A recent judgment by the Dubai Court of Cassation has concluded that for a contract to be Shari’a compliant, an Islamic bank or financial institution is required to do more than just to name that contract as a Murabaha contract (Cassation Appeals Nos. 898-927/2019).

The Court of Cassation ruled that a Murabaha contract has to meet certain objective criteria to be considered as Shari’a compliant. These criteria are subject to review by the court and, if these are not satisfied (in part or in whole), the contract may be deemed null and void by the court.

The Court explained that a Murabaha contract has no legislative founding. As such, to better understand the validity criteria for a Murabaha contract, one should look to the Maliki school of jurisprudence.

According to the Court, for a Murabaha contract to be valid, the Shari’a compliant bank or financial institution should have ownership of the goods prior to selling them on to the customer.

In this case, the customer (the defendant) argued that the Murabaha contract in question was essentially a loan agreement with interest as the goods under the Murabaha contract were never delivered to or received by him. The customer further claimed that that he only received funds (and not any goods or commodities) and he simply had an obligation to return the funds to the bank together with interest in due course.

Another submission by the customer was that a Murabaha in nature is a sale contract where the financier buys the goods or commodities in question, owns them and then resells them on to the customer on a principal plus profit basis. If the role of the financier is merely to finance the deal (without the proper purchase of goods), then this would constitute usury (which is prohibited by Shari’a).

The Court ruled that this defense is a valid one and that the Court has an obligation to look into the nature of the Murabaha contract to ensure that the criteria has been satisfied.

Whilst the conditions for the validity of a Murabaha contract as stipulated by the Court are not new, the fact that the Court has accepted the customer’s argument that the Murabaha contract in this case was simply a veiled conventional bank financing (including an interest component) is a significant development in such claims.

We expect this ruling to have a significant impact on similar claims going forward and the above defense may be used by other defendants on future claims, particularly as this is a Court of Cassation judgment. Shari’a compliant financial institutions can no longer assume that their Murabaha contracts will be upheld by a court as being Shari’a compliant simply by virtue of being labelled as such (even if the document has been blessed by their Shari’a boards).

Going forward, it will be essential for financial institutions to ensure they have considered the structure of the underlying Murabaha transactions and that the above criteria has been satisfied. This will be critical in mitigating the risk that a court may review these transactions during subsequent litigation with the power to set them aside on the basis that such criteria has not been fully considered.

For further information, please feel free to reach out to your usual Baker McKenzie contact.


Dr. Habib Al Mulla is the Executive Chairman of Habib Al Mulla & Partners, a member firm of Baker & McKenzie International and the Head of the Dispute Resolution practice in the UAE. He is one of the UAE’s most highly respected legal authorities with over 34 years’ experience in UAE law and has drafted many of the modern legislative structures in place in Dubai today. Dr. Habib focuses his practice on litigation and arbitration. He is Chairman of the CIArb (Chartered Institute of Arbitrators) UAE Committee and most recently served as Chairman of the board of trustees for the Dubai International Arbitration Centre (DIAC).


Sandeep Puri is the Head of the UAE Banking & Finance practice of Baker McKenzie Habib Al Mulla, based in Dubai. He has extensive experience advising on all aspects of banking, finance and capital market matters across the Middle East. Sandeep has been based in the UAE since 2003 and has worked on both conventional and Islamic finance transactions across various asset classes, including project finance, corporate finance, asset finance, real estate and capital markets (including sukuk).


Mazen Boustany is the UAE Head of the Financial Regulatory practice of Habib Al Mulla & Partners, a member firm of Baker & McKenzie International, based in Dubai. He has over 22 years' experience in banking and finance law in the Middle East, including financial services regulation, Islamic finance, structured finance, securitisation, private equity, financial structuring and restructuring, cross-border transactions and investment funds. Mazen has helped draft many of the financial regulations for the UAE Central Bank and Ministry of Finance.


Amir Alkhaja is a partner and heads the UAE Banking Litigation team of Habib Al Mulla & Partners, a member firm of Baker & McKenzie International. Amir focuses on commercial, white-collar crime and banking litigation, with over 15 years of experience in the UAE. He is a licensed UAE lawyer and has right of audience in local and federal courts of the UAE including all Cassation and the Supreme Court.

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