Federal Supreme Court Ruling on Exclusion of Compound Interest and Limits of Remand Judgment

Federal Supreme Court Judgment on Bank Loan Interest and Authority of Remand Court

In Commercial Cassation No. 313 of 2026, the Federal Supreme Court addressed key principles regarding the legal characterization of banking disputes, the binding authority of cassation judgments upon remand courts, and the calculation of bank loan interest using simple rather than compound rates.

Background and Material Facts

The appellant obtained a personal bank loan from the appellee bank in 2007, repayable through monthly salary deductions. A settlement was reached in 2011 setting monthly deductions at AED 15,000. Over subsequent years, substantial payments were made, including an additional contribution of AED 300,000 from the Abu Dhabi Crown Prince Court. Despite continuous deductions, the bank maintained in 2021 that the outstanding debt remained at AED 1,840,775, applying an interest rate exceeding 9% and charging compound interest that exceeded the loan principal in violation of UAE Central Bank regulations.

The borrower filed Lawsuit No. 83 of 2025 before the Federal Court of First Instance seeking the appointment of a banking expert to inspect bank records, audit the account, and recalculate the genuine liability. The court-appointed expert concluded that the bank overcharged interest by AED 384,565.79 due to applying compound interest instead of simple interest and failing to properly credit payments directly against the principal balance.

Procedural History

On 25 August 2025, the Federal Court of First Instance ruled to settle the credit facility by deducting AED 384,565.79 in excess interest. Both parties appealed. The Federal Court of Appeal amended the judgment on 14 January 2026, setting the debt balance at AED 1,091,947.85 as of 28 October 2025.

Upon the bank's cassation (Appeal No. 32 of 2026 Commercial), the Federal Supreme Court overturned and remanded the judgment due to insufficient reasoning in responding to the bank's defense regarding account closure. On 5 June 2026, the Remand Court dismissed the entire action as premature. The borrower then filed this second cassation appeal.

Legal Issues and Judicial Reasoning

The primary legal issues centered on:

• The duty of trial courts to accurately characterize claims based on the underlying relief sought rather than formal labeling.

• The limits of a remand court's adherence to the prior cassation judgment's res judicata.

• The legal prohibition against charging compound interest on bank loans.

The Federal Supreme Court found that the remand court misconstrued the previous cassation ruling. The initial cassation only remitted the matter for failure to answer a specific defense, not to hold definitively that an open account bars an action to deduct unlawful interest. The court held that trial courts are bound to give the lawsuit its proper legal characterization; here, the claimant sought to eliminate unlawful compound interest and establish liability clearance, not merely close a functioning bank account.

Final Ruling

Because the dispute was before the Federal Supreme Court for a second time, the court adjudicated the merits pursuant to the Civil Procedure Law. The court decided to:

• Overturn the appealed remand judgment.

• Dismiss both commercial appeals (Appeal No. 258 of 2025 and Appeal No. 272 of 2025).

• Uphold the initial judgment of the Federal Court of First Instance, confirming the deduction of AED 384,565.79 from the claimed interest.