Dubai Courts revise judicial practice regarding rate of interest

On 9 June 2021, the Plenary Assembly of the Dubai Court of Cassation (the “Assembly”) issued a unanimous decision to revise its long-standing judicial practice in respect of the annual interest rate awarded in Dubai Court judgments.

Article 76 of UAE Federal Law No. 18 of 1993 on Commercial Transactions Law (the “UAE Commercial Code”) states as follows:

“A creditor is entitled to receive interest on a commercial loan as per the rate of interest stipulated in the contract.  If such rate is not stated in the contract, it shall be calculated at the rate of interest currently in the market at the time of dealing, provided that it shall not exceed 12% until full settlement.”

Until now, as a matter of prevailing judicial practice, Dubai Courts generally preferred to award an interest rate of 9%.  For example, Dubai Court of Cassation in judgment No. 266 of 2008 dated 17 March 2009 declared as follows:

“If there is no agreement in the contract for payment of interest, then the judicial practice in the [Emirate] of Dubai that interest will be calculated at the rate of 9% per annum, with effect from the date the debt fell due for payment.”

It is important to take note Article 1 of Cabinet Resolution No. 5 of 2021 concerning the Emergency Financial Crisis, which declared the situation resulting from Covid-19 from 1 April 2020 to 31 July 2021 as an “Emergency Financial Crisis”, which will warrant immediate revisions to the economic and social policies in the UAE.

The Assembly opined as follows:

“[…] the Court of Cassation follows a judicial custom in determining the interest rate, whether legal or delay, in the absence of an agreement to it, at a rate of 9% annually, is no longer appropriate in light of the current conditions of the state and the prevailing interest rates for banks operating herein. This necessitates the reconsideration of the determined interest rate in a manner that would take such conditions into account and lead to revitalizing the market and achieve justice in transactions for individuals and establishments.”

Accordingly, having regard to the recent socio-economic developments and conditions caused by the Covid-19 pandemic in the United Arab Emirates (the “UAE”), the Assembly decided that it would be feasible and appropriate to decrease the basis for calculating interest from 9% to 5% per annum.

The Assembly’s decision is in line with the overall approach adopted by the UAE to tackle the adverse effects of the COVID-19 pandemic, whereby all UAE governmental authorities and bodies have been working tirelessly in the interest of its citizens, residents, companies, and institutions.

In recognising the financial impact of the Covid-19 pandemic and the resulting market conditions, the Assembly has demonstrated yet another practical approach of Dubai’s justice system that is attuned to the existing market conditions and issues.

It remains to be seen if and how other UAE courts would react to Dubai Court’s revision of its judicial practice.

Please find a copy of the Assembly’s decision enclosed in Arabic (original) and English (translation).  The translation is provided by Galadari Advocates & Legal Consultants for informational purposes only and does not constitute legal advice.  You should not rely on the information provided in this client alert or the translation without seeking formal legal advice.

To speak to us in relation to the Assembly’s decision, or any dispute resolution matters, please feel free to contact us.

Hussein Demerdash
Senior Counsel
Sergejs Dilevka
Senior Associate

Joe Khalaf

Mustafa Khalid

Click here to download the PDF copy.