Federal Supreme Court, Commercial Appeals Nos. 1202 and 1287 of 2023, judgment of 26 December 2023
A validly concluded contract has the force of law between the parties, and the judge must interpret it according to its clear wording without departing from the parties' intention. Interpreting a contract is a legal question the court must decide itself rather than leave to an expert. Murabaha is the sale of goods at the seller's cost plus a known profit agreed as a percentage or a lump sum; in Islamic finance the bank buys the goods and resells them to the customer at a higher price, acting in practice as intermediary. Where the parties chose murabaha, the court must decide the claim under that contract and not under the provisions on bank loans and interest.
An Islamic bank sued a customer in Khor Fakkan for AED 2,678,403.48 outstanding under a murabaha sale contract dated 25 April 2016 for a total of AED 5,090,942.17, the customer having failed to pay the instalments. After a banking expert reported, the federal court of first instance on 18 July 2023 awarded AED 1,358,634.19. It relied on Articles 409 and 410 of the Commercial Transactions Law, which deal with bank loans and their interest, and adopted the expert's figures. The expert had described the facility as a commodity murabaha financing. On 15 November 2023 the appeal court, after appointing a three-member panel, dismissed both parties' appeals and adopted the first-instance reasons. Both parties appealed. The bank argued that the courts had treated a murabaha sale as a loan, although the experts identified the contract as murabaha and the price, profit and instalments were fixed in it. The Federal Supreme Court agreed. A valid contract binds the parties and must be interpreted by its clear terms. A judgment may not delegate to an expert legal questions such as interpreting the contract, giving effect to its terms and fixing the parties' obligations. Murabaha is a form of Islamic finance in which the bank buys goods and resells them to the customer at a known profit, acting in practice as intermediary. The parties had chosen murabaha and signed a contract fixing the debt and the method and dates of payment, so the court had to decide the claim within the bank's requests and under that contract. By treating it as a bank loan, the appeal court contradicted the record, gave deficient reasons and erred in law. The judgment was quashed and remitted; the customer's linked appeal was quashed with it.
Islamic banks' claims are sometimes recalculated as if the facility were a conventional loan, which can change the amount due. The Federal Supreme Court requires courts to give effect to the murabaha structure the parties chose. The 2022 Commercial Transactions Law now regulates murabaha expressly (Article 481) and bars Islamic financial institutions from charging late-payment interest (Article 473).
“عقد المرابحة هو بيع السلعة بمثل الثمن التي اشتراها به البائع ، مع زيادة بربح معلوم متفق عليه بنسبة من الثمن أو بمبلغ مقطوع”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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