The authority of the courts to scrutinise interest methodology adopted by banks

UAE Federal Supreme Court recognises the authority of the court to scrutinise interest methodology adopted by banks

In Commercial Cassation Appeal No. 313 of 2026, on 14 July 2026, the UAE Federal Supreme Court held that interest methodology may be challenged where charges exceed the amounts properly recoverable.

The judgment is significant for banking disputes because it confirms that customers may seek the recalculation of interest and expert scrutiny of the methodology applied by a bank.

Background

The dispute arose from a personal loan obtained in 2007. The borrower alleged that, despite continuing repayments and other amounts credited towards the loan, the outstanding balance had reduced only marginally. He alleged that the bank had applied compound interest and charged interest exceeding the amount properly recoverable.

The borrower initially sought the appointment of a banking expert to examine the indebtedness and the bank’s calculations. The expert recalculated the account using simple interest, excluded compound interest and applied payments to principal. The expert concluded that the bank had charged AED 384,565.79 in excess interest.

The borrower then amended his relief to seek the removal of the disputed interest in excess from the indebtedness and a declaration that he was not liable for it. On 25 August 2025, the Federal Court of First Instance ordered the credit facility to be adjusted by deducting AED 384,565.79 from the interest claimed up to the date the proceedings were commenced.

The procedural history

Both parties appealed the judgment. On 14 January 2026, the Court of Appeal confirmed the first instance judgement but partially amended it to adjust the amount of the debt as at 28 October 2025 and directed that all subsequent instalments be applied towards the principal amount.

The bank challenged that decision in Commercial Cassation Appeal No. 32 of 2026. On 24 February 2026, the Federal Supreme Court set aside the appealed judgment and remitted the case back to the Court of Appeal as it had not addressed the bank’s defence that the action was premature while the account remained open.

On remittal, the Court of Appeal treated the earlier cassation judgment as having determined that the account could not be liquidated before closure. It therefore set aside the first instance judgment and dismissed the action as premature on 5 June 2026. The borrower brought the second cassation appeal.

The Federal Supreme Court’s decision

The Federal Supreme Court allowed the borrower’s appeal. It reaffirmed that a court must give a claim its correct legal character by reference to the true relief sought and the legal basis on which that relief rests.

The borrower’s amended claim was not, in substance, a request for final closure or liquidation of the account. It sought the exclusion of specific interest found by the expert to have been charged above the amount recoverable, together with a declaration that the borrower was not liable for that interest. The continued operation of the account did not, by itself, make that claim premature.

The Supreme Court also held that the remittal court had misunderstood the effect of the earlier cassation judgment. The earlier judgment required the Court of Appeal to consider and answer the bank’s prematurity defence; it did not decide that the defence was valid. By treating that direction as a determination that the claim could not proceed while the account remained open, the Court of Appeal misunderstood both the facts of the claim and the binding effect of the earlier cassation judgment.

Because the matter came before the Supreme Court for a second time, the Court determined the merits. It dismissed both appeals against the original first instance judgment and upheld that judgment. The result was the restoration of the order deducting AED 384,565.79 from the interest claimed by the bank.

Why the judgment matters

Interest calculations remain open to scrutiny.

While the Court's primary focus was on the proper characterisation of the claim and the prematurity defence, the decision demonstrates the courts' willingness to scrutinise closely the methodology used to calculate interest and to intervene where expert evidence establishes that amounts have been charged in excess of what is due. Banks should therefore be able to support both their interest methodology and the allocation of repayments with clear contractual and accounting records.

Practical implications

For borrowers and their advisers, the relief should be framed with precision. A claim challenging identified charges should specify the entries disputed, the legal and accounting basis of the challenge, and the amount said to be irrecoverable. Expert evidence may be decisive in separating a targeted challenge from a request for final liquidation of an ongoing account.

For banks, the judgment highlights the importance of ensuring that interest calculations and the allocation of repayments are legally recoverable, transparently documented and supported by clear contractual and accounting records. Although the Court’s principal reasoning concerned the characterisation of the claim and the effect of the earlier cassation judgment, banks must also consider the applicable statutory restrictions, including Article 88 of Federal Decree-Law No. 50 of 2022, which prohibits creditors from claiming compound interest. A prematurity defence should address the substance of the relief sought, rather than rely solely on the account remaining open.

For further information, please contact Sherif Maher or Hesham El Samra at Clyde & Co.