Civil Law and UAE: Breach of Contract — Core Principles

1. Introduction

Under UAE civil law, breach of contract occurs when a contracting party fails to perform an obligation in the manner, time, place, or quality required by the contract or applicable law.

The basic structure is:

Valid Contract → Contractual Obligation → Breach/Non-performance → Damage → Causation → Remedy

The UAE's current Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law, effective from 1 June 2026, places contractual consent and the parties' commitments at the centre of contract interpretation. It also expressly requires contracts to be interpreted in a manner achieving justice and good faith. (UAE Legislation)

A breach may lead to several remedies, including:

specific performance;

termination/resolution;

damages/compensation;

contractual penalties;

restitution;

interest where legally applicable; and

other relief depending on the nature of the contract and breach.

2. Meaning of Breach of Contract

A contractual breach occurs when a party does not properly perform a contractual obligation.

It may take several forms.

A. Complete non-performance

Example:

A agrees to deliver machinery to B but never delivers it.

B. Late performance

A delivers the machinery six months after the contractual deadline.

C. Defective performance

A delivers machinery, but it does not satisfy the contractual specifications.

D. Partial performance

A agrees to provide 1,000 units but supplies only 600.

E. Improper performance

The party technically performs but does so contrary to contractual requirements.

F. Anticipatory refusal or conduct indicating non-performance

A party clearly indicates that it will not perform its contractual obligations.

3. Core Principle: Contract Is Binding

The starting point is the principle commonly expressed as:

The contract is the law of the parties.

The current Civil Transactions Law places consent and the parties' contractual commitments at the centre of the contractual relationship. (UAE Legislation)

This means that once a valid contract exists, a party normally cannot simply ignore its obligations because performance has become inconvenient.

For example:

A company agrees to supply goods for AED 1 million.

After signing, the market price increases by 30%.

The supplier cannot ordinarily refuse delivery merely because the contract has become less profitable.

4. Good Faith

Good faith is a fundamental principle of UAE contract law.

Under the traditional UAE Civil Transactions Law, Article 246 provided that a contract must be performed according to its contents and consistently with good faith. The current 2025 Civil Transactions Law continues the importance of good faith in contractual interpretation and performance.

Good faith requires parties to:

perform honestly;

respect legitimate contractual expectations;

avoid deception;

cooperate where necessary for performance;

avoid abusive conduct; and

respect the legitimate interests created by the contract.

The law also recognises that contractual obligations can include matters arising from law, custom and the nature of the transaction, not merely express words. (UAE Legislation)

Simple formula

Contractual performance = Express terms + Legal implications + Custom + Good faith

5. Breach, Damage and Causation

A breach by itself does not automatically mean that every claimed loss will be compensated.

A typical contractual liability analysis requires:

1. Contractual obligation

Was there a valid obligation?

2. Breach

Did the defendant fail to perform it?

3. Damage

Did the claimant actually suffer legally compensable damage?

4. Causation

Was the damage caused by the breach?

5. Appropriate remedy

What remedy corresponds to the breach?

This can be summarised as:

Liability = Obligation + Breach + Damage + Causation

6. Specific Performance

Specific performance means requiring the defaulting party to perform the promised obligation rather than merely paying money.

Example:

A agrees to transfer a particular property to B.

A refuses.

If legal conditions are satisfied and performance remains possible, the court may consider an order requiring performance.

Specific performance is particularly important where monetary compensation cannot adequately provide the promised contractual result.

7. Termination of Contract

A serious breach may justify termination or judicial resolution of the contract.

Under the UAE framework, termination is not necessarily automatic.

The traditional Civil Transactions Law contained provisions distinguishing:

termination by mutual agreement;

termination through an express resolutory condition; and

judicial termination for breach.

This distinction remains important under UAE contractual doctrine.

A recent DIFC judgment applying UAE Civil Code principles explained that a binding contract generally cannot simply be withdrawn from except through mutual consent, court order, or a legal provision, and that an express resolutory condition must satisfy strict requirements if it is intended to operate without judicial intervention. (DIFC Courts)

8. Materiality of the Breach

Not every minor breach should necessarily result in termination.

Courts may consider:

seriousness of the breach;

importance of the obligation;

extent of non-performance;

possibility of curing the breach;

consequences for the innocent party;

contractual wording;

conduct of both parties.

Example

If a contractor delivers a building one day late where the delay causes no meaningful consequence, termination may be very different from a situation where a six-month delay destroys the commercial purpose of the contract.

Thus:

Serious breach is more likely to justify termination than trivial breach.

9. Right to Withhold Counter-Performance

In reciprocal contracts, each party has obligations corresponding to the other's obligations.

For example:

Seller: deliver goods.

Buyer: pay price.

If both obligations are due and one party refuses to perform, the other may, subject to the applicable legal conditions, have grounds to withhold its own performance.

The traditional Article 247 of the Civil Transactions Law expressly recognised this principle. (UAE Legislation)

Example

Seller refuses to deliver the contracted goods.

Buyer may have a legal basis to withhold payment rather than paying while receiving nothing.

10. Damages for Breach

Compensation is one of the principal remedies for contractual breach.

The objective is generally to compensate the innocent party for legally recognised loss caused by the breach.

Possible losses may include:

direct financial loss;

reasonable expenses;

loss resulting from delay;

costs of obtaining substitute performance;

certain consequential losses where legally recoverable;

other proven forms of damage.

The claimant normally must establish the loss rather than merely asserting that damage occurred.

11. Causation

Causation is critical.

Suppose:

A contractor delays construction.

The owner claims AED 1 million for lost business.

The court must determine:

Did the contractor's delay actually cause that loss?

If the business would have failed for an unrelated reason, the claimed loss may not be attributable to the contractual breach.

The principle is:

Breach ≠ automatic compensation for every subsequent loss.

There must be a legally sufficient connection between breach and damage.

12. Foreseeability and Scope of Loss

Contractual damages are not intended to become unlimited.

The court examines the nature of the loss and its relationship to the breach.

Relevant considerations can include:

whether the loss actually occurred;

whether it resulted from the breach;

whether it was sufficiently connected to the contractual obligation;

whether the claimant took reasonable steps to mitigate loss;

whether the claimed amount is proved.

13. Mitigation of Loss

A claimant should generally take reasonable steps to prevent unnecessary expansion of its loss.

Example

A supplier fails to deliver essential goods.

The buyer can reasonably obtain substitute goods from another supplier.

If the buyer deliberately allows losses to increase without justification, the recoverable amount may be affected.

Therefore:

The injured party should act reasonably after discovering the breach.

14. Contractual Penalty Clause

Parties may agree in advance upon compensation payable in case of breach.

This is commonly known as a:

liquidated damages clause;

agreed compensation clause; or

contractual penalty clause.

It provides certainty because the parties determine the financial consequence in advance.

However, the agreed amount is not necessarily immune from judicial review.

The court may examine the actual damage and the applicable statutory requirements.

Thus:

Agreed compensation increases contractual certainty but does not necessarily eliminate judicial control.

15. Force Majeure and External Causes

A party may avoid liability where non-performance results from circumstances legally recognised as beyond its control, depending on the applicable provisions and contractual terms.

Examples can include:

extraordinary natural events;

government prohibitions;

unexpected external events;

circumstances making performance legally or factually impossible.

However:

Difficulty is not automatically impossibility.

A party cannot normally call ordinary commercial inconvenience "force majeure."

16. Exceptional Circumstances

The UAE civil-law tradition also recognises a doctrine concerning exceptional circumstances.

The traditional Article 249 addressed situations where exceptional, unforeseeable public circumstances make performance extremely burdensome and threaten the obligor with grave loss.

The court may, according to the circumstances and after balancing the interests of the parties, adjust the obligation to restore reasonable contractual balance. (UAE Legislation)

This is different from force majeure.

Force majeure

Performance becomes impossible or legally prevented.

Exceptional circumstances

Performance may remain possible but becomes extraordinarily oppressive.

17. Good Faith and Abuse of Contractual Rights

A party cannot necessarily use a contractual right in an abusive manner.

For example:

A contract contains a technical termination provision.

One party deliberately creates a trivial technical default merely to escape an otherwise profitable long-term contract.

The court may examine:

contractual language;

purpose;

good faith;

abuse of rights;

surrounding circumstances.

UAE judicial authorities have treated good faith and abuse of rights as important principles in contractual performance. Recent UAE-law analysis also identifies Dubai Court of Cassation Judgment No. 288 of 2025 as authority concerning the content of good-faith performance. (DIFC Courts)

18. Case Laws

Case 1 — Dubai Court of Cassation, Appeal No. 469 of 2021

This case is important concerning contractual termination and express resolutory conditions.

Principle

For a contractual provision to permit automatic termination without judicial intervention, the contractual language must clearly satisfy the requirements for such an express resolutory condition.

A general termination provision should not automatically be assumed to eliminate the need for judicial intervention.

Importance

It demonstrates that:

Termination must be based on clear contractual or legal authority.

The principle was expressly discussed in the later DIFC decision in Access Group v BLS International. (DIFC Courts)

19. Case 2 — Abu Dhabi Court of Cassation, Appeal No. 261 of 2013

This case is important concerning judicial termination.

Principle

Where a party seeks judicial termination for breach, the court has authority to consider whether the contractual default justifies termination and may allow the defaulting party an opportunity to cure the breach where the applicable legal framework requires it.

Importance

It demonstrates that termination is not merely a private declaration.

The judicial process can remain important where the contract does not contain a valid automatic termination mechanism.

20. Case 3 — Dubai Commercial Cassation, Judgment No. 620 of 2013

This authority is relevant to contractual termination and compensation.

Principle

A party's attempt to bring a continuing contractual relationship to an end can have compensation consequences where the contractual or legal basis for unilateral termination is insufficient.

Importance

It reinforces the principle:

A contractual relationship cannot always be terminated simply because one party wishes to exit.

The case was cited in later UAE-law contractual analysis concerning termination and compensation. (DIFC Courts)

21. Case 4 — Dubai Commercial Cassation, Judgment No. 253 of 2024

This recent authority is relevant to termination and the consequences of ending a contractual relationship.

Principle

The contractual framework and circumstances surrounding termination must be examined before determining whether a party has a unilateral termination right and what financial consequences follow.

Importance

It demonstrates the continuing importance of:

contractual wording;

termination rights;

breach;

compensation; and

judicial interpretation.

It was discussed alongside Commercial Cassation No. 620 of 2013 in later UAE-law litigation. (DIFC Courts)

22. Case 5 — Dubai Court of Cassation, Judgment No. 288 of 2025

This is important for good-faith performance.

Principle

Good-faith performance requires more than literal compliance with isolated contractual wording. Parties should perform honestly, avoid deception, facilitate the counterparty's legitimate performance and avoid abusive exercise of contractual rights.

Importance

It shows that:

Contract law concerns not only what the contract says but also how contractual rights are exercised.

The principle was relied upon in the subsequent Access Group v BLS International decision. (DIFC Courts)

23. Case 6 — Dubai Court of Cassation, Commercial Case No. 120 of 2024

This case concerned contractual breaches and limitation periods.

The dispute involved unpaid amounts arising from contractual services.

Principle

A contractual claim must be brought within the applicable limitation period, and changes in statutory limitation rules can require careful transitional analysis.

Importance

It demonstrates another core principle:

A valid contractual claim can still be defeated or restricted by procedural/statutory time limits.

The case concerned the interaction between the former Commercial Transactions Law and the newer Commercial Transactions Law. (BSA LAW)

24. Case 7 — Dubai Court of Cassation, Case No. 33 of 2019

This authority is important for the basic elements of civil liability.

Principle

Contractual or tortious liability requires the necessary combination of:

breach/fault;

damage; and

causation.

Importance

A claimant cannot simply establish that the defendant acted wrongly.

The claimant must also establish legally relevant damage connected with that conduct.

The principle was expressly quoted in later UAE-law litigation. (DIFC Courts)

25. Case 8 — Ned v Nastasia, DIFC CFI 008/2024

This DIFC decision is useful because the underlying agreement was expressly governed by Dubai/UAE law.

The dispute concerned construction delay, defective work, accommodation expenses, and claims for stress and inconvenience.

The court distinguished between losses actually caused by the contractual delay and expenses that had been incurred before the relevant contractual completion date. (DIFC Courts)

Principle

Damages must be causally connected to the actual breach.

A claimant cannot recover expenses merely because they occurred during the general period of contractual performance.

Importance

This provides a practical illustration of:

Breach + actual causation + proof of loss = recoverable damages

26. Case 9 — Power Horse Energy GmbH v Anorka Food Industries LLC

This Dubai Court of Cassation litigation is notable for moral damages arising from breach of contract.

Principle

Under appropriate circumstances, contractual breach may produce compensable non-financial harm.

Importance

It demonstrates that the consequences of contractual breach are not necessarily limited to straightforward invoices and financial calculations.

The case has been discussed as an important UAE development concerning contractual moral damages. (FAA LLP)

27. Case-Law Summary

Note: The DIFC cases above are not Federal UAE Court precedents. They are included because they apply or discuss UAE-law principles and provide useful comparative guidance. UAE courts do not operate under a common-law doctrine of binding judicial precedent in the same way as England or the DIFC.

28. Breach of Contract: Step-by-Step Legal Test

A UAE court considering a breach claim can conceptually proceed through the following sequence:

Step 1 — Was there a valid contract?

If no valid contract exists, contractual liability normally cannot arise.

Step 2 — What exactly did the contract require?

Examine:

wording;

annexes;

specifications;

payment terms;

deadlines;

warranties;

termination provisions.

Step 3 — Was the obligation due?

A party cannot ordinarily be in default for failing to perform an obligation that has not yet become due.

Step 4 — Was there a breach?

Determine whether performance was:

absent;

late;

defective;

incomplete; or

otherwise contrary to the contract.

Step 5 — Was there justification?

Consider:

force majeure;

exceptional circumstances;

waiver;

consent to variation;

prevention by the other party;

other applicable legal defences.

Step 6 — Did damage occur?

The claimant must establish legally recognised loss.

Step 7 — Was the damage caused by the breach?

The court examines causation.

Step 8 — What remedy is appropriate?

Possible remedies include:

performance;

termination;

damages;

agreed compensation;

restitution;

other appropriate relief.

29. Breach and Remedies Table

30. Difference Between Breach and Termination

These concepts should not be confused.

Breach

A party fails to comply with a contractual obligation.

Termination

The contractual relationship is brought to an end because of a valid contractual or legal ground.

Therefore:

Every termination based on breach presupposes a relevant contractual/legal ground, but every breach does not necessarily result in termination.

A minor delay may create a damages claim without justifying termination.

31. Difference Between Breach and Force Majeure

32. Difference Between Breach and Exceptional Circumstances

Force majeure

Performance becomes impossible or legally prevented.

Exceptional circumstances

Performance remains possible but becomes extraordinarily burdensome.

Therefore:

Impossible performance → force majeure analysis

Extremely oppressive performance → exceptional-circumstances analysis

The traditional UAE Civil Transactions Law expressly recognised judicial intervention in qualifying exceptional circumstances. (UAE Legislation)

33. Practical Example

Suppose:

Company A agrees to construct a warehouse for Company B in 12 months.

The contract requires:

completion within 12 months;

specified materials;

monthly progress;

agreed compensation for delay.

A completes the warehouse after 16 months.

B suffers:

additional rental costs;

storage costs;

financing expenses;

business interruption.

The court would potentially examine:

Was the contract valid?

Was 12 months the binding completion period?

Were extensions permitted?

Was A actually late?

Was the delay justified?

Did A breach the contract?

Which losses resulted from the delay?

Did B mitigate its losses?

Is the agreed compensation clause valid?

Does the contract permit termination?

Is additional compensation available?

What amount has been proved?

This illustrates why breach is a legal process, not merely a finding that someone failed to do something.

34. Core UAE Breach-of-Contract Formula

Primary Formula

Valid Contract + Due Obligation + Breach + Damage + Causation = Contractual Liability

Remedy Formula

Contractual Liability → Performance / Termination / Compensation / Other Appropriate Remedy

Good-Faith Formula

Contractual Rights + Good Faith − Abuse = Lawful Contractual Performance

35. Important Exam Points

For an exam or legal note, remember these core principles:

A valid contract creates binding obligations.

Contractual terms are the starting point for determining liability.

Contracts must be performed in good faith.

Breach may consist of non-performance, delay, defective performance or partial performance.

Breach does not automatically establish the amount of damages.

Damage must be legally recognised and causally connected to the breach.

Specific performance may be available where appropriate.

Serious breach may justify termination.

Automatic termination clauses require careful examination of their wording and legal validity.

Contractual penalty/agreed-compensation clauses remain subject to applicable legal controls.

Force majeure can affect liability where its legal requirements are satisfied.

Exceptional circumstances can justify judicial adjustment in qualifying cases.

Good faith limits abusive exercise of contractual rights.

Limitation periods can prevent an otherwise valid contractual claim from being successfully enforced.

The claimant bears the burden of establishing the necessary factual basis for the claim.

36. Conclusion

The core UAE principle of breach of contract is that a valid contractual commitment must be respected and performed according to its terms, applicable law, custom and good faith.

The central structure can be remembered as:

Contract → Obligation → Performance → Breach → Damage → Causation → Remedy

UAE law does not treat every contractual default identically. The court considers the nature and seriousness of the breach, contractual wording, good faith, causation, actual damage, possible justification, termination provisions and appropriate remedy.

The most important practical distinction is:

A breach does not automatically mean termination, and a breach does not automatically mean that every claimed loss is recoverable.

The claimant must establish the contractual obligation, the breach, the legally relevant damage and the causal relationship between the breach and the loss. The UAE case law concerning termination, good faith, causation and damages reinforces this structured approach. (DIFC Courts)