Federal Supreme Court, Commercial Appeal No. 944 of 2019, judgment of 5 May 2020
The terms of a contract govern the parties' obligations and how they are to be performed; a valid contract is the law of the parties, which neither party nor the judge may alter. Interpreting contracts is a question of law for the trial court, which may not hand it to experts, whose task is limited to technical and factual matters. Whether a financier may claim the whole unpaid murabaha price at once is such a question of law. Where a murabaha agreement provides that the unpaid balance falls due immediately if an instalment is missed, the court must give effect to that clause and may not treat the future instalments as claimed prematurely.
A bank provided a customer with murabaha financing of AED 1,347,805 at a profit rate of 4 per cent a year, giving a total of about AED 2.37 million with profit, repayable over 227 monthly instalments of AED 10,523; the customer used the proceeds to settle his liabilities to another bank. The agreement provided that if the buyer failed to pay any instalment of the murabaha price on its due date, the unpaid balance would immediately become payable in one sum. The customer paid almost nothing, and the bank sued in Sharjah for the full amount. Relying on a banking expert, the first-instance court awarded about AED 2,321,572 with 4 per cent contractual interest on the amount financed. The Court of Appeal reduced the award to AED 501,132, the instalments due up to the date of its own judgment, and held the claim for the instalments falling due until August 2034 inadmissible as premature. On the bank's appeal, the Federal Supreme Court held that contractual obligations are determined by the contract's terms, that interpreting them is for the court and cannot be delegated to experts, and that whether the bank was entitled to the whole outstanding balance at once was a question of law, to be answered by applying the contract according to the parties' common intention. By ignoring the acceleration clause, the Court of Appeal had departed from the contract and altered the legal positions it created. The expert's report, which applied simple interest and excluded compound interest, put the balance due at about AED 2.32 million. The judgment was quashed for breach of the law, and the Court proceeded to decide the merits itself under Article 184 of the Civil Procedure Law; the operative part is not printed in the collection.
For Islamic finance providers, the judgment confirms that an acceleration clause in a murabaha agreement is enforced as written: on default, the financier may sue for the whole outstanding deferred price instead of instalment by instalment. It also confines court experts to accounting and technical questions. The Court accepted an expert calculation that applied simple interest and excluded compound interest.
| Article 184 of Federal Law No. 11 of 1992 (Civil Procedure Law) Decided under this law; it has been replaced by Civil Procedure Code. |
| Federal Law No. 5 of 1985 (Civil Transactions Law), general rules on the binding force of contracts (the judgment cites no article) Decided under this law; it has been replaced by Civil Transactions Law 2025. |
“تحديد مدى أحقية الطاعن في استحقاق الرصيد غير المدفوع من ثمن المرابحة دفعة واحدة من عدمه من مسائل القانون”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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