Your Lender Had No Licence to Lend: Can It Still Claim the Agreed Interest in the DIFC?

Not on the one decided case. In CFI 055/2020, judgment of 27 September 2023, the DIFC Court of First Instance dismissed a Jebel Ali Free Zone offshore company's claim for the agreed interest on a USD 1,298,977 loan to a UAE resident, declared the loan agreement null and void and gave the borrower his costs. The lender had dealt onshore against its own constitution and the JAFZA Regulations then in force, and had lent at interest with no Central Bank licence, approval or exemption. The claim was for interest alone: 24 percent a year for the 60-day loan period and a higher default rate after 3 September 2019. Permission to appeal was refused on 12 March 2024 and again on 15 May 2024.

The principal is a different story. The borrower conceded it before trial, a consent order of 15 June 2023 required him to pay it by 10 July 2023, and an order of 12 February 2026 records it as paid. The judgment decides nothing about the principal beyond holding that liability for it and for the interest are separate. The table sets the three questions and the two outcomes side by side.

It is one first-instance judgment, standing because permission to appeal was refused, and the Central Bank law and the JAFZA regulation it applied have since been replaced. The borrower is an individual, so the case is cited by number, and this guide does not say whether any lender needs a licence or how to obtain one.

Who lent to you, and was it allowed to deal with you at all?

That was the Court's first question, answered from the lender's own documents. Article 4.2 of its memorandum prohibited business with persons resident in the UAE, owning UAE real property and banking business. The borrower was a UAE resident, served in Dubai, outside the DIFC. Over the memorandum sat Article 14.1(a) of the JAFZA Offshore Companies Regulations then in force, which the judgment quotes: an offshore company shall not be permitted to directly carry out any commercial activity in the United Arab Emirates. Article 14.3 required a licence from the competent authorities before trading elsewhere in the UAE, and there was no evidence of any approval sought (reasons 26 and 27).

The judge held that a contract is illegal at its formation if it cannot be performed without an illegal act, and that this one was formed in breach of licensing provisions the lender had to satisfy first. Applying Article 8(3) of the Contract Law, DIFC Law No. 6 of 2004, under which a contract made by a person not of competent legal capacity is voidable at that person's election or by order of the Court, the judge held that the lender lacked capacity, so the agreement was null and void (reasons 30 and 31). The March 2024 consolidation carries Article 8(3) as the Court quoted it.

The JAFZA text has changed. The Offshore Companies Regulations 2023, issued in October 2023, repeal and replace the 2018 Regulations (Regulation 4.1). Regulation 14.1 now permits an offshore company to conduct lawful business activities as permitted by the Registrar, and Regulation 14.3 still requires the appropriate licences or permits from the competent authorities for business in the zone or elsewhere. The prohibition the Court quoted is gone, nothing in the 2023 text licenses lending, and the licence question that follows is unchanged.

Did the lender need a Central Bank licence to lend to you at interest?

Yes, on the Court's reading of the federal law then in force. Decretal Federal Law No. 14 of 2018 reached a JAFZA company, since Article 151 excluded only the financial free zones and their regulated institutions. Article 64 provided that licensed financial activities could be carried on, in or from the State, only in accordance with that law, and Article 65(1)(b) listed providing credit facilities of all types. Lending at interest was therefore a licensed financial activity, and the lender, with no licence, approval or exemption, was carrying on a regulated activity (reasons 33 to 35).

None of the lender's three answers worked: not held out as a financial institution, no credit risk department, a one-off loan. The test is the activity carried on, not the label or the department, the lender's higher rate for a borrower who had defaulted before showed that it had assessed his risk, and the activity is regulated whether done once or routinely (reasons 36 to 41 and 50).

Federal Decree-Law No. 6 of 2025, in force from 16 September 2025, repeals the 2018 law by Article 185. Article 60(1) now provides that no person may carry on any of the licensed financial activities without obtaining the required licence, and Article 61(1)(b) keeps providing credit facilities of all types on the list. A person is natural or juridical (Article 1), and the financial free zones and the institutions their authorities regulate stay outside the law (Article 2).

The three findings that carried the dismissal, as cards.

Which law decides the dispute when the loan names the DIFC Courts but no governing law?

DIFC law, because of the jurisdiction clause. The parties had submitted to the DIFC Courts without agreeing a substantive law, so DIFC law governed, under Article 6 of the Judicial Authority Law then in force and Article 10 of the Law Relating to the Application of DIFC Laws, DIFC Law No. 10 of 2005, under which a contract that names no governing law is governed by DIFC law (reason 19). The Court also rejected the argument that JAFZA breaches were for the JAFZA registrar alone: a court whose jurisdiction the parties accepted may examine non-DIFC rules where it must to decide the dispute (reasons 23 and 24).

That framework has changed. The Judicial Authority Law was superseded by Article 43(A) of Dubai Law No. 2 of 2025, and Article 23 now provides that the DIFC Courts apply the DIFC Laws and Regulations except where those laws provide otherwise or the parties have expressly agreed that another law governs. Jurisdiction by agreement now rests on Article 14(B), which requires specific, clear and express written provisions. Article 8(2) of the Application Law, DIFC Law No. 3 of 2004, November 2024 consolidation, reaches DIFC law for a contract that names none only after the law the parties agreed and the law most closely related to the facts and the persons, and the judgment did not discuss how that order sits with the 2005 Law.

The Court also relied on the Penal Code, reading Articles 458 and 459 as prohibiting an agreement by which one individual lends to another at interest and as making lending at interest by an individual or an entity an offence punishable by at least a year's imprisonment and a fine of at least AED 50,000, so that the lender could not recoup interest as a consequence of unlawful criminal conduct (reasons 44 to 48). The current Article 458 of Federal Decree-Law No. 31 of 2021 penalises a natural person who deals with another natural person by usury interest, and Article 459 a natural person who acquires a habit of usury. The judgment does not discuss that wording, and in May 2024 the Chief Justice treated the first two grounds alone as more than sufficient.

What happened to the interest, and what happened to the principal?

The interest was lost in full. Having found the lending unlawful, the Court did not need to decide whether the interest was unconscionable or punitive, and the claim failed not because the rates were oppressive but because the whole activity was illegal (reasons 46 and 50). Three more arguments went nowhere: that acknowledging the principal barred any challenge to the interest, rejected because the two issues are separate (reason 48), that the Contract Law caps no rate (reason 47), and that the borrower was a sophisticated client, unproved and irrelevant (reason 49).

The principal was never in issue at trial. By the consent order of 15 June 2023 the borrower agreed to pay the USD 1,298,977 by 10 July 2023, and at trial he accepted that he owed it (reason 15). The judgment contains no order about the principal, and the order of 12 February 2026, varying the costs orders, records it as conceded and paid.

Interest already paid is a third category, and no published order returns it. The order of 5 April 2022 records the lender's pleading that USD 49,595 had been paid towards the loan-period interest, the judgment makes no order about it, and the February 2026 order records that the borrower's refund application was rejected in January 2026 as a fresh claim. Whether such a sum could be claimed is not decided.

Key takeaway. The licence point defeated the interest, not the debt. In CFI 055/2020 the borrower conceded the USD 1,298,977 principal by a consent order before trial, it is recorded as paid, and the Court treated the principal and the interest as separate issues. Decide early what you concede and what you fight.

Did the lender appeal, and what has the Court ordered since?

It tried twice and failed twice. An appeal notice of 18 October 2023 was refused by the trial judge on 12 March 2024, and a renewed application was dismissed by the Chief Justice on 15 May 2024. His reasons agreed that the loan breached the lender's own articles, the JAFZA Regulations and the Central Bank law, that those grounds were more than sufficient, and that no court applying the common law will enforce an illegal transaction. A refusal of permission is not a merits judgment, but it leaves the judgment standing. Searches of the DIFC Courts' published lists and of the Conflicts of Jurisdiction Tribunal's published decisions found no Court of Appeal judgment on the merits and no Tribunal application concerning this claim at the time of writing.

Costs followed the event under Rule 38.7(1) of the Rules of the DIFC Courts: indemnity costs were refused and the lender was ordered to pay the borrower's costs on the standard basis (reasons 51 to 55). On 7 February 2025 the Court ordered USD 445,450 on account before assessment (Rule 38.14 in the order, 38.13 in the current Part 38). On 12 February 2026 it varied the costs orders: the borrower pays the lender's costs of the principal claim up to 15 June 2023, and the lender pays the borrower's costs of the interest claim. By 6 July 2026 the sum on account was still unpaid, the borrower was enforcing it through the Dubai Courts, and the Court stayed his obligation to commence detailed assessment while the lender remains in default.

What should you do when the claim form arrives?

1. Fix the deadlines from the date and place of service, and file through the e-filing portal.
2. Identify the lender exactly: registry, memorandum and articles, permitted activities, and the regulations that bind it.
3. Ask whether it holds a Central Bank licence, approval or exemption to provide credit, and plead the absence if it holds none.
4. Read the loan agreement for jurisdiction, governing law, interest and default interest, any security cheque and any costs clause.
5. Separate the principal from the interest and decide early what you concede.
6. Plead illegality and lack of capacity from the documents: the memorandum, the regulations and the absence of any licence or application for one.
7. Keep every payment record. Partial payments here were credited against interest, and a later refund application was refused as a fresh claim.
8. Budget for the costs stage: a standard-basis order, a payment on account, detailed assessment, and enforcement if the lender does not pay.

Deadline warning. The borrower in CFI 055/2020 nearly lost by default. Served in Dubai on 6 July 2020, he filed no acknowledgment of service, his lawyers emailed a reply memo to the Registry on 9 August 2020 without e-filing it, and default judgment followed on 1 September 2020. The Court of Appeal set it aside only on 18 November 2021, holding that the memo was a document purporting to be a defence, filed in time. It recorded 45 days to defend a claim form served outside the DIFC under the Rules as then numbered. Check the current Rules and e-file.

What matters in practice is the order of the Court's questions. It started with the lender, not the rate: what it was, what its memorandum allowed, what the free zone rules allowed, and whether the Central Bank had licensed it to provide credit. Build the defence in the same order, from the registry extract outwards, and expect the three arguments that failed here: not a bank, a one-off, a sophisticated borrower.

What does this judgment not decide?

The limits of the decision, as cards.

Nor does it say what happens where two individuals lend between themselves, where the lender is licensed by a financial free zone regulator, where a licence had been applied for, where the agreement names another governing law, or where paid interest is claimed back. Each is a different case.

Frequently Asked Questions

The lender is a free zone company. Does that alone make the interest unenforceable? No. The Court's reasons in CFI 055/2020 were specific: the lender's own memorandum barred business with UAE residents and banking business, the JAFZA offshore regulations then in force barred commercial activity in the UAE, and the lender held no Central Bank licence, approval or exemption for providing credit facilities. Each of those is a fact about the lender in front of you, to be proved from its documents and the current texts.

Do I still have to repay the principal? Nothing in CFI 055/2020 says otherwise. The borrower conceded the principal before trial, a consent order of 15 June 2023 required him to pay USD 1,298,977 by 10 July 2023, the Court's order of 12 February 2026 records it as paid, and the judgment treats liability for the principal and liability for the interest as separate issues.

Can I recover interest I already paid? The published orders do not show it. The lender's pleading, as recorded in the order of 5 April 2022, credited USD 49,595 paid towards loan-period interest, the judgment makes no order about it, and an application the February 2026 order calls a refund application was rejected in January 2026 as a fresh claim. Whether such a sum can be claimed, and on what basis, was not decided.

My loan agreement names the DIFC Courts but no governing law. Which law applies? In this case DIFC law, under Article 6 of the Judicial Authority Law then in force and Article 10 of DIFC Law No. 10 of 2005, which sends a contract that names no governing law to DIFC law. Today Article 23 of Dubai Law No. 2 of 2025 applies the DIFC laws unless the parties expressly agreed another law, and Article 8(2) of the Application Law, DIFC Law No. 3 of 2004, sets the order in which other laws come before DIFC law, including the law most closely related to the facts and the persons. The judgment did not discuss how the two provisions fit, so the point remains open.

Did the Court decide that 24 percent interest is too high? No. It said that, having found the lending unlawful, it did not need to assess whether the rate was unconscionable or punitive, and that the claim failed not because the rate was oppressive but because the whole activity was illegal (reasons 46 and 50).

Can the lender still appeal? Permission to appeal was refused on 12 March 2024 and, on a renewed application, on 15 May 2024, and no Court of Appeal judgment on the merits or Conflicts of Jurisdiction Tribunal application concerning the claim was found in the published lists at the time of writing. The later published orders deal with permission to appeal and costs.

Is lending at interest without a licence still prohibited? The provisions the Court applied have been re-enacted under new numbers. Federal Decree-Law No. 6 of 2025, in force from 16 September 2025, provides in Article 60 that no person may carry on a licensed financial activity without the required licence and lists providing credit facilities of all types in Article 61(1)(b). It does not apply in the financial free zones. Whether a particular lender needed or needs a licence is a question about that lender, not one this guide answers.

What did the borrower recover in costs? An order for costs on the standard basis, a payment on account of USD 445,450 ordered on 7 February 2025 and still unpaid in July 2026, a variation in February 2026 under which he bears the lender's costs of the principal claim up to 15 June 2023 while the lender bears his costs of the interest claim, and a stay of his obligation to commence detailed assessment while he enforces the payment on account through the Dubai Courts.

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

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