Ras Al Khaimah Court of Cassation, Commercial Appeal No. 18 of 16 JY, judgment of 19 September 2021
The business of finance companies is commercial, so a loan they make is a commercial act even if it is civil for the borrower. Delay interest on the resulting debt is due at the agreed rate, subject to the statutory ceiling. Commercial loans by banks, financial institutions and finance companies are governed by commercial rules and usage, so contractual interest on the principal and late-payment charges may be agreed. Delay interest runs from the due date unless the law, the agreement or commercial custom fixes another date; a court cannot refuse agreed delay interest without a legal basis.
A finance company applied to the Ras Al Khaimah court for a payment order against two debtors jointly for AED 969,586.60 due under a loan, with interest. The dispute reached the Court of Appeal, which did not award the contractual delay interest the company claimed. The company appealed in cassation. The Court of Cassation held that a bank loan is a contract by which the lender transfers money to the borrower, to be repaid with the agreed interest. Under Articles 4, 10 and 12 of the Commercial Transactions Law the activities of finance companies are commercial, so a loan they make is commercial even if it is civil for the other party, and delay interest on the debt is due at the agreed rate, provided it does not exceed the legal ceiling (Articles 76 and 77). Commercial transactions, including loans by banks, financial institutions and finance companies, are subject to commercial rules and usage, which allow contractual interest on the principal and late-payment charges, given the lenders' own funding costs, the risks of long-term lending and the loss of other uses for the money. Delay interest compensates for late payment and runs from the date the debt falls due unless the law, the agreement or commercial custom provides otherwise. By refusing the agreed delay interest without a sound legal basis, and by failing to address the company's material defence, the Court of Appeal erred. The judgment was quashed in that respect and the Court decided the appeal itself. Relying on the expert accounts, it found a principal of AED 962,368.80, contractual interest at 10.97% a year from the loan date of 30 October 2014 of AED 231,013.80, late charges of AED 479,701.80, other fees of AED 1,500 and payments of AED 791,141.26, leaving AED 883,443.14 due at 1 December 2020, and it upheld the first-instance judgment on that basis.
Decided under the 1993 Commercial Transactions Law, the ruling extends to finance companies the treatment the courts give banks: their loans are commercial, and agreed interest and late charges are enforceable. Borrowers from non-bank lenders should not expect a court to cut the contract back to statutory interest.
| Articles 4, 10, 12, 76, 77 of Federal Law No. 18 of 1993 (Commercial Transactions Law) Decided under this law; it has been replaced by Commercial Transactions Law. |
“عد أعمال شركات التمويل أعمالاً تجارية. لازمه. عد عقد القرض عملا تجارياً ولو كان مدنياً لأحد طرفيه. المواد 4، 10 ٠، 12”Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.
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