United Arab Emirates: Applicability and legal entitlement to interest under UAE law'

Last Updated: 5 March 2019
Article by Mark Wilson and Laurice Elten
  1.                  Introduction

When pursuing a monetary claim, it is common to include a claim for interest.  However, the right to claim interest is often an area of misunderstanding for contracting parties in the UAE.

The basis for this confusion is the fact that Shari'a Law, in pursuit of the objective of establishing justice and eliminating exploitation in business transactions, prohibits all sources of unjustified enrichment and all dealings in transactions that contain excessive risk or speculation (riba).  This is commonly thought to include interest of any kind.

These principles of Shari'a Law are reflected in the UAE Civil Code1 as referred to below.  To put this in context, Article 409 of the UAE Penal Code2 makes usury between natural persons a criminal offence, with the penalty being possible imprisonment and/or a fine.  The term "usury" is widely understood to mean an unreasonably high rate of interest, though it originally meant interest of any kind, and the word derives from a Latin term simply meaning "interest".

This article examines the treatment of interest under UAE law and approach taken by the UAE Courts.

  1.                  The UAE Civil Code

Under UAE law, the concept of riba is reflected within the UAE Civil Code, at least in relation to loan contracts.  Article 714 states:

"If the contract of loan provides for a benefit in excess of the essence of the contract otherwise than a guarantee of the rights of the lender, such provision shall be void but the contract shall be valid."

In practice, this renders void any provision in a loan contract that would provide a benefit that exceeds the "essence" – i.e. the subject matter of the contract, other than securing the lender's right to the amount lent.  That would certainly seem to encompass interest of any nature or amount.

However, perhaps due to concerns from the banking and financial community, the Constitutional Department of the UAE Federal Supreme Court, in its Decision No 14/9, issued on 28 June 1981, permitted the charging of simple interest in bank transactions, observing that the banking system had become a necessity for the economic existence of the UAE and for the wellbeing and benefit of the public.  The same decision was reached by the same Federal Supreme Court in a judgment3 where the Court held that contractual interest received by a bank was lawful, for as long as a compelling need to maintain the system remained.

  1.                  Commercial Code

The UAE Civil Code was amended by Federal Law No. 1 of 1987 to the effect that, whilst the Civil Code would continue to operate in respect of civil transactions, commercial transactions would continue to be governed by the laws and regulations in force until the Commercial Code came into force.  The Commercial Code4 was then introduced in 1993.  It contains various provisions governing the right to interest. 

Pausing here, it is useful to remember the role of the Commercial Code.  The Commercial Code takes precedence over the UAE Civil Code, in respect of the commercial transactions that fall within the former's ambit – i.e., a 'trader' transaction where at least one of the parties is a trader and/or the transaction concerns 'commercial activities'.  This suggests that a construction contract, for example, is to be regarded as a commercial transaction, provided that it is entered into in the course of business of at least one of the parties, and various decided cases support this view.  That is not to say that the UAE Civil Code has no application to commercial transactions, but the Commercial Code should take priority in the event of any conflicting provisions.

Article 76 of the Commercial Code states, in respect of commercial transactions:

"A creditor shall have the right to demand interest on a commercial loan in accordance with the rate stipulated in the contract. If the rate of interest is not stipulated in the contract it shall be calculated in accordance with the rate prevailing in the market at the time of the transaction on condition that in this case it should not exceed (12%) per cent, until full settlement is made."

Article 77 goes on to provide:

"Where the contract stipulates the rate of interest and the debtor delays payment, the delay interest shall be calculated on basis of the agreed rate until full settlement."

Whilst Article 76 expressly refers to "a commercial loan", there are indications that it applies more widely.  Article 88, for example, makes no such restriction.  It states:

"Where the commercial obligation is a sum of money which was known when the obligation arose and the debtor delays payment thereof, he shall be bound to pay to the creditors as compensation for the delay, the interest fixed in Articles (76) and (77), unless otherwise agreed".

Thus, the Commercial Code is clear that, if contractually agreed, a creditor is entitled to interest as compensation for delayed payment either:

  • at the rate agreed by the parties, if any (Article 77); or
  • at the prevailing market rate subject to a maximum of 12% in the absence of agreement (Article 76).

The rate of interest was in issue before the Court of Cassation in case no. 321 of 1999.  The Court was asked to consider whether an agreed rate of 15% per annum was acceptable in the context of Articles 76, 77 and 88.  The Court rejected a "plea of unconstitutionality of Articles 76, 77 and 88 of the Commercial Transactions Law concerning the agreement upon interests according to the agreed price stated in the contract", and decided that the rate agreed between the parties in the contract would not be amended.

As regards the point in time from which interest accrues, Article 90 of the Commercial Code states:

"Interest for delay in payment of commercial debts shall be payable merely upon their falling due, unless it is otherwise provided for by law or agreement."

There have been some differences of judicial approach in determining the "due" date for interest purposes.  The various possibilities can be discerned from a 2009 decision of the Dubai Court of Cassation in case no. 266/2008.  The matter involved claims and counterclaims by a developer and a contractor under a building contract.  The developer's claims were dismissed.  The interest lies in the manner in which the Courts at various tiers of appeal dealt with the contractor's counterclaims.

  • The Court of First Instance gave judgment in favour of the contractor for outstanding entitlements payable for work done under the contract ("sum A").  The Court awarded interest on the full amount at the rate of 9% from the date of commencement of the proceedings.
  • The Court of Appeal revised those findings and:
    • awarded interest on part of sum A as from the date of completion of the building work;
    • awarded interest on the balance of sum A as from the expiry of the maintenance period; and
    • gave judgment for a further sum representing compensation for delay, together with interest as from the date of judgment (all at the rate of 9%).
  • The Court of Cassation in its judgment of 17 March 2009 dismissed the developer's further appeal and essentially upheld the Court of Appeal decision, saying:

"the provisions of Articles 76, 88 and 90 of the Commercial Transaction Law stipulate that if the subject of the commercial obligation is an amount of cash which is known upon the time of the originating of the obligation and if the debtor delayed in the payment of such amount, the debtor shall be required to pay to the creditor the interest by the rate agreed upon by the contract providing not to exceed 12% and if there shall be no indication in the agreement to the interest rate, it is established by judicial custom in the Emirate of Dubai to calculate interest by the rate of 9% per annum5 provided it be calculated as of the date of maturity and it shall be deemed as compensation for the creditor for the delay of the debtor in the settlement of the obligation on the agreed date or the date on which the obligation should have been executed.  It is also established that the debt shall be deemed to be of known amount even if the debtor challenged such amount as long as the judiciary has no absolute power in estimation."

It is worth mentioning that the quantum of sum A was based on the findings of a court-appointed expert.  In awarding interest on sum A, is apparent that the Court of Appeal (and therefore also the Court of Cassation) did not regard this as fatal to the conclusion that payment had fallen "due" as from the date of completion of the construction work and/or the expiry of the maintenance period.

Interestingly, it is not necessary for a party to prove "damage" in order to claim interest, as Article 89 of the Commercial Code states:

"It shall not be a condition of entitlement to the interest for the delay that the creditor prove that he has suffered harm as a result of such delay."

Furthermore, under Article 91 of the Commercial Code, a creditor may claim damages in addition to delay interest and it will not be mandatory nor necessary for a creditor to prove that such damages resulted from fault or cheating on the part of the debtor.

  1.                  Abu Dhabi

The situation in Abu Dhabi differs slightly because Abu Dhabi has enacted specific legislation, in addition to the UAE laws mentioned above, which gives the Courts a discretion to award interest in both civil and commercial cases6, and provides guidance as to the interest rate to be applied.

Articles 617 and 628 of the Abu Dhabi Civil Court Procedure Law No. (3) of 1970 are applicable.  While the Law of Civil Procedure9 repealed all laws concerning civil procedure, provisions on interest such as the Abu Dhabi Civil Court Procedure Law, were specifically excluded and continue to be effective10.

Therefore, if parties conclude a contract which is subject to the laws of Abu Dhabi, they should keep in mind that Abu Dhabi has the aforementioned Emirate-specific law which entitles the Courts in that Emirate to award interest in contracts whether governed by the Civil Code and/or the Commercial Code.

  1.                  DIFC

Interest can be claimed under DIFC law.  Article 39 of the DIFC Law No 10 of 2004 specifically allows for interest to be recovered on a judgment for damages, and interest will start to run from the date of the judgment.  The interest rate shall be fixed as per the rules of the DIFC Court or as determined appropriate by the DIFC Court.  Practice Direction No. 4 of 2017 (Interest on Judgments) provides that any judgment of the DIFC Courts issued after its date carries simple interest from the date the judgment is entered, at the rate of 9% or such other rate as the judge may prescribe.

The Rules of the DIFC Courts (r 45.26) provide that a judgment creditor claiming interest on and seeking enforcement of a judgment debt must include certain information in the application or request to issue enforcement proceedings, including the amount of interest claimed, the rate, and the dates from and to which interest has accrued.

Similarly, there are no restrictions on claiming interest under the DIFC Arbitration Law, nor are there any mandatory or customary rates. In practice, arbitral tribunals tend to award interest at between 9 and 12 per cent per annum, but this is matter specific.

  1.                  Conclusion

In summary, courts and legislators in the UAE have provided for a well-balanced and measured regime in relation to entitlements to interest, meeting the needs of the economy, but in doing so have endeavoured to recognise and work within Shari'a.

The UAE Courts will give effect to contractual provisions for the payment of interest, provided these provisions are within the boundaries prescribed by the applicable legislation referred to above.  If contractual provisions are silent on the right to interest, the Courts will follow the applicable laws and determine whether the parties are entitled to interest, taking into account the facts of each individual case.

In practice, if contracting parties wish to include a claim for interest for delayed payment, it is advisable that they ensure that their contract contains well defined interest clauses that comply with relevant laws.

Footnotes

Note: an earlier version of this article first appeared in Mondaq on 9 August 2016

2 Federal Law No. 5 of 1985, the Civil Transactions Law

3 Federal Law No. 3 of 1987 promulgating the Penal Code

4 Federal Supreme Court of Abu Dhabi, case no. 245 of 2000, judgment (7 May 2000)

5 Federal Law No. 18 of 1993, the Law of Commercial Procedure

6 It is not clear from the judgment whether the contract contained any agreed interest provision.

7 The interest rate will be fixed as agreed between the parties or if the parties did not agree on the interest rate, then at the rate not exceeding 12% for commercial transactions and 9% for non-commercial transactions.

8 Article 61 of the Abu Dhabi Civil Court Procedure Law authorises the Abu Dhabi Courts to award interest from the date the debt falls due:

" The Court may impose an interest on the awarded amount in accordance with the provisions hereof, and order such interest rate to be calculated from the date of maturity or any later date to the date of payment or any earlier date. It may also impose an interest rate on the Lawsuit expenses or any part thereof."

9 Article 62 of the Abu Dhabi Civil Court Procedure Law gives guidance to the Court on the rate of interest to be applied:

"1. The interest rate determined by the Court may not exceed the interest rate agreed upon by the Litigants or the one they applied at any stage before filing the Lawsuit.

2. If the Litigants fail to agree on an interest rate, then the Court may determine an interest rate that does not exceed 12% in commercial transactions, and 9% in non-commercial transactions.

3. In specifying the interest rate, the Court shall be bound by what the Litigants agreed upon or applied before the institution of the Lawsuit. This applies to the period preceding such institution. As for the period that follows the filing of the Lawsuit, the Court shall apply the average interest rate between banks during the duration of the proceedings, provided that the same does not exceed 9% in all transactions, in which case the interest shall be charged on the basis of simple interest only.)

4. In all cases, the interest may not exceed the principal amount".

10 Federal Law No. 11 of 1992

1 Article 1 of the UAE Civil Procedure Code states:

"The attached law concerning civil procedures before the courts shall take effect, and all laws, decrees, orders, measures and directives in force pertaining to civil procedures are repealed, with the exception of provisions relating to interest on commercial transactions, which shall remain in force until they are regulated by law;"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Sign Up
Gain free access to lawyers expertise from more than 250 countries.
 
Email Address
Company Name
Password
Confirm Password
Country
Position
Industry
Mondaq Newsalert
Select Topics
Select Regions
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions