Dubai court orders borrower to pay $2.4 million in loan dispute over penalty clause

Dubai: The Dubai Court of First Instance has ordered a borrower to pay $2.4 million in a dispute over a $2 million loan after a disagreement over the applicable late-payment penalty.

The lender had sought $6 million, arguing that the contract included a penalty clause of 1 per cent per day of the total debt for each day of delay, which he said entitled him to $4 million in penalties in addition to the principal.

The defendant contested the claim, arguing that the correct rate stated in the agreement was 0.001per cent per day – one per thousand – rather than 1per cent. He also challenged the jurisdiction of Dubai courts, citing a clause assigning jurisdiction to courts in their home country, and requested a stay pending the outcome of a criminal complaint filed abroad, Emarat Al Youm reported.

The court rejected the jurisdictional challenge, noting that the defendant resided in the UAE and that rules on international jurisdiction tied to domicile are matters of public order that cannot be overridden by agreement where conditions are met.

On the merits, the court found that the defendant had expressly acknowledged receipt of the $2 million and had not denied his signature on the agreement.

Accepting an official translation submitted by the defendant, the court ruled that the agreed penalty was 0.001 per cent per day. It calculated compensation for the delay at $400,000 and declined to reduce the clause, stating that the debtor had failed to prove that the amount was excessive.

The court awarded $2.4 million in total, plus 5 per cent annual legal interest from the date of filing until full payment, along with court fees and legal costs.