhams, due to a failure to adequately examine legal and accounting defenses critical to determining the debt.
The details of the case, as reported by the newspaper "Emarat Al Youm" on Friday, November 13, 2026, date back to an agreement concluded by the bank with a client under a lease-to-own (Ijara) format, covering a 56.82 percent share of a property consisting of a ground floor, six recurring floors, and a penthouse.
The agreement stipulated a lease term of ten years, with a fixed rent totaling seven million dirhams, in addition to a variable rent linked to the six-month Emirates Interbank Offered Rate (EIBOR), plus a margin of 3.5 percent, with a minimum floor of 6 percent, as well as other costs specified in the contract.
The bank stated that the client breached their financial obligations and delayed payment of dues, despite receiving facilities that included the deferral of three installments, which prompted the banking institution to demand a sum of 4,868,680 dirhams, in addition to other dues and compensation related to the delay in performance.
The court of first instance had ordered the client and the guarantor to pay 4,414,734 dirhams, along with legal fees and attorney costs, before the Court of Appeal upheld the ruling.
However, the defendants challenged the decision, objecting to the method of calculating the debt and the allocation of payments toward interest before the principal, while also maintaining that the notification procedures for breach of contract were not fulfilled in accordance with the law.
The Federal Supreme Court emphasized that UAE legislation prohibits the charging of compound interest on financial facilities, citing legal provisions governing financial institutions and commercial transactions. It also pointed to the necessity of examining the extent of compliance with notification procedures in finance lease contracts.
The Court considered that the challenged ruling did not address the fundamental objections to the accounting expert report and did not sufficiently verify the defenses related to the notification and the method of determining the debt, which constituted a deficiency in reasoning and an error in the application of the law.
Accordingly, the Court decided to overturn the ruling and refer the case back to the court that issued it for reconsideration, without this decision implying the cancellation of the debt or the final exemption of the parties from financial obligations, as the determination of the amounts due remains subject to the outcome of the retrial.
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