Civil Law and UAE: Breakup of Negotiations — Civil Liability Issues

1. Introduction

Breakup of negotiations refers to a situation where parties negotiate a possible contract but one party ends the negotiations before a final agreement is concluded.

The central legal question is:

Can a party be held civilly liable for breaking off negotiations even though the final contract was never concluded?

Under UAE civil law, the general answer is yes, in appropriate circumstances, but mere withdrawal from negotiations does not automatically create liability.

The distinction is important:

Freedom to negotiate + freedom to withdraw − bad faith/abuse = lawful termination of negotiations

Where a party negotiates in bad faith, creates a legitimate reliance on imminent conclusion, deliberately wastes the other party's resources, or uses negotiations for an improper purpose, civil liability may potentially arise.

However, the claimant normally cannot recover the expected profit from a contract that was never concluded merely because negotiations broke down.

2. Nature of Pre-Contractual Liability

Pre-contractual liability is sometimes described as culpa in contrahendo.

It concerns wrongful conduct occurring before the final contract is concluded.

Examples include:

• deliberately misleading the other party;
• negotiating without genuine intention to contract;
• concealing material information;
• falsely representing that approval has been obtained;
• inducing expensive preparations while secretly intending to withdraw;
• using confidential information obtained during negotiations;
• breaking off negotiations at an advanced stage in circumstances amounting to bad faith.

The important distinction is:

Contractual liability

There is a valid contract → contractual obligation → breach.

Pre-contractual liability

No final contract exists → wrongful negotiation conduct → possible civil liability under applicable UAE principles.

3. UAE Civil-Law Framework

The UAE Civil Transactions Law provides the broader principles governing civil obligations, harmful conduct, good faith, abuse of rights and contractual formation.

The current Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law, effective from 1 June 2026, is now the principal federal civil-law framework.

A negotiation dispute must therefore be analysed through several concepts rather than through a single statutory rule called "broken negotiations."

The relevant principles include:

1. freedom of contract;
2. good faith;
3. abuse of rights;
4. harmful acts;
5. causation;
6. compensation;
7. unjust enrichment where applicable;
8. proof of damage; and
9. contractual formation.

4. Negotiations Do Not Normally Create a Contract

The first principle is fundamental.

Negotiation is not the same as agreement.

For example:

A: "I may sell the property for AED 10 million."

B: "I agree."

If important matters remain unresolved, there may be no concluded contract.

Similarly:

• term sheets;
• letters of intent;
• heads of terms;
• memoranda of understanding;
• draft agreements;
• emails marked "subject to contract"

may not necessarily constitute the final contract.

The court examines the intention of the parties and the legal requirements for formation, rather than relying solely on labels.

5. Freedom to Withdraw

A party generally retains freedom to stop negotiations.

This principle protects commercial freedom.

A person should not be forced to conclude a contract simply because negotiations have continued for a long period.

For example:

A company negotiates for six months to acquire another company.

After due diligence, it decides that the acquisition is commercially unattractive.

It may generally withdraw.

Therefore:

Withdrawal ≠ automatically wrongful conduct.

There must be something more.

6. When Withdrawal May Become Wrongful

Civil liability becomes more plausible where the withdrawal is accompanied by bad faith or other legally wrongful conduct.

Examples:

1. No genuine intention to contract

A party negotiates only to obtain confidential information.

2. Deliberate deception

A party falsely states that regulatory approval has already been obtained.

3. Strategic manipulation

A party encourages the other side to spend substantial amounts while secretly negotiating with another party.

4. Abrupt withdrawal after creating serious reliance

The circumstances may show that the withdrawing party deliberately created a reasonable expectation that conclusion was virtually certain.

5. Misuse of confidential information

Information obtained during negotiations is improperly used against the other party.

6. Fraudulent inducement

False representations cause the other party to incur expenditure.

7. Good Faith in Negotiations

Good faith is one of the most important concepts in analysing broken negotiations.

Good faith does not necessarily mean:

"I must eventually sign the contract."

Instead, it may require:

• honesty;
• consistency;
• non-deception;
• respect for legitimate negotiation processes;
• avoidance of fraudulent conduct;
• appropriate treatment of confidential information.

A party may therefore negotiate seriously and still ultimately withdraw.

The problem arises where:

Withdrawal is used as part of dishonest or abusive conduct.

8. No General Duty to Conclude a Contract

This is a crucial limitation.

Negotiating parties generally remain free to say:

"We have decided not to proceed."

The law should not convert every failed negotiation into litigation.

Otherwise, commercial parties would become reluctant to negotiate.

Therefore:

Good faith ≠ compulsory agreement.

A party can act in good faith and still decide:

• price is too high;
• risk is unacceptable;
• financing failed;
• due diligence revealed problems;
• management changed its strategy;
• another investment became preferable.

9. Reliance Expenditure

One of the most important questions concerns expenses incurred during negotiations.

Suppose:

Company A negotiates with Company B for a major project.

B spends:

• AED 500,000 on consultants;
• AED 200,000 on architects;
• AED 100,000 on legal fees.

A then withdraws.

Can B automatically recover AED 800,000?

No.

The court must determine:

1. Was the expenditure reasonably connected with the negotiations?
2. Did A induce or cause the expenditure?
3. Was A acting wrongfully?
4. Was B aware that negotiations were still conditional?
5. Was the expenditure reasonable?
6. Was the loss caused by A's wrongful conduct?

10. Expectation Loss vs Reliance Loss

This is one of the most important distinctions.

A. Expectation loss

The profit the claimant expected from the contract.

Example:

"If the contract had been signed, I would have earned AED 5 million."

This is generally difficult to recover when no final contract was concluded.

B. Reliance loss

Money actually spent because of the negotiations.

Example:

• legal expenses;
• consultant fees;
• technical studies;
• travel expenses;
• due-diligence costs.

These may potentially be recoverable if the claimant establishes wrongful conduct and causation.

Simple formula

Pre-contractual damages generally focus more strongly on reliance loss than on hypothetical contractual profits.

11. Lost Opportunity

A claimant may also allege that negotiations caused it to lose another opportunity.

For example:

Company A tells Company B:

"Do not negotiate with anyone else; our transaction is almost complete."

B rejects another offer.

A later withdraws.

B may attempt to claim loss of opportunity.

But the claimant must prove the loss and the causal connection.

Courts will not normally award speculative amounts merely because a hypothetical opportunity existed.

12. Confidentiality During Negotiations

Negotiations frequently involve confidential information.

Examples:

• financial statements;
• customer lists;
• business plans;
• technology;
• trade secrets;
• pricing information;
• acquisition strategies.

Even where the final contract is never concluded, the parties may have obligations arising from:

• confidentiality agreements;
• express contractual provisions;
• applicable legislation;
• harmful conduct;
• good faith;
• intellectual-property or trade-secret rules.

Therefore:

Failure to conclude the contract does not necessarily eliminate all legal obligations created during negotiations.

13. Letters of Intent

A Letter of Intent (LOI) may have different legal effects.

It can be:

Type 1 — Non-binding

It records intentions but does not create an obligation to conclude the transaction.

Type 2 — Partially binding

Certain clauses are binding, such as:

• confidentiality;
• exclusivity;
• dispute resolution;
• costs.

Type 3 — Substantively binding

The document may contain sufficiently complete terms and clear intention to create legal obligations.

Therefore, the label "LOI" does not automatically answer the legal question.

The court examines:

• wording;
• intention;
• certainty;
• essential terms;
• conduct;
• surrounding circumstances.

14. Memorandum of Understanding

An MOU can create similar problems.

The question is:

Was the MOU intended to be legally binding or merely an agreement to negotiate?

If the parties expressly state:

"This MOU is non-binding and subject to execution of a definitive agreement"

the argument for a concluded contract becomes weaker.

But individual provisions may still be binding if the document clearly makes them so.

15. Exclusivity Agreements

An exclusivity agreement is different from a simple agreement to negotiate.

Suppose:

A agrees:

"For 90 days, I will negotiate exclusively with B."

A then negotiates with C during that period.

Even if the main transaction with B was never concluded, A may have breached the separate exclusivity obligation.

Therefore:

No final sale contract does not necessarily mean no legal obligation existed.

16. Breakup of Negotiations and Abuse of Rights

The UAE civil-law concept of abuse of rights may become relevant where a party uses a legally permissible power for an improper purpose.

A person may have the freedom to withdraw.

But the manner and circumstances of withdrawal may matter.

For example:

• negotiating solely to obtain confidential information;
• intentionally causing another party to spend money;
• misleading the other party about the certainty of the transaction.

The legal analysis therefore distinguishes:

Legitimate withdrawal

from

abusive or wrongful withdrawal.

17. Civil Liability Test

A useful UAE framework is:

Step 1 — Negotiations existed

There must be an identifiable negotiation relationship.

Step 2 — Wrongful conduct

The defendant acted in bad faith or otherwise violated a legally protected interest.

Step 3 — Damage

The claimant suffered actual legally recognised loss.

Step 4 — Causation

The loss resulted from the defendant's conduct.

Step 5 — No adequate justification

The defendant cannot rely on a legitimate contractual or legal right to explain the conduct.

Formula

Wrongful Negotiation Conduct + Damage + Causation = Potential Pre-Contractual Liability

18. Case Laws

A significant qualification is necessary:

UAE reported case law specifically titled "culpa in contrahendo" or "breakup of negotiations" is relatively limited.

Therefore, the following authorities provide the relevant UAE principles through contract formation, good faith, harmful conduct, causation, abuse of rights, evidence and damages. They should not all be described as direct broken-negotiation precedents.

Case 1 — Dubai Court of Cassation, Civil Cassation No. 288 of 2025

This recent decision is particularly useful concerning good-faith performance of legal relationships.

Principle

Good faith requires parties to deal honestly and not use contractual or legal mechanisms in an abusive manner.

Relevance to negotiations

The principle can extend conceptually to pre-contractual dealings.

A party should not use negotiations deceptively merely to obtain an improper advantage.

However, good faith does not eliminate the freedom to ultimately refuse the proposed transaction.

Lesson

Good faith regulates the manner of negotiation; it does not necessarily impose a duty to conclude the contract.

19. Case 2 — Dubai Court of Cassation, Civil Cassation No. 468 of 2024

This case concerned WhatsApp communications relating to a substantial loan transaction.

The Court treated electronic communications as potentially significant evidence where their authenticity and connection to the parties were established.

Relevance to broken negotiations

Pre-contractual disputes are often proved through:

• WhatsApp;
• emails;
• draft contracts;
• messages;
• meeting records.

The case demonstrates that communications during negotiations can become important evidence concerning:

• representations;
• promises;
• admissions;
• intention;
• chronology.

Lesson

Negotiation conduct must be proved through reliable evidence, not merely alleged.

20. Case 3 — Dubai Court of Cassation, Civil Cassation No. 79 of 2020

This authority concerns admissions and evidentiary assessment.

Principle

A clear and certain admission can have binding significance, while the court must assess the evidence properly.

Relevance

Suppose a party writes:

"The contract is effectively agreed; only signing remains."

Such a statement might become important evidence, but the court must determine whether it constitutes:

• a binding admission;
• negotiation language;
• a conditional statement; or
• a statement concerning future agreement.

Lesson

The legal effect of negotiation communications depends upon their actual meaning and context.

21. Case 4 — Dubai Court of Cassation, Civil Cassation No. 647 of 2021

The Court emphasised the obligation of a judgment to properly address material evidence and significant defences.

Relevance

In a broken-negotiation claim, the court may need to examine:

• emails;
• draft agreements;
• letters of intent;
• payment records;
• meeting minutes;
• expert reports;
• confidentiality agreements.

A court cannot simply decide:

"No contract existed, therefore nothing can be claimed."

It must consider whether a separate legal obligation or wrongful conduct existed during negotiations.

Lesson

Absence of a final contract does not necessarily eliminate every possible civil claim.

22. Case 5 — Dubai Court of Cassation, Civil Cassation No. 33 of 2019

This case is relevant to the basic structure of civil liability.

Principle

Liability requires the legally necessary relationship between:

• wrongful conduct/fault;
• damage; and
• causation.

Relevance

For pre-contractual liability, the claimant must establish more than:

"The other party withdrew."

The claimant should demonstrate:

wrongful conduct → actual damage → causal connection.

Lesson

Breakup alone is insufficient; legally wrongful conduct and resulting damage must be established.

23. Case 6 — Federal Supreme Court, Civil Case No. 99, Judicial Year 16 (17 December 1995)

This Federal Supreme Court decision is important for harmful-act liability.

The Court discussed the principles concerning:

• harmful conduct;
• direct and causal damage;
• causation;
• external causes;
• removal of harm.

Relevance

Where negotiations cause damage through conduct independent of a final contract, the harmful-act principles may become relevant.

For example:

A party intentionally gives false information to induce the other party to spend money.

Even if no final contract exists, the conduct may potentially be analysed through civil liability principles.

Lesson

A civil wrong can exist even where a contractual relationship has not matured into a final contract.

24. Case 7 — Dubai Court of Cassation, Commercial Cassation No. 941 of 2019

This case is important for distinguishing contractual and tortious liability and for proper legal characterisation.

Relevance

A court must determine whether a claim arises from:

• a concluded contract;
• a separate agreement;
• harmful conduct;
• another civil obligation.

This is especially important in failed negotiations.

The claimant cannot automatically label a failed negotiation as "breach of contract" when no final contract was formed.

The proper legal characterisation may instead involve:

• pre-contractual conduct;
• harmful act;
• confidentiality;
• unjust enrichment;
• breach of a separate binding clause.

Lesson

Correct legal characterisation is essential.

25. Case 8 — Dubai Court of Cassation, Civil Cassation No. 880 of 2021

This decision is relevant to compensation and legally recognised damage.

The Court recognised that compensation can cover appropriate present or future damage and, where properly established, loss of opportunity.

Relevance

In failed negotiations, a claimant might argue:

"I lost a valuable commercial opportunity because I relied upon the defendant's representations."

The case supports the proposition that loss of opportunity can be relevant when it is sufficiently established rather than merely speculative.

Lesson

Loss of opportunity must be proved; it cannot simply be assumed from failed negotiations.

26. Case-Law Summary

27. What Damages Can Potentially Be Claimed?

If wrongful negotiation conduct is established, potentially relevant losses may include:

A. Negotiation expenses

• lawyers' fees where legally recoverable;
• technical consultants;
• due diligence;
• valuation;
• feasibility studies.

B. Preparation expenses

• engineering;
• architectural studies;
• regulatory applications;
• travel.

C. Reliance losses

Expenses incurred because of reasonable reliance on the defendant's conduct.

D. Confidentiality-related damage

Loss caused by misuse of confidential information.

E. Loss of opportunity

Where adequately proved.

28. What Is Usually Difficult to Recover?

The claimant should be cautious about claiming:

Expected profits from the never-concluded contract

Example:

"I would have earned AED 10 million if the transaction had been completed."

This is difficult because the contract itself was never concluded.

The court would need a very strong legal basis to award such expectation damages.

General disappointment

"I was disappointed that negotiations failed."

Ordinary commercial disappointment is not automatically compensable.

Speculative future profits

The claimant must establish a legally sufficient factual and causal basis.

29. Reliance vs Expectation — Important Table

30. Letters of Intent — Practical Analysis

Suppose:

Company A and Company B sign:

"The parties intend to negotiate a final acquisition agreement."

The document states:

"No party shall be bound unless the definitive agreement is signed."

A spends AED 1 million.

B withdraws.

Likely question

Is A entitled to recover the AED 1 million?

The court may examine:

1. Was the LOI binding?
2. Was expenditure expressly authorised?
3. Did B make misleading representations?
4. Was B negotiating genuinely?
5. Was there an exclusivity clause?
6. Did A know negotiations remained conditional?
7. Was B's conduct abusive?
8. Did A reasonably rely on B's representations?
9. Is the loss proved?
10. Was the expenditure caused by B's conduct?

31. Negotiation Stages and Liability

The risk of liability may increase as negotiations develop, but there is no automatic legal formula based solely on how advanced negotiations are.

Stage 1 — Initial discussion

Very little reliance.

Low liability risk.

Stage 2 — Exchange of proposals

Some reliance.

Moderate risk depending on conduct.

Stage 3 — Detailed term sheet

Greater reliance.

Potentially stronger claim if misleading conduct exists.

Stage 4 — Final contract substantially agreed

High factual significance.

But still not necessarily a contract if essential matters remain unresolved or execution is expressly conditional.

Stage 5 — Formal contract signed

Now the dispute generally moves from pre-contractual liability to contractual liability.

32. Bad-Faith Negotiation Examples

Example 1 — False approval

A tells B:

"The bank has approved the financing."

B spends AED 500,000 preparing the project.

A knew financing had not been approved.

Potential civil liability.

Example 2 — Secret competing negotiations

A tells B:

"You are the exclusive prospective buyer."

At the same time A secretly negotiates with C.

If exclusivity was contractually binding, there may be contractual liability.

If not, the legal consequences depend on the surrounding conduct and applicable law.

Example 3 — Information harvesting

A pretends to negotiate an acquisition solely to obtain B's customer list.

After receiving the information, A ends negotiations and uses the list.

Potential separate civil liability.

Example 4 — Genuine commercial withdrawal

A conducts due diligence and discovers major regulatory risks.

A honestly withdraws.

No deception or wrongful conduct is established.

Normally no pre-contractual liability merely because negotiations ended.

33. Important Distinction: Bad Faith vs Commercial Change of Mind

This is perhaps the most important practical distinction.

Lawful change of mind

"After due diligence, we no longer want the transaction."

Normally legitimate.

Potential bad faith

"We never intended to purchase anything; we only negotiated to obtain your confidential information."

Potentially wrongful.

Therefore:

The law does not punish ordinary commercial decision-making. It can, however, respond to dishonest or abusive negotiation conduct.

34. Negotiation Evidence in UAE Courts

Modern negotiation disputes may involve:

• emails;
• WhatsApp;
• SMS;
• electronic signatures;
• draft contracts;
• electronic data rooms;
• meeting minutes;
• recordings where legally admissible;
• transaction records;
• letters of intent.

Under the UAE Evidence Law, electronic evidence has recognised evidentiary status.

The Dubai Court of Cassation Civil Cassation No. 468 of 2024 is particularly useful in demonstrating the evidentiary significance of authenticated WhatsApp communications.

Thus:

The chronology of negotiations can often be reconstructed electronically.

35. UAE Civil-Law Boundary

The law tries to balance two competing principles:

Principle 1 — Freedom

People must remain free to negotiate and withdraw.

Principle 2 — Responsibility

People should not be permitted to use negotiations as an instrument of fraud, abuse or wrongful harm.

The balance can be represented as:

Freedom to Negotiate

Good Faith

Protection Against Harm

=

Fair Negotiation Process

36. Comparison With Contractual Breach

37. Ten Core Principles

1. Negotiation is not automatically a contract.
2. Parties generally have freedom to withdraw.
3. Withdrawal alone normally does not establish civil liability.
4. Bad faith can transform lawful withdrawal into potentially wrongful conduct.
5. A party should not deliberately deceive another party during negotiations.
6. Separate obligations such as confidentiality or exclusivity may be binding even where the main contract is not.
7. Reliance loss is generally more logically connected to pre-contractual liability than hypothetical contract profits.
8. Damage must be proved.
9. Causation must be established.
10. The court must determine the correct legal characterisation of the claim.

38. Exam-Ready Formula

Pre-Contractual Liability Formula

Negotiations + Wrongful Conduct + Good-Faith Violation + Damage + Causation = Potential Civil Liability

No-Liability Formula

Negotiations + Genuine Withdrawal + No Deception + No Separate Breach + No Wrongful Damage = Generally No Liability

Damage Formula

Actual Proven Reliance Loss + Causally Connected Opportunity Loss = Potential Compensation

but:

Expected Profit from Unconcluded Contract ≠ Automatically Recoverable

39. Conclusion

Under UAE civil law, the breakup of negotiations is not itself a civil wrong. Commercial parties generally have the freedom to negotiate, reconsider their position and ultimately refuse to conclude a transaction.

Civil liability becomes possible where the circumstances demonstrate something more—such as:

• bad faith;
• deception;
• abuse of rights;
• misuse of confidential information;
• breach of a separate confidentiality or exclusivity obligation;
• harmful conduct;
• unreasonable inducement of reliance; or
• another legally recognised civil wrong.

The most important principle is therefore:

UAE law protects freedom of negotiation but does not necessarily protect dishonest or abusive negotiation behaviour.

Where liability is established, the focus is generally on actual, proven and causally connected loss, particularly reasonable reliance expenditure, rather than automatically awarding the profits that the claimant hoped to earn from a contract that was never concluded.

In short:

No contract + honest withdrawal = generally no liability.

No contract + wrongful/bad-faith conduct + proven damage + causation = potential pre-contractual civil liability.