Civil Law and UAE Commercial Contracts Law

1. Introduction

UAE commercial contract law is principally based on codified civil law, supplemented by special legislation governing particular sectors such as companies, commercial agencies, construction, banking, insurance, transport, employment, and arbitration.

The most important current development is that the UAE's new Civil Transactions Law, Federal Decree-Law No. 25 of 2025, entered into force on 1 June 2026 and repealed Federal Law No. 5 of 1985. Therefore, older UAE contract cases remain important for jurisprudential principles, but current disputes must be analysed against the 2026 Civil Transactions Law and applicable special legislation. (UAE Legislation)

The central structure can be expressed as:

Contract Formation → Validity → Interpretation → Performance → Good Faith → Breach → Remedies → Termination/Rescission → Compensation

2. Meaning of a Commercial Contract

A commercial contract is an agreement creating legally enforceable rights and obligations in a business or commercial context.

Examples include:

sale of goods;

distribution agreements;

commercial agency;

construction contracts;

supply agreements;

franchising;

services agreements;

technology contracts;

banking agreements;

insurance contracts;

transportation agreements;

investment agreements;

joint-venture arrangements;

shareholder-related contracts.

The UAE does not have one single statute called the “Commercial Contracts Law” covering every commercial contract.

Instead, commercial contracting is governed through a combination of:

Civil Transactions Law

Commercial legislation

Special sector legislation

Contractual terms

Commercial custom

Procedural law

Arbitration legislation

Court jurisprudence

3. Civil Law Foundation

The UAE commercial-contract system is fundamentally different from a pure common-law model.

The court begins with the applicable statutory rules and then considers:

the contract;

mandatory legal provisions;

parties' intentions;

good faith;

commercial custom;

nature of the transaction;

evidence;

consequences of breach.

The new Civil Transactions Law expressly modernises this framework, including provisions dealing with contract negotiation, interpretation, performance and remedies.

4. Pre-Contractual Negotiations

A major development under the 2026 Civil Transactions Law is the express regulation of pre-contractual conduct.

The new law provides a framework for negotiations based upon good faith.

In particular, negotiations should be initiated, conducted and terminated in good faith. The fact that negotiations take place does not itself require the parties to conclude a contract.

However, bad-faith termination of negotiations may produce liability for actual loss in appropriate circumstances.

The new law also recognises duties concerning:

disclosure of decisive information;

material information affecting consent;

confidential information obtained during negotiations.

This is particularly important for:

mergers;

joint ventures;

technology contracts;

acquisitions;

major supply agreements;

construction projects.

5. Formation of Commercial Contracts

A commercial contract generally requires the legally necessary elements of:

1. Offer

A sufficiently definite proposal to enter into an agreement.

2. Acceptance

Acceptance of the offer in the legally required manner.

3. Consent

The parties must have valid contractual consent.

4. Capacity

The parties must possess the necessary legal capacity.

5. Subject matter

The contractual subject must satisfy legal requirements.

6. Lawful purpose

The transaction cannot be based on an unlawful object or purpose.

7. Required formalities

Certain transactions require specific written, registration, notarisation or other formal requirements.

6. Commercial Contracts and Freedom of Contract

Freedom of contract is a fundamental principle.

Commercial parties are generally free to decide:

price;

payment terms;

delivery;

warranties;

limitation of liability;

termination;

dispute resolution;

governing law;

arbitration;

confidentiality;

intellectual-property ownership;

insurance;

indemnities.

But freedom of contract is not absolute.

Contractual provisions may be controlled by:

mandatory statutory provisions;

public policy;

good faith;

consumer protection;

competition law;

regulatory requirements;

rules protecting weaker parties;

illegality.

7. Good Faith

Good faith is one of the central principles of UAE contract law.

Under the former Civil Transactions Law, Article 246 expressly required contracts to be performed consistently with good faith, while also recognising obligations arising from law, custom and the nature of the transaction. The new Civil Transactions Law continues and develops this approach. (UAE Legislation)

Good faith can require a party to:

cooperate;

avoid deliberate obstruction;

disclose relevant information where legally required;

perform honestly;

avoid abusing contractual rights;

respect legitimate contractual expectations.

It does not, however, mean that courts can simply rewrite a clear commercial bargain because one party later considers it commercially disadvantageous.

8. Contract Interpretation

Contract interpretation is extremely important in UAE commercial disputes.

Under the current law, the new Civil Transactions Law contains detailed interpretation rules.

The new framework expressly emphasises:

justice and good faith;

circumstances existing when the contract was concluded;

the parties' common intention;

interpretation of ambiguous provisions;

appropriate treatment of obligations imposed on a party. (Mayer Brown)

The fundamental question is:

What did the parties legally agree to, understood in the context of the transaction?

9. Clear Contractual Language

Where contractual wording is clear, courts generally give effect to the wording rather than inventing a different bargain.

But where genuine ambiguity exists, the court can examine:

the whole contract;

surrounding circumstances;

commercial purpose;

nature of transaction;

established dealings;

customary practices;

parties' conduct.

This distinction is crucial:

Interpretation

determining what the parties agreed.

Rewriting

creating an agreement the parties never made.

Courts ordinarily perform the first, not the second.

10. Case Law 1 — Dubai Court of Cassation Petition No. 75/2015

In Dubai Court of Cassation Petition No. 75 of 2015, judgment dated 12 August 2015, the court dealt with interpretation of contractual provisions concerning a pre-arbitration amicable-settlement requirement.

The Court emphasised that contractual interpretation focuses on intentions and meanings rather than merely isolated words and form where interpretation is genuinely required. It also recognised the relevance of the transaction's nature and the parties' relationship. (Jus Mundi)

Principle

Where contractual language requires interpretation, the court seeks the parties' mutual intention rather than mechanically reading isolated words.

Commercial importance

This is particularly useful for:

complex commercial agreements;

settlement clauses;

arbitration clauses;

distribution contracts;

construction agreements.

11. Case Law 2 — Federal Supreme Court Civil Cassation No. 538/2016

Federal Supreme Court Civil Cassation No. 538 of 2016, judgment dated 18 December 2017, is an important authority concerning contractual validity, enforceability and reciprocal obligations.

The Court required examination of:

validity of the agreement;

contractual conditions;

essential obligations;

reciprocal performance.

Principle

Commercial contractual obligations must be examined as an interconnected legal relationship rather than by isolating one party's obligation from the corresponding obligation of the other party.

Example

If:

Seller → deliver infrastructure

and

Buyer → make payment

are mutually dependent, a dispute over payment cannot necessarily be determined without examining whether the seller performed its corresponding obligation.

12. Case Law 3 — Federal Supreme Court Civil Cassation No. 647/2021

In Federal Supreme Court Civil Cassation No. 647 of 2021, judgment dated 20 September 2021, the Court stressed the need for judgments to demonstrate proper understanding of the facts and evidence.

It also emphasised that a court must consider a material defence capable of changing the outcome.

Commercial-contract principle

Suppose a claimant alleges:

“The defendant breached the supply agreement.”

The defendant responds:

“The claimant itself prevented delivery by failing to provide the required specifications.”

If that defence could change the outcome, the court must properly address it.

Rule

Commercial contract disputes must be decided through reasoned evaluation of material evidence and defences.

13. Case Law 4 — Federal Supreme Court Civil Cassation No. 79/2020

In Federal Supreme Court Civil Cassation No. 79 of 2020, judgment dated 17 February 2020, the Federal Supreme Court addressed the legal effect of admissions and the duty to consider material defences.

The Court emphasised that an admission must possess the necessary certainty and cannot improperly be divided so as to ignore material qualifications.

Commercial significance

This is important where contracts are disputed through:

emails;

letters;

meeting minutes;

acknowledgments;

settlement negotiations;

payment confirmations.

A statement such as:

“We owe AED 5 million, subject to completion of the project”

cannot necessarily be treated as an unconditional admission of AED 5 million.

14. Case Law 5 — Federal Supreme Court Commercial Cassation Nos. 84 & 178/2020

In Federal Supreme Court Commercial Cassation Nos. 84 and 178 of 2020, judgment dated 7 April 2020, the Court considered termination/rescission of a bilateral contract and reciprocal performance obligations.

The Court examined whether each party had properly performed its contractual obligations.

It found that the lessor's failure to make the leased property available for the contracted use affected the reciprocal payment obligation.

The Court therefore rejected an approach that treated the lessee's non-payment in isolation from the lessor's own failure to perform. (eLaws)

Principle

In a bilateral commercial contract, the court must examine reciprocal obligations together.

Commercial importance

This principle applies broadly to:

construction;

supply;

leasing;

development;

services;

distribution agreements.

15. Case Law 6 — Dubai Court of Cassation No. 33/2019

Dubai Court of Cassation jurisprudence, including Case No. 33 of 2019, recognises the basic requirements of civil liability arising from contractual or wrongful conduct:

breach/wrongful conduct;

damage;

causal connection.

Commercial application

A party cannot simply prove:

“The other party breached the contract.”

It must establish the legally relevant consequences.

For example:

Breach: late delivery.

But compensation additionally requires proof of:

Damage: actual economic loss.

And:

Causation: the late delivery actually caused that loss.

16. Case Law 7 — Federal Supreme Court Civil Cassation No. 880/2021

In Federal Supreme Court Civil Cassation No. 880 of 2021, judgment dated 15 November 2021, the Federal Supreme Court considered principles concerning material damage, future damage and loss of opportunity.

Commercial relevance

Commercial contract damages may potentially include:

actual financial loss;

appropriate future loss;

loss of opportunity where legally established.

But the claimant must prove the damage sufficiently.

Example

A supplier's wrongful termination of a long-term contract may cause:

lost orders;

wasted investment;

additional procurement costs;

loss of commercially provable opportunities.

The court must distinguish genuine loss from speculation.

17. Case Law 8 — Federal Supreme Court Civil Cassation No. 538/2016 and Remand Principle

The same Cassation No. 538/2016 is also important for appellate practice.

Where the Federal Supreme Court determines a legal issue and remands the matter, the lower court must respect the legal determination made by the cassation court.

Commercial significance

This provides stability in lengthy commercial litigation.

For example:

First Instance

↓

Appeal

↓

Cassation

↓

Remand

The remand court cannot simply disregard the binding legal issue determined by the cassation judgment.

18. Reciprocal Obligations

Commercial contracts are frequently bilateral.

Examples:

Sale

Seller → goods
Buyer → price

Construction

Contractor → works
Employer → payment

Distribution

Distributor → sales/marketing
Principal → products/commission

Services

Service provider → services
Customer → fees

The UAE civil-law approach recognises that reciprocal obligations should be analysed together.

This is why one party's serious non-performance may affect the other party's obligation to perform.

19. Non-Performance

When one party fails to perform, the innocent party may potentially seek:

specific performance;

compensation;

termination/rescission;

restitution;

removal of an unlawful result;

contractual damages;

agreed compensation, subject to judicial control.

The precise remedy depends upon:

the contract;

type of obligation;

seriousness of breach;

possibility of performance;

damage;

statutory provisions.

20. Specific Performance

Specific performance means requiring the debtor to perform what was actually promised.

Examples:

deliver machinery;

transfer documents;

complete construction;

hand over goods;

perform agreed contractual services.

The current Civil Transactions Law expressly provides a framework favouring specific performance where possible, while allowing monetary compensation in circumstances where performance is impossible or excessively onerous under the statutory requirements.

This reflects an important civil-law feature:

The primary objective is often performance of the contractual obligation itself, not merely monetary substitution.

21. Termination or Rescission

Termination/rescission is different from damages.

Damages

The contract may remain relevant, but the injured party receives monetary compensation.

Termination/rescission

The contractual relationship is brought to an end according to applicable legal rules.

Where a bilateral contract is terminated, the parties may generally be restored to their pre-contractual positions where possible, with compensation where restoration is impossible or insufficient.

22. Force Majeure

Commercial contracts frequently contain force-majeure clauses.

Force majeure generally concerns an external event that prevents contractual performance and is beyond the party's control.

Examples can include:

natural disasters;

government prohibitions;

extraordinary external events;

major infrastructure failures;

certain unforeseen events.

The exact legal effect depends upon:

applicable statutory law;

contractual wording;

nature of the obligation;

whether performance is impossible or merely more expensive;

causation.

The new Civil Transactions Law also contains modernised provisions addressing impossibility and exceptional circumstances.

23. Hardship

Hardship differs from force majeure.

Force majeure

Performance becomes impossible or legally prevented.

Hardship

Performance remains possible but becomes exceptionally burdensome.

A commercial contract might therefore become:

technically performable but economically oppressive.

The current Civil Transactions Law provides a modern framework for dealing with such exceptional circumstances.

This is especially important for:

long-term supply contracts;

infrastructure projects;

construction;

energy contracts;

concession agreements;

major investment arrangements.

24. Contractual Penalties / Agreed Compensation

Commercial parties frequently specify compensation in advance.

Examples:

AED 100,000 per day of delay;

10% of contract value;

fixed termination payment;

liquidated damages.

Such clauses provide commercial certainty but are not necessarily immune from judicial review.

The court may consider:

actual damage;

excessive amount;

partial performance;

contribution by the creditor;

fraud or gross fault;

statutory requirements.

The current Civil Transactions Law retains a framework for judicial adjustment of agreed compensation in appropriate circumstances.

25. Limitation of Liability Clauses

Commercial contracts frequently attempt to limit liability.

Examples:

“Neither party shall be liable for indirect loss.”

or:

“Total liability shall not exceed the contract price.”

Such provisions can be commercially important.

But their validity and scope depend upon:

applicable mandatory law;

nature of the liability;

fraud;

gross fault;

public policy;

specific statutory provisions;

precise drafting.

Therefore, a limitation clause should never be treated as automatically enforceable simply because both parties signed it.

26. Standard-Form Contracts

Large commercial businesses often use standard terms.

Examples:

bank terms;

insurance policies;

logistics terms;

software licences;

construction conditions;

supplier terms.

The UAE civil-law system recognises special concerns where contracts are based on adhesion or standard terms.

The older Civil Transactions Law expressly permitted judicial intervention where an adhesion contract contained unfair provisions, and the new law modernises contractual fairness and interpretation principles.

27. Commercial Custom

Commercial practice can help determine the meaning and operation of contractual obligations.

Examples:

banking custom;

construction practice;

shipping practice;

insurance practice;

commodity trading;

distribution practice.

However:

Custom cannot normally override a mandatory statutory rule or a clear contractual provision where the law requires otherwise.

Custom primarily helps explain:

ambiguous terms;

industry practice;

implied obligations;

methods of performance.

28. Pre-Contractual Liability

The 2026 Civil Transactions Law makes this area especially important.

During negotiations, parties may exchange:

confidential business plans;

technical information;

financial projections;

customer information;

intellectual-property information.

The new law recognises duties concerning confidential information and material disclosure.

Therefore:

A party may incur legal consequences even before the final commercial contract is signed.

This is particularly significant in:

M&A transactions;

joint ventures;

technology licensing;

franchising;

major construction projects.

29. Electronic Commercial Contracts

Modern UAE commercial contracts may be concluded electronically.

Examples:

electronic signatures;

online purchase agreements;

click-wrap contracts;

electronic purchase orders;

digital invoices;

electronic communications.

Electronic evidence can therefore become critical.

A commercial dispute may require analysis of:

email chains;

electronic signatures;

system logs;

purchase orders;

digital acceptance;

electronic invoices;

messaging applications.

30. Arbitration Clauses

Commercial contracts frequently contain arbitration agreements.

A properly drafted arbitration clause should clearly identify:

arbitration agreement;

institution, if any;

seat;

applicable rules;

number of arbitrators;

language;

governing law.

The UAE courts generally distinguish between:

substantive contractual obligations

and

the contractual agreement to arbitrate disputes.

A defective or contradictory dispute-resolution clause can produce expensive jurisdictional litigation.

31. Case Law — Abu Dhabi Cassation on Conflicting Dispute-Resolution Clauses

An Abu Dhabi Court of Cassation judgment concerning conflicting contractual clauses addressed a situation in which one provision contemplated court jurisdiction while another contained a specific arbitration clause.

The court accepted the interpretive principle that a specific provision can prevail over a general provision dealing with the same subject matter, depending upon the contractual structure and parties' intention. (Al Tamimi & Company)

Principle

Commercial parties should draft dispute-resolution clauses consistently and specifically.

This is particularly important in:

construction contracts;

subcontracting;

shareholder agreements;

supply agreements;

international transactions.

32. Governing Law

International commercial contracts may specify:

UAE law;

English law;

New York law;

French law;

Singapore law;

another applicable legal system.

But selecting a foreign governing law does not necessarily exclude mandatory UAE rules.

The court or tribunal may still need to consider:

public policy;

mandatory statutory rules;

regulatory requirements;

UAE procedural law where applicable;

mandatory rules connected to the transaction.

33. Commercial Contract and Public Policy

Certain contractual arrangements cannot be enforced simply because the parties agreed to them.

The court may refuse to enforce provisions contrary to:

mandatory law;

public order;

public morality;

regulatory restrictions;

statutory prohibitions.

This represents the civil-law limitation on contractual freedom.

34. Corporate Authority

Another major commercial-contract issue is:

Did the person signing the contract have authority to bind the company?

A commercial contract can be challenged where:

signatory lacked authority;

corporate approvals were required but absent;

power of attorney was insufficient;

company constitutional documents imposed restrictions;

mandatory statutory approval was required.

This is especially important in:

guarantees;

financing;

arbitration agreements;

major asset sales;

shareholder transactions.

35. Guarantees and Commercial Contracts

Guarantees often accompany commercial contracts.

Examples:

bank guarantees;

parent-company guarantees;

personal guarantees;

performance guarantees;

payment guarantees.

The guarantee must be analysed separately from the underlying contract.

Important questions include:

What obligation is guaranteed?

Is the guarantee limited or continuing?

Does it cover future obligations?

Has the guaranteed obligation matured?

What happens after termination of the underlying contract?

36. Commercial Contract Damages

A commercial claimant should normally establish:

1. Breach

What contractual obligation was violated?

2. Damage

What actual economic harm occurred?

3. Causation

Did the breach cause the loss?

4. Legal recoverability

Is the loss legally compensable?

5. Evidence

Can the amount be demonstrated?

A sophisticated damages claim therefore looks like:

Breach → Causation → Loss → Valuation → Evidence

37. Example: Construction Contract

Assume:

Employer → Contractor: AED 100 million contract.

Contractor delays completion by 12 months.

Employer claims:

additional financing cost;

lost rental income;

additional consultant fees;

additional construction supervision costs.

Contractor argues:

employer failed to provide site access;

design changes caused delay;

government approval was delayed;

force majeure occurred.

The UAE court must analyse:

contractual obligations;

delay provisions;

causation;

reciprocal obligations;

expert evidence;

contractual extension-of-time provisions;

damages;

possible termination.

This illustrates why UAE commercial-contract litigation is heavily fact and evidence dependent.

38. Role of Experts

Experts frequently play an important role in complex UAE commercial disputes.

They may analyse:

accounts;

construction progress;

delays;

engineering specifications;

financial losses;

inventory;

banking transactions;

technical defects.

However:

The expert assists the court; the court makes the legal decision.

The court must still determine:

interpretation;

liability;

legal causation;

enforceability;

contractual rights.

39. Difference Between Onshore UAE, DIFC and ADGM

This distinction is essential.

Therefore, a researcher should never use a DIFC judgment as though it were automatically an onshore UAE Court of Cassation decision.

40. Major Commercial Contract Principles

The UAE system can be summarised through ten principles:

1. Contractual freedom

Parties can generally design their bargain.

2. Binding force

A valid contract creates enforceable obligations.

3. Good faith

Performance and interpretation are subject to good-faith requirements.

4. Common intention

Ambiguous contracts may be interpreted according to the parties' common intention.

5. Reciprocal performance

Each party's performance may be connected to the other's.

6. Commercial custom

Industry practice can assist interpretation.

7. Specific performance

Performance may be preferred where legally and practically possible.

8. Compensation

Actual legally compensable loss may be recoverable.

9. Judicial control

Courts can intervene where statutory conditions permit.

10. Mandatory law

Private agreement cannot override applicable mandatory rules.

41. Quick Case-Law Table

42. Practical Commercial Contract Checklist

Before signing a UAE-law commercial contract, examine:

Parties

Correct legal names?

Correct licences?

Proper signatory?

Corporate authority?

Subject

Precisely defined?

Legally permissible?

Technical specifications clear?

Price

Currency?

Taxes?

Payment dates?

Interest/late-payment provisions?

Performance

Delivery?

Acceptance?

Milestones?

Inspection?

Risk

Insurance?

Indemnities?

Limitation of liability?

Force majeure?

Termination

Term?

Notice?

Material breach?

Cure period?

Consequences?

Remedies

Specific performance?

Compensation?

Agreed damages?

Dispute resolution

UAE courts?

Arbitration?

Institution?

Seat?

Language?

Evidence

Electronic communications?

Expert evidence?

Records?

Invoices?

43. Conclusion

UAE commercial contract law is not contained in a single Commercial Contracts Code. It is a structured combination of the Civil Transactions Law, special commercial legislation, contractual terms, commercial customs, mandatory rules and judicial interpretation.

The most important current development is the Federal Decree-Law No. 25 of 2025, effective from 1 June 2026, which replaced the 1985 Civil Transactions Law. (UAE Legislation)

The fundamental commercial-contract sequence is:

Formation → Validity → Interpretation → Good Faith → Performance → Breach → Causation → Remedies

The case law demonstrates that UAE courts place particular importance on:

contractual intention;

good faith;

reciprocal obligations;

proper evidence;

material defences;

actual damage;

causation;

enforceability of dispute-resolution provisions.

The central principle for examination and legal research is:

A UAE commercial contract is not interpreted merely by isolated words; it is examined as a legally structured commercial relationship, subject to statutory rules, good faith, the parties' common intention, reciprocal obligations, mandatory law and evidence.

Exam formula:
Valid Contract + Common Intention + Good Faith + Reciprocal Performance + Breach + Causation + Damage + Appropriate Remedy = UAE Commercial Contract Law.