CIVIL LAW AND UAE — SET-OFF (COMPENSATION) IN CIVIL OBLIGATIONS

1. Introduction

Set-off, commonly referred to in UAE legal terminology as compensation (المقاصة), is a method by which mutual debts between two persons are extinguished, wholly or partly.

The basic idea is simple:

A owes B AED 100,000, while B owes A AED 60,000. Instead of A and B paying each other separately, the two debts may be set off, leaving A owing B only AED 40,000.

Set-off therefore performs an important economic and legal function. It avoids unnecessary circulation of money, reduces litigation and simplifies the settlement of mutual obligations.

Under the current UAE Civil Transactions Law, set-off is expressly recognised and may be:

Legal or mandatory set-off;

Contractual or voluntary set-off; and

Judicial set-off.

The current law defines set-off as the extinguishment of one party's debt by a debt owed by the other party to the first party.

2. Meaning of Set-Off

Set-off occurs where:

A is creditor of B; and

B is simultaneously creditor of A.

Instead of requiring both parties to make separate payments, their debts are adjusted against each other.

Example

A owes B:

AED 500,000

B owes A:

AED 300,000

After set-off:

AED 500,000 – AED 300,000 = AED 200,000

Therefore, A remains liable to B for AED 200,000.

Set-off is therefore sometimes described as payment by mutual extinction of debts.

3. Current UAE Legal Framework

The principal current provisions are contained in Articles 319–322 of the 2025 Civil Transactions Law.

Article 319

The current law recognises three forms:

legal set-off;

contractual set-off; and

judicial set-off.

Article 320

Legal set-off requires:

Both parties to be creditor and debtor of each other;

The two debts to be identical in kind and description;

The debts to be mature/due;

The debts to have equivalent legal strength or status; and

The set-off must not prejudice third-party rights.

Article 321

Certain obligations cannot automatically be extinguished through legal set-off, including specified obligations involving unlawfully taken property, deposits or loans for use, non-attachable rights, and claims for bodily-injury compensation.

Article 322

Where the conditions for legal set-off are not satisfied, the parties may nevertheless agree to a contractual set-off.

These provisions are particularly important because they distinguish automatic legal set-off from set-off based on agreement.

4. Objects and Purpose of Set-Off

Set-off serves several purposes.

A. Simplification of payment

It eliminates the need for two separate payments.

B. Reduction of litigation

The parties can calculate a single net balance.

C. Protection against double payment

A creditor does not need to pay another person while simultaneously trying to recover an equivalent debt from that person.

D. Commercial efficiency

Set-off is especially important in:

banking;

construction;

supply contracts;

employment relationships;

investment transactions;

leasing;

corporate transactions; and

continuing commercial relationships.

E. Reduction of credit risk

A creditor who also owes money to the same counterparty may reduce its exposure by applying the mutual debt.

5. Types of Set-Off

A. Legal or Mandatory Set-Off

Legal set-off arises by operation of law when the statutory requirements are fulfilled.

The parties do not need a separate contract creating the right.

Main requirements

There must be:

mutuality;

debts of the appropriate kind;

maturity;

sufficient certainty/equality of legal status; and

no prejudice to third parties.

6. Mutuality of Debts

Mutuality is fundamental.

The same two persons must be:

creditor and debtor of each other.

Example

A owes B AED 1 million.

B owes A AED 400,000.

There is mutuality.

But if:

A owes B AED 1 million; and

C owes A AED 400,000,

ordinary legal set-off between A and B cannot automatically be claimed because the debts are not mutually owed between the same parties.

The UAE courts have repeatedly treated mutuality as an essential element of legal set-off.

7. Same Kind and Description

The debts normally need to be of the same type.

For example:

money against money is the clearest case.

A monetary debt generally cannot automatically be set off against an obligation to deliver a specific machine merely because both have financial value.

The statutory requirement is designed to make the process legally certain.

8. Maturity of the Debts

The debts must ordinarily be due for performance.

A future debt cannot normally be treated as though it were already payable merely because it is expected to become due later.

Example

A owes B AED 500,000 payable today.

B owes A AED 300,000 payable next year.

Automatic legal set-off may not operate merely because both obligations exist.

This protects the contractual maturity arrangements agreed by the parties.

9. Certainty and Amount of the Debt

A major issue in UAE jurisprudence is whether the counter-debt is sufficiently certain and quantified.

The Dubai Court of Cassation has recognised the distinction between:

a debt that is established, due and ascertainable; and

a disputed or unquantified claim requiring substantial investigation.

This principle is particularly important for legal set-off.

10. Contractual or Voluntary Set-Off

The parties may agree to set off their obligations even where the strict requirements for legal set-off are not satisfied.

Under Article 322 of the current Civil Transactions Law, contractual set-off can operate by agreement when the requirements for legal set-off are absent.

Example

A owes B AED 100,000.

B owes A AED 80,000, but B's debt is not yet technically mature.

The parties may agree:

"The parties agree that AED 80,000 shall be treated as set off against A's debt of AED 100,000."

The remaining balance is AED 20,000.

11. Judicial Set-Off

Judicial set-off occurs through the court.

It is particularly relevant where the counterclaim requires judicial determination.

A party may ask the court to determine:

whether the counter-debt exists;

its amount;

whether it is legally enforceable; and

whether it should be set off against the claimant's debt.

The judicial form is therefore important where the counterclaim is disputed.

12. Legal Set-Off vs Judicial Set-Off

13. Effect of Set-Off

When validly applied, set-off extinguishes the debts to the extent of the smaller debt.

Example

A owes B:

AED 700,000.

B owes A:

AED 450,000.

After set-off:

AED 700,000 – AED 450,000 = AED 250,000

Thus:

B's AED 450,000 debt is extinguished;

A's debt is reduced to AED 250,000.

Set-off therefore produces a net balance.

14. Set-Off and Third-Party Rights

Set-off cannot be used in a manner that unfairly prejudices third parties.

This is expressly reflected in the current statutory conditions.

For example, where a debt has become subject to rights of a third party, assignment, attachment or other legally protected interests, the parties cannot necessarily defeat those rights simply by asserting set-off.

Third-party protection is therefore an important limitation.

15. Obligations Excluded from Automatic Legal Set-Off

Article 321 of the current law identifies circumstances in which legal set-off does not operate automatically. These include, among other matters:

property unlawfully taken from its owner and required to be returned;

property deposited or lent for use;

rights that are not subject to attachment; and

claims for compensation for bodily injury.

The rationale is that some obligations possess a special legal character and should not be defeated merely through ordinary debt accounting.

16. Set-Off and Compensation

The term "compensation" in this context should not be confused with compensation for tortious or contractual damage.

There are two different concepts:

Set-off / Compensation

Extinguishment of mutual debts.

Damages / Compensation for Loss

Money awarded to compensate a person for:

breach of contract;

negligence;

injury;

property damage; or

other legally recognised harm.

Therefore:

Set-off is a method of extinguishing obligations; damages are a remedy for legally compensable loss.

17. SET-OFF AND CONTRACTUAL CLAIMS

Suppose:

A contractor claims AED 1 million from an employer.

The employer says:

the contractor owes AED 300,000 for defective work.

The employer may seek to have the AED 300,000 counterclaim set off against the contractor's claim.

If properly established:

AED 1,000,000 – AED 300,000 = AED 700,000

The precise result depends on whether the employer establishes the counterclaim and whether the procedural requirements for judicial set-off are satisfied.

18. Important UAE Case Laws

Because the current Civil Transactions Law entered into force only on 1 June 2026, many important judicial authorities on set-off were decided under the former 1985 Civil Transactions Law. Those decisions remain useful for understanding established UAE jurisprudence, subject to checking the corresponding provisions of the current law and any transitional rules.

Case 1: Dubai Court of Cassation — Commercial Appeal No. 77 of 2011

Principle

The Dubai Court of Cassation held that legal set-off requires the relevant debt to be sufficiently established, due and ascertainable.

A dispute over the existence or amount of the debt may prevent automatic legal set-off.

Importance

This is one of the principal UAE authorities concerning the distinction between:

an established debt; and

a disputed claim requiring expert examination.

The DIFC Court of Appeal later discussed this Dubai Court of Cassation authority in Investment Group Private Limited v Standard Chartered Bank and explained that the earlier Dubai case concerned mandatory/legal set-off rather than judicial set-off.

Relevance

The case demonstrates why a party cannot simply label an unproven counterclaim as a legally enforceable debt and automatically deduct it.

Case 2: Dubai Court of Cassation — Labour Appeal No. 129 of 2009

Principle

The Dubai jurisprudence distinguishes legal set-off from judicial set-off.

The decision has been discussed in later UAE jurisprudence concerning the different requirements applicable to the two forms.

Importance

It demonstrates that a disputed counterclaim may require judicial examination rather than automatically extinguishing the principal debt.

Relevance

The distinction is particularly useful in employment and contractual disputes where one party alleges deductions or counter-obligations.

The DIFC Court of Appeal expressly referred to Dubai Court of Cassation Labour Appeal No. 129/2009 when analysing the distinction between mandatory and judicial set-off.

Case 3: Dubai Court of Cassation — Civil Appeal No. 6 of 2023

Facts

The dispute involved an employment claim by an employee against Emirates Airline. The employer submitted a counterclaim seeking judicial set-off for an amount allegedly owed by the employee.

The proceedings involved expert evidence and calculation of the respective amounts.

Principle

The Dubai Court of Cassation recognised that a judicial set-off may be granted where the relevant counter-debt is established through the evidence and expert assessment.

The case also demonstrates the importance of the trial court's assessment of expert evidence.

Importance

The court ultimately accepted the calculation that resulted in deduction of the amount established as due to the employer.

Relevance

The case is useful for showing how set-off can operate in employment litigation when the opposing debts are established through accounting evidence.

Case 4: Dubai Court of Cassation — Commercial Appeal Nos. 100 and 105 of 2025

Facts

The defendant argued that he was himself a creditor of the claimant for approximately AED 27 million and sought a set-off against amounts claimed by the other party.

He relied, among other things, on a WhatsApp message and requested further expert examination.

Principle

The Dubai Court of Cassation emphasised that a request for judicial set-off is a positive procedural claim.

It must be properly presented before the court of first instance, either:

through the ordinary procedure;

as a proper incidental claim; or

in another legally recognised procedural form, together with any applicable court fee.

A party cannot simply make an informal argument about a counter-debt and expect the court automatically to grant judicial set-off.

Importance

The judgment also emphasised that courts do not normally grant set-off on their own initiative merely because the factual record might suggest mutual debts.

Relevance

This is an important modern authority on the procedural requirements of judicial set-off.

Case 5: Investment Group Private Limited v Standard Chartered Bank — DIFC CFI 026/2014

Facts

Investment Group argued that amounts allegedly owed to it should be set off against Standard Chartered Bank's claim.

The counterclaim required further assessment and was not a straightforward liquidated debt.

Principle

The DIFC Court considered Articles 369–372 of the then UAE Civil Code and distinguished:

mandatory set-off;

judicial set-off; and

equitable set-off under the applicable governing law.

The court found difficulties with set-off where the alleged counterclaim was not a sufficiently established or quantified debt.

Importance

The case is particularly useful because it demonstrates the interaction between UAE Civil Code concepts and contractual governing-law provisions.

Relevance

It should be remembered that this was a DIFC decision, not a binding mainland UAE Court of Cassation judgment.

Case 6: Investment Group Private Limited v Standard Chartered Bank — DIFC CA-002-2018

Facts

The case went on appeal from the earlier DIFC proceedings.

The Court of Appeal examined the requirements for mandatory and judicial set-off and considered the significance of Dubai Court of Cassation Case No. 77/2011.

Principle

The DIFC Court of Appeal explained that the Dubai Court of Cassation decision concerning a debt being "indisputable, payable and known" related specifically to mandatory/legal set-off.

It should not automatically be treated as imposing the identical test on judicial set-off.

Importance

This is an important authority for understanding the doctrinal difference between:

automatic legal set-off; and

judicial set-off.

Relevance

It prevents the two concepts from being treated as interchangeable.

Case 7: Corinth Pipeworks SA v Barclays Bank Plc & Others — DIFC CFI 024/2010

Facts

The dispute involved substantial contractual claims and cross-claims.

In related Dubai Court proceedings, Corinth was found liable to Afras/Kumar for commission payments, while Afras/Kumar owed Corinth a larger amount. The Dubai Court of Appeal applied a set-off and calculated a remaining balance.

Principle

The case illustrates the practical operation of set-off where both parties have substantial monetary claims arising from connected commercial dealings.

Importance

The court recognised the significance of the earlier Dubai proceedings and the resulting net balance.

Relevance

It demonstrates how set-off can prevent double accounting where reciprocal monetary claims exist.

This was a DIFC proceeding and should therefore be treated as an illustrative DIFC authority rather than a mainland UAE precedent.

Case 8: Ward Holdings Ltd v Meshico Corporation — DIFC CFI 015/2025

Principle

The DIFC Court discussed equitable set-off, referring to the requirement that the cross-claim be closely connected with the principal claim and that it may be unjust to enforce the principal claim without considering the cross-claim.

The judgment also referred to the DIFC Court of Appeal's decision in Investment Group Private Limited v Standard Chartered Bank.

Importance

The case shows that set-off principles can depend upon the governing law and the legal system applicable to the dispute.

Relevance

It is particularly useful for modern commercial disputes involving closely connected contractual claims.

19. Set-Off in Banking Transactions

Set-off is highly significant in banking.

A bank may have:

a loan claim against a customer; and

another account or obligation involving the same customer.

However, contractual provisions may regulate or exclude set-off.

The parties may therefore include an anti-set-off clause.

In Investment Group v Standard Chartered Bank, the DIFC Court considered an express contractual provision requiring payments to be made without deduction for set-off or counterclaim.

Therefore, lawyers must examine:

governing law;

contractual set-off clauses;

whether the clause is enforceable;

nature of the debts;

applicable insolvency legislation; and

whether third-party rights are affected.

20. Set-Off in Insolvency

Set-off becomes particularly important when a debtor becomes insolvent.

The reason is obvious.

If:

A owes an insolvent company AED 1 million; and

the insolvent company owes A AED 700,000,

A may seek to avoid paying the full AED 1 million while recovering AED 700,000 separately.

Special insolvency rules may regulate or restrict such set-off.

The current UAE insolvency legislation contains specific provisions concerning set-off following commencement of insolvency proceedings. For example, the legislation regulates set-off of debts arising after the commencement of proceedings and subjects such transactions to the statutory insolvency framework.

Therefore:

General Civil Transactions Law set-off rules must not be considered in isolation where insolvency proceedings are involved.

21. Set-Off and Netting

Set-off and netting are related but not identical.

Set-off

Usually concerns mutual obligations between two parties.

Netting

May involve a contractual framework under which multiple financial obligations are calculated and reduced to a single net amount.

The UAE has also enacted a dedicated Federal Decree-Law No. 31 of 2024 Regarding Netting, particularly relevant to qualified financial contracts and financial-market transactions.

That legislation provides special protection for qualifying netting arrangements, including in certain insolvency situations.

Thus:

Ordinary civil set-off and specialised financial netting should be analysed separately.

22. Set-Off and Assignment

Assignment can complicate set-off.

Suppose:

A owes B AED 500,000.

B assigns the debt to C.

A may seek to assert a set-off based on a debt allegedly owed by B.

The legal consequences can depend on:

when the counterclaim arose;

whether the assignment was notified;

whether the counterclaim existed at the relevant time;

the applicable law; and

the statutory rules concerning assignment and third-party rights.

The new Civil Transactions Law contains a modernised framework concerning assignment, making temporal and transactional analysis particularly important.

23. Set-Off and Guarantees

Set-off can also arise in relationships involving:

guarantors;

principal debtors;

creditors;

banks; and

security providers.

The key question is whether the debt relied upon for set-off is genuinely mutual between the relevant parties.

A guarantee relationship does not automatically make every debt between the principal debtor and creditor a debt between guarantor and creditor.

The principle of mutuality must therefore be carefully examined.

24. Set-Off and Third-Party Debts

Consider:

A owes B AED 1 million.

C owes A AED 1 million.

A cannot ordinarily say:

"C owes me AED 1 million, therefore I will set it off against my debt to B."

Why?

Because B and A are not mutually creditor and debtor in respect of C's obligation.

This illustrates the importance of mutuality.

25. Set-Off as a Defence

Set-off may function defensively where the defendant says:

"Even if I owe the claimant money, the claimant also owes me money, and the two obligations should be adjusted."

But there is an important procedural distinction.

A mere denial of liability is different from a positive request for judicial set-off.

The 2025 Dubai Court of Cassation commercial decision illustrates this distinction clearly: a party seeking judicial set-off must properly present the claim in the manner required by procedure.

26. Burden of Proof

A party relying upon a counter-debt must establish the legal and factual basis of that debt.

Evidence may include:

contracts;

invoices;

account statements;

bank records;

acknowledgements;

correspondence;

electronic communications;

expert reports; and

other admissible evidence.

The party cannot merely assert:

"The claimant owes me money."

It must establish the debt sufficiently for the court to determine whether set-off is available.

27. Role of Experts

Experts can be particularly important in complex set-off disputes.

For example, a construction dispute may involve:

AED 20 million claimed by the contractor;

AED 7 million claimed by the employer for defects;

AED 3 million for delay;

AED 1 million for rectification costs.

The court may require expert accounting or technical evidence to determine the actual amounts.

Once the counterclaim is established, the court can determine the appropriate net balance.

The Dubai cases demonstrate that expert evidence may be central to determining whether a counterclaim is sufficiently established for set-off.

28. Set-Off and Interest

Where monetary debts bear interest, the court may need to determine:

the principal debt;

interest accrued;

date of maturity;

date from which interest runs; and

amount remaining after set-off.

The exact calculation depends on the applicable legislation, contract and judgment.

Set-off should therefore be calculated carefully rather than simply subtracting headline principal amounts.

29. Set-Off in Construction Contracts

Construction contracts frequently generate reciprocal claims.

For example:

Contractor's claim:

AED 5 million

Employer's counterclaim:

AED 1.5 million for delay

Employer's counterclaim:

AED 500,000 for defective work

Potential net amount:

AED 3 million

But the employer must establish its counterclaims.

A disputed claim requiring expert determination may not qualify as automatic legal set-off merely because it has been asserted.

Judicial set-off may provide the appropriate mechanism.

30. Set-Off in Employment Disputes

Employment disputes can also involve mutual monetary claims.

For example:

employee claims unpaid wages;

employer claims an amount allegedly owed by the employee.

However, employment law contains special protections, and not every employer claim can simply be deducted from wages.

The applicable Labour Law and mandatory employee protections must therefore be considered alongside general civil-law principles.

The Dubai Court of Cassation's employment jurisprudence demonstrates the practical importance of properly presenting judicial set-off in labour litigation.

31. Set-Off and Digital Transactions

Modern set-off disputes may involve:

electronic invoices;

digital payment records;

WhatsApp communications;

accounting software;

blockchain records; and

electronic acknowledgements.

The UAE Evidence Law recognises electronic forms of evidence, meaning that the evidentiary foundation for a set-off claim can increasingly be digital.

However, electronic evidence must still establish the existence, amount and enforceability of the counter-debt.

A WhatsApp message claiming that a debt exists is not automatically equivalent to a judicially established debt.

32. Legal Requirements — Practical Checklist

Before claiming set-off, ask:

1. Are the parties the same?

Are A and B each creditor and debtor of the other?

2. Is the debt due?

Has the debt matured?

3. Is the debt sufficiently certain?

Can its existence and amount be established?

4. Are the debts compatible?

Are they of the required type and description?

5. Are third-party rights affected?

Could the set-off prejudice an assignee, attaching creditor or other third party?

6. Is the debt specially protected?

Does it concern a category excluded from automatic legal set-off?

7. Is there a contractual set-off clause?

Does the contract permit or restrict set-off?

8. Is there an anti-set-off clause?

If so, its governing law and enforceability must be considered.

9. Is judicial set-off required?

If the counterclaim is disputed or needs determination, a formal judicial request may be necessary.

10. Is a special law applicable?

Check:

insolvency law;

labour law;

banking law;

commercial law;

financial netting legislation; and

other special legislation.

33. Legal Set-Off vs Counterclaim

These concepts should not be confused.

Set-Off

Seeks to extinguish mutual debts.

Counterclaim

Is an independent claim brought by the defendant against the claimant.

A counterclaim may ultimately support a judicial set-off, but merely alleging a counterclaim does not necessarily establish automatic legal set-off.

34. Legal Set-Off vs Payment

Payment

The debtor performs the obligation by paying the creditor.

Set-Off

The debt is extinguished because the creditor is simultaneously debtor to the other party.

Therefore, set-off is sometimes described as mutual satisfaction of debts rather than ordinary payment.

35. Legal Set-Off vs Novation

Set-Off

Two existing debts are extinguished against each other.

Novation

An existing obligation is replaced by a new obligation.

They perform different legal functions.

36. Defences Against Set-Off

A party may resist set-off by showing:

lack of mutuality;

debt not yet due;

debt not sufficiently established;

different nature of obligations;

contractual exclusion;

prejudice to third parties;

statutory exclusion;

lack of proper procedural request;

insolvency restrictions; or

absence of evidence supporting the counterclaim.

37. Importance of the 2026 Civil Transactions Law

The current position must be distinguished from the historical 1985 Code.

The UAE Government states that the new Civil Transactions Law was designed to reorganise and modernise the general foundations governing civil rights and obligations and to create a more integrated legal framework. The new legislation entered into force on 1 June 2026.

For set-off, the modern statutory framework expressly classifies set-off into:

legal;

contractual; and

judicial forms.

The current Articles 319–322 should therefore be the starting point for present-day mainland UAE analysis.

38. Mainland UAE and DIFC Distinction

An important examination point is that UAE law is not a completely uniform legal system for every jurisdiction.

Mainland UAE

The Federal Civil Transactions Law generally provides the principal civil-law framework, subject to applicable special legislation.

DIFC

The DIFC has its own legal framework and common-law-based judicial system in relevant areas.

DIFC cases concerning set-off can therefore be highly useful for comparative analysis, but they should not automatically be described as binding mainland UAE precedent.

For example, Investment Group v Standard Chartered Bank was a DIFC proceeding and discussed both UAE Civil Code provisions and applicable English-law concepts.

39. Important Principles From the Case Law

The cases collectively demonstrate the following propositions:

Principle 1

Legal set-off requires sufficiently established mutual debts.

Principle 2

A disputed or unquantified claim may not qualify for automatic legal set-off.

Principle 3

Judicial set-off is different from mandatory/legal set-off.

Principle 4

A party seeking judicial set-off must properly present the request before the court.

Principle 5

Courts generally cannot grant a positive judicial set-off claim simply because the facts might suggest mutual debts.

Principle 6

Expert evidence may be necessary to establish the amount of a counter-debt.

Principle 7

Contractual anti-set-off clauses may affect the availability of set-off, subject to the applicable governing law.

Principle 8

Special legislation, especially insolvency and financial-netting legislation, may modify ordinary set-off rules.

40. Practical Example

Suppose:

Company A claims from Company B: AED 10 million.

Company B argues:

AED 2 million for defective performance;

AED 1 million for delay;

AED 500,000 for overpayments.

Company B therefore asserts a total counterclaim of:

AED 3.5 million

If the counterclaims are established and judicial set-off is properly requested:

AED 10 million – AED 3.5 million = AED 6.5 million

The court may therefore determine the net amount rather than treating the parties as though they had completely separate payment relationships.

But if the AED 3.5 million claim is merely alleged and requires substantial investigation, automatic legal set-off may not be available.

41. Examination Answer — Short Form

Set-off or compensation is a method of extinguishing mutual debts between two parties. Under Articles 319–322 of the current UAE Civil Transactions Law, set-off may be legal, contractual or judicial. Legal set-off operates when the statutory requirements are fulfilled, including mutuality and appropriate maturity and characteristics of the debts. Contractual set-off arises by agreement, while judicial set-off is determined by the court. Set-off generally operates only to the extent of the smaller debt. Certain obligations are excluded from automatic legal set-off, including specified claims relating to unlawfully taken property, deposits, non-attachable rights and bodily injury. UAE jurisprudence also distinguishes automatic legal set-off from judicial set-off and emphasises the importance of a sufficiently established and quantified counter-debt. Dubai Court of Cassation Case No. 77/2011 and later Dubai and DIFC decisions, including Investment Group v Standard Chartered Bank, illustrate these principles.

42. Revision Points

Remember:

Set-Off = Mutual Debts → Legal Extinction → Net Balance

Three forms

Legal

Contractual

Judicial

Legal set-off generally requires

Mutuality

Same/appropriate kind

Due debts

Sufficient legal certainty

No prejudice to third parties

Judicial set-off

Requires a proper request

Can involve disputed counterclaims

May require expert evidence

Court determines the net balance

Important cases

Dubai Court of Cassation, Commercial Appeal No. 77/2011

Dubai Court of Cassation, Labour Appeal No. 129/2009

Dubai Court of Cassation, Civil Appeals Nos. 6 & 65/2023

Dubai Court of Cassation, Commercial Appeals Nos. 100 & 105/2025

Investment Group Private Limited v Standard Chartered Bank, DIFC CFI 026/2014

Investment Group Private Limited v Standard Chartered Bank, DIFC CA-002-2018

Corinth Pipeworks SA v Barclays Bank Plc, DIFC CFI 024/2010

Ward Holdings Ltd v Meshico Corporation, DIFC CFI 015/2025

43. Conclusion

Set-off is an important mechanism for the efficient extinction of civil obligations in UAE law. It prevents unnecessary reciprocal payments and converts multiple mutual obligations into a single net liability.

The current UAE Civil Transactions Law, effective from 1 June 2026, expressly recognises legal, contractual and judicial set-off. The central concept is mutuality of debts, but maturity, certainty, legal character, third-party rights and special statutory restrictions must also be considered.

UAE jurisprudence further demonstrates that automatic legal set-off and judicial set-off are not the same. A disputed or unquantified counterclaim may require judicial determination, and a party seeking judicial set-off must present it through the proper procedural mechanism.

Accordingly, in a UAE civil dispute, the correct approach is:

Identify the mutual debts → establish their legal status → determine whether legal set-off applies → check contractual and special statutory rules → properly plead judicial set-off where necessary → calculate the final net balance.