Cassation Judgments 595/2025 and 608/2025 | July 2025
The Dubai Court of Cassation has issued a landmark ruling confirming that late payment interest clauses in Islamic finance agreements are unenforceable, regardless of how they are labelled. The judgment reinforces the position that Sharia-compliant finance must fully adhere to Islamic legal principles, including the prohibition on interest.
Background
The case involved a Murabaha agreement between a bank and a client, structured to finance the purchase of investment shares. The bank sought to recover both the outstanding principal and 5 percent late payment interest. While the Court of Appeal had initially accepted the bank’s claim in full, the Court of Cassation partially overturned that decision, ordering the client to pay the principal amount only. The late interest provision was declared void.
Legal Reasoning
The Court relied on several key legal provisions, including:
- Article 473 of Federal Decree Law No. 50 of 2022 (Commercial Transactions Law), which prohibits charging interest or any financial return on loans
- Articles 472 to 474, which require that Islamic finance institutions comply with Sharia law
- The General Assembly precedent issued in Case No. 586/2025/9, which held that imposing late interest in Islamic finance arrangements is invalid, even where disguised as compensation or a penalty for delay
Commercial Implications
The judgment makes clear that Murabaha and other Islamic finance contracts must not contain clauses that impose any financial burden on clients for late payment. These findings are binding on lower courts and create immediate implications for banks and financial institutions operating under Sharia-compliant frameworks.
Institutions should urgently review the wording of all template agreements and remove any provisions that impose or imply late interest. Clauses that seek to mirror conventional finance remedies must be restructured to ensure Sharia alignment and legal enforceability.
Looking Ahead
This ruling provides important legal clarity for both financial institutions and clients. It ensures consistency in the treatment of Islamic finance disputes and reinforces the judiciary’s commitment to upholding the principles of Sharia in practice.
For legal guidance on Islamic finance structuring, compliance, or dispute resolution, please contact:
Mohammed Alsuwaidi is the Founding and Managing Partner of Alsuwaidi & Company. He has advised on high-value Islamic finance disputes and is a licensed arbitrator at the International Islamic Centre for Reconciliation and Arbitration. You can contact him at alsuwaidi@alsuwaidi.ae.
Feras Kalash is a Senior Associate with extensive experience in banking and Islamic finance litigation. He regularly advises financial institutions on Sharia-compliant matters and represents them in complex disputes involving late payment claims and contract enforcement. You can contact him at f.kalash@alsuwaidi.ae.