In a landmark ruling, the Abu Dhabi Court of Cassation has dismissed a bank’s Dh1.3 million financial claim against a customer, citing the absence of valid legal guarantees. This decision, praised by legal experts, is being hailed as a major advancement in consumer rights and consumer law in the UAE.

The dispute stemmed from a Murabaha agreement, a form of Islamic financing, through which the bank sought to recover over Dh1.3 million in unpaid dues. While the Court of First Instance initially rejected the claim, the Court of Appeal overturned that decision and ruled in the bank's favour.

However, upon further appeal by the customer’s legal representatives the UAE court reversed the appellate judgment and reinstated the original dismissal, ultimately siding with the customer.

Court Emphasises Legal Guarantees Are Essential in Debt Recovery

The court’s ruling, delivered on April 14 by the Second Commercial Circuit, clarified that under Article 121 (bis) of Federal Decree-Law No. 23 of 2022 , an amendment to Federal Law No. 14 of 2018 governing the UAE Central Bank and financial institutions , banks cannot initiate debt recovery lawsuits without documented and legally binding guarantees.

Legal experts pointed out that salary transfers, often relied on as informal guarantees by banks, do not meet the legal threshold on their own. 

A Step Forward for Transparency and Financial Fairness

The verdict sends a strong message to the UAE banking sector: Debt claims without proper, legally recognised guarantees will not be upheld in court. This strengthens consumer protection, ensuring that banks must follow strict legal procedures before pursuing repayment.

Key Takeaways:

• The UAE court has affirmed that banks need proper legal guarantees to claim unpaid dues.

• Consumers' rights are strengthened through this ruling.

• The decision underscores the need for financial institutions to adhere to consumer law standards.

• Legal experts say this sets a precedent for future bank cases involving unsecured loans.

This pivotal judgment reinforces the UAE's commitment to legal transparency, fair banking practices, and upholding consumer rights in financial matters.

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