Civil Law and UAE: Negotiation Phase Liability Recognition

1. Introduction

Negotiation phase liability—often described in civil-law terminology as pre-contractual liability or culpa in contrahendo—concerns legal responsibility for wrongful conduct before a final contract is concluded.

This area has become particularly important in the UAE because the legal position changed significantly on 1 June 2026, when Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law came into force and replaced the 1985 Civil Transactions Law.

The new law expressly regulates:

commencement of negotiations;

conduct during negotiations;

termination/break-off of negotiations;

good faith;

disclosure of decisive information;

confidentiality; and

compensation for bad-faith negotiation.

Articles 121–123 now provide a dedicated statutory framework. (Afridi & Angell)

The fundamental rule is:

A party remains free not to conclude a contract, but it is not free to conduct negotiations fraudulently, conceal decisive information, misuse confidential information, or terminate negotiations in bad faith where the statutory requirements for liability are established.

2. Meaning of Negotiation Phase Liability

Negotiation phase liability arises when:

parties enter into discussions concerning a possible contract;

no final binding contract, or no relevant contractual obligation, has yet arisen;

one party behaves in a legally wrongful manner during the negotiations; and

the other party suffers legally recognizable damage as a result.

Examples include:

deliberately misleading the other party;

concealing decisive information;

falsely representing authority to conclude a transaction;

negotiating while secretly pursuing an inconsistent transaction;

misusing confidential information;

deliberately inducing expensive reliance while having no genuine intention to proceed;

terminating negotiations in bad faith; or

concealing facts that materially affect the proposed contract.

3. Major Change Under the 2025 Civil Transactions Law

Under the former 1985 Civil Transactions Law, there was no dedicated statutory regime expressly regulating pre-contractual negotiations.

The courts instead relied on broader principles such as:

good faith;

abuse of rights;

harmful acts/tort;

fraud;

misrepresentation; and

compensation.

The leading historical authority was Dubai Court of Cassation Civil Appeal No. 267/2016, decided on 11 August 2016. It treated negotiations as a factual/material act that did not itself create a contract, while recognizing possible tort liability where the manner of withdrawal involved fault. (SAT & Co.)

The position is now materially different because Articles 121–123 expressly regulate the negotiation stage.

4. Article 121 — Good Faith During Negotiations

Article 121 is the central provision.

It establishes three important rules:

Rule 1 — Negotiations must comply with good faith

The proposal, conduct and termination of pre-contractual negotiations must comply with good faith.

Therefore, good faith is no longer confined to performance of a completed contract.

Rule 2 — Negotiations do not force the parties to contract

Simply negotiating does not create an obligation to conclude the contemplated contract.

Therefore:

Negotiation ≠ contract.

A party can ordinarily decide:

not to proceed;

to change its commercial position;

to reject proposed terms;

to terminate discussions; or

to seek another transaction.

Rule 3 — Bad faith can create liability

A party that negotiates or terminates negotiations in bad faith may be liable for actual damage suffered by the other party.

The compensation does not ordinarily include:

expected profits from the contract that was never concluded; or

lost opportunities to obtain those expected profits,

unless otherwise agreed. (Afridi & Angell)

5. Article 121 Creates a Balanced Rule

The new law therefore attempts to balance two competing principles.

Commercial freedom

Businesses must remain free to decide:

“We do not want this transaction.”

Fair dealing

But they cannot use negotiations as a mechanism for:

deception;

deliberate exploitation;

wrongful concealment;

improper extraction of information; or

causing foreseeable actual losses through bad faith.

Therefore:

Freedom to withdraw remains; freedom to negotiate in bad faith does not.

6. What Is "Bad Faith"?

The concept should not be interpreted as merely:

“The other party changed its mind.”

A court would ordinarily examine the conduct and circumstances.

Possible indicators may include:

entering negotiations without a genuine intention to contract;

deliberately making false statements;

concealing decisive information;

pretending that approvals exist when they do not;

inducing substantial expenditure while secretly abandoning the transaction;

negotiating simultaneously with another party in circumstances making the conduct wrongful;

using negotiations to obtain confidential commercial information;

intentionally prolonging negotiations for an improper purpose; or

breaking off negotiations after inducing reliance through conduct that makes the resulting actual loss foreseeable.

The exact boundary will develop through future UAE case law because Article 121 is a new statutory regime.

7. Mere Withdrawal Is Not Enough

This is one of the most important principles.

Suppose A and B negotiate for six months.

They agree on:

price;

broad commercial terms;

proposed completion date.

But they never execute the final agreement.

A later decides:

“I no longer want to proceed.”

The mere fact that B spent money on negotiations does not automatically make A liable.

The claimant must establish the statutory requirements for bad-faith conduct.

This principle is consistent with the new law's express statement that negotiations themselves do not oblige parties to conclude the contract. (Afridi & Angell)

8. Actual Damage vs Expected Profit

Article 121 makes an important distinction.

Potentially recoverable

Actual damage caused by bad-faith negotiations.

Examples may include:

reasonable due-diligence expenditure;

professional fees;

survey expenses;

valuation expenses;

technical investigation costs;

travel expenses directly incurred for the negotiations;

reasonable transaction preparation costs.

Normally excluded

Expected profit from the contract that was never concluded.

Example:

A and B negotiate a five-year supply agreement.

B spends AED 100,000 on legitimate negotiation-related expenses.

The expected profit from the five-year contract would have been AED 10 million.

If A acted in bad faith and liability is established, Article 121's default measure focuses on the actual loss, not the AED 10 million expected profit.

(Afridi & Angell)

9. Reliance Loss and Expectation Loss

This distinction is useful for examinations.

Reliance loss

Money or resources actually spent because of the negotiations.

Example:

AED 50,000 paid for technical due diligence.

Expectation loss

Profit that the claimant expected to earn if the contract had been completed.

Example:

AED 2 million anticipated profit over five years.

Article 121 generally focuses on actual damage, rather than expected profits from the unexecuted contract. (Afridi & Angell)

10. Article 122 — Duty to Disclose Decisive Information

Article 122 creates another major innovation.

A party must disclose information that is:

essential; and

decisive to the other party's consent.

The obligation concerns information having a direct and necessary connection with:

the proposed contract;

the subject matter;

the status of the parties;

circumstances relevant to the transaction; and

facts that materially affect the decision to contract.

The law also imposes a duty of care concerning disclosure. (LEXAI)

11. What Is Decisive Information?

Decisive information is information that could materially affect the other party's decision to enter into the transaction.

Example — Real estate

Seller knows:

The property is subject to a material legal restriction.

Buyer does not know this.

If the restriction is decisive to the buyer's consent, deliberate concealment can create legal consequences.

Example — Company acquisition

Seller knows:

The target company is subject to major undisclosed litigation.

The information may be decisive to the purchaser's consent.

Example — Construction

Developer knows:

Required regulatory approval cannot realistically be obtained.

If this is decisive to the contractor's decision to enter the transaction, deliberate concealment may create liability.

12. Is There a Duty to Disclose Everything?

No.

The law does not mean:

“Every fact known to one negotiator must be disclosed.”

The important question is whether the information falls within the statutory category of essential and decisive information.

The court must examine:

nature of the transaction;

expertise of the parties;

information available to each party;

materiality;

reliance;

contractual subject matter;

industry practice; and

circumstances of the negotiations.

13. Non-Waivable Nature of Disclosure Duty

Article 122 contains an important protection.

The parties cannot simply agree:

“Neither party has any obligation to disclose decisive information.”

A contractual clause attempting to limit, exclude or waive the statutory disclosure obligation is void. The injured party may seek annulment where the statutory requirements are satisfied. (LEXAI)

This is significant for:

M&A transactions;

real estate;

financing;

franchising;

construction;

joint ventures; and

investment transactions.

14. Burden of Proof

Article 122 also addresses proof.

A party claiming that required information was concealed must establish the relevant concealment.

The other party bears the burden of proving that it did disclose the information where the law places that evidentiary burden upon it. (LEXAI)

This makes documentation extremely important.

Useful evidence includes:

emails;

disclosure schedules;

due-diligence reports;

meeting minutes;

data-room records;

term sheets;

letters of intent;

board minutes;

WhatsApp/business communications;

expert reports; and

signed disclosure statements.

15. Article 123 — Confidential Information

Article 123 deals with confidential information obtained during:

negotiations; or

the contractual relationship.

A person who uses or discloses confidential information without authorization can be liable under the general rules. (UAE Legal Notes)

This creates a distinct category of negotiation-phase liability.

Example

Company A gives Company B:

customer lists;

pricing formulas;

technical designs;

business plans.

Negotiations fail.

B then uses the information to compete with A.

Even though no final contract was signed, Article 123 can become relevant.

16. Negotiation Liability and Confidentiality Agreements

A confidentiality agreement/NDA remains extremely useful.

However, an NDA does not necessarily replace Article 123.

There can be:

contractual confidentiality obligations;

statutory confidentiality obligations; and

general civil liability for resulting damage.

The parties should therefore specify:

permitted use;

permitted recipients;

duration;

return/destruction;

exceptions;

cybersecurity protections;

remedies; and

dispute resolution.

17. Recognition of Negotiation-Phase Liability

The phrase “recognition” is important.

Recognition means that the law accepts that:

Legal responsibility can arise from conduct occurring before a final contract is formed.

It does not mean:

“Every negotiation creates a contract.”

The distinction is fundamental.

Correct rule

No contract + wrongful negotiation conduct = possible pre-contractual liability.

Incorrect rule

Negotiation = automatically binding contract.

Article 121 expressly rejects the second proposition. (Afridi & Angell)

18. Case Law 1 — Dubai Court of Cassation Civil Appeal No. 267/2016

This is the most important historical UAE case for negotiation-phase liability.

The parties negotiated a proposed lease.

No final lease contract was concluded because negotiations remained at the draft/remarks stage.

The party owning the property later leased it to another person without properly notifying the other negotiator.

The Dubai Court of Cassation treated the conduct as capable of constituting fault causing damage, and the resulting obligation was treated as arising from an unlawful act/tort rather than from contract.

The damages included the claimant's advance payment and commission. (qspace.qu.edu.qa)

Principle

A failed negotiation does not itself create contractual liability, but wrongful conduct during the negotiation can create tort liability.

Importance today

This case is particularly important because Article 121 now gives the subject a specific statutory foundation.

19. Case Law 2 — Dubai Court of Cassation Judgment No. 270/2023

This case concerned fraud/deception and the elements necessary to establish legally actionable fraudulent conduct.

The Court distinguished between:

the material element of deceptive conduct; and

the mental element, including an intention to mislead for an illegitimate purpose.

(Law Gratis)

Importance to negotiation liability

Negotiators frequently make:

representations;

forecasts;

assurances;

statements about assets;

statements about authority; and

statements concerning future transactions.

The case demonstrates that an allegation of dishonesty requires proof of the legally relevant elements.

Therefore:

A failed commercial prediction is not automatically fraud.

20. Case Law 3 — Dubai Court of Cassation Judgment No. 231/2020

The Dubai Court of Cassation considered the circumstances in which deception can arise through:

words;

conduct; or

deliberate silence.

The case recognized that concealment can become legally relevant where a material fact is deliberately withheld and the other party could not reasonably obtain that information independently. (Law Gratis)

Importance

This case is particularly relevant to the new Article 122 disclosure duty.

It provides historical support for the proposition that:

Silence can become legally significant where the circumstances create a legally relevant duty of disclosure.

21. Case Law 4 — Dubai Court of Cassation Judgment No. 30/2024

This decision addressed the relationship between:

deception; and

gross unfairness/cheating

under the former UAE Civil Transactions Law.

The reported principle is that, for the traditional annulment remedy, the relevant statutory requirements had to be established rather than simply assuming that any dishonest statement justified cancellation. (Law Gratis)

Importance

It demonstrates that UAE courts have historically required a structured analysis of:

deceptive conduct;

materiality;

effect on consent; and

additional statutory requirements where annulment is sought.

This remains useful when analyzing whether bad-faith negotiations resulted in a subsequently concluded contract that can be challenged.

22. Case Law 5 — Ras Al Khaimah Court of Cassation No. 48/2025

This decision addressed deception and gross unfairness under the former UAE civil-law framework.

The Court examined whether the necessary elements of deceit and serious unfairness had been established rather than treating an unfavorable bargain as automatically actionable. (Law Gratis)

Importance

Negotiation disputes often involve a claimant arguing:

“I would never have agreed if I had known the truth.”

The court must distinguish:

ordinary commercial risk;

bad bargaining;

inaccurate information;

actionable deception; and

legally significant concealment.

23. Case Law 6 — BAM Higgs & Hill LLC v Affan Innovative Structures LLC & Amer Affan [2021] DIFC CFI 106

The DIFC Court dealt with allegations of fraud and dishonesty and emphasized that fraud is not established merely by assertion.

Evidence must establish the relevant fraudulent conduct.

(DIFC Courts)

Importance

This is highly relevant to negotiation disputes involving allegations such as:

“They never intended to sign.”

“They lied during negotiations.”

“They deliberately misled us.”

“They issued false assurances.”

The claimant must establish the facts supporting those allegations.

Qualification: this is a DIFC decision and is not automatically binding on mainland UAE courts.

24. Case Law 7 — Khaled Salem Musabeh Humad Al Mheiri v John Cameron [2025] DIFC CA 008

This is a significant recent DIFC Court of Appeal authority concerning UAE-law misrepresentation.

The case examined alleged false representations and deliberate silence under the former UAE Civil Transactions Law, including the former Articles 185, 186, 187 and 190.

The Court discussed UAE Court of Cassation authorities concerning:

misrepresentation;

deliberate silence;

inducement;

third-party representations; and

the mental element of deception. (DIFC Courts)

Importance

It illustrates how a court may analyze pre-contractual statements through:

representation → falsity → materiality → inducement → consent → remedy.

Again, it is a DIFC authority applying UAE law, not a binding mainland precedent.

25. Case Law 8 — Taaleem PJSC v National Bonds Corporation PJSC & Deyaar Development PJSC [2010] DIFC CFI 014

This case concerned negotiations surrounding a major property transaction.

The DIFC Court considered whether negotiations had resulted in a concluded transaction and whether the relevant corporate circumstances affected the transaction.

The Court concluded that a contractual agreement had been reached under DIFC law. (DIFC Courts)

Importance

This case illustrates the first question in any negotiation-liability dispute:

Was there actually a contract?

If a contract was formed, the dispute may become one of contractual liability rather than merely negotiation-phase liability.

26. Case Law 9 — Sam Precious Metals FZ-LLC v Snyder Prime Ltd [2023] DIFC CFI 030

The Court considered preliminary negotiations and the significance of wording adopted during those negotiations.

The Court confirmed that preliminary negotiations could be relevant circumstances for determining contractual intention under DIFC Contract Law Article 51, although the final contractual language remained important. (DIFC Courts)

Importance

Negotiation documents can therefore have two distinct functions:

evidence of what happened before the contract; and

evidence relevant to interpreting the contract ultimately signed.

27. Case Law 10 — Mr Nancy v Narcissa [2023] DIFC CFI 098

The DIFC Court examined circumstances in which transactions are partly or fully performed despite disputes about whether a binding contract was initially formed.

The Court noted that performance can sometimes make it difficult to argue that there was no intention to create legal relations and can help establish the contractual relationship. (DIFC Courts)

Importance

Negotiation-phase liability should therefore always begin with:

Did the parties actually conclude a contract, perhaps through conduct?

Only if the answer is no—or if the disputed conduct occurred before the relevant contract was formed—does the pure pre-contractual liability question become central.

28. Three Different Situations

A useful examination distinction is:

Situation A — No contract + no wrongful conduct

No liability merely because negotiations failed.

Situation B — No contract + bad-faith negotiations

Potential Article 121 liability.

Situation C — Contract concluded + pre-contract deception

Potential consequences may include:

annulment;

restitution;

damages; and

other statutory remedies,

depending on the precise legal requirements.

29. Negotiation Phase and Misrepresentation

Suppose Seller says:

“The company has no significant liabilities.”

Buyer relies on the statement and proceeds with expensive negotiations.

Later Buyer discovers AED 20 million of undisclosed liabilities.

Possible issues include:

Was the statement false?

Was it material?

Did Seller know it was false?

Was it deliberately concealed?

Was it decisive to Buyer's consent?

Did Buyer rely on it?

Did Buyer suffer actual damage?

Was a final contract eventually concluded?

If yes, can the contract be challenged?

If no, does Article 121 provide a claim?

30. Negotiation Phase and Term Sheets

A term sheet may contain both:

non-binding commercial provisions; and

binding provisions.

For example:

The parties should therefore avoid treating the whole document as automatically “non-binding.”

31. Letters of Intent

A letter of intent can similarly produce complex questions.

The court may ask:

Did the parties intend legal relations?

Which clauses were binding?

Was exclusivity agreed?

Was confidentiality binding?

Was there an obligation to negotiate?

Were conditions precedent satisfied?

Did the parties begin performance?

The mere title “Letter of Intent” does not answer all these questions.

32. Break-Off of Negotiations

Breaking off negotiations is not automatically wrongful.

Lawful withdrawal

A says:

“After completing our due diligence, the transaction no longer meets our investment requirements.”

This can ordinarily be a legitimate commercial decision.

Potentially wrongful withdrawal

A repeatedly assures B:

“The transaction is definitely proceeding; spend AED 2 million preparing for completion.”

A secretly negotiates the same transaction with C and deliberately keeps B spending money despite knowing A will not proceed.

The second scenario creates a much stronger potential Article 121 issue.

33. Negotiation Liability in Real Estate

Real estate negotiations frequently involve:

reservation deposits;

brokerage fees;

valuation;

surveys;

legal due diligence;

mortgage approval;

title checks;

engineering inspections.

Suppose a seller knows that the property cannot legally be transferred but continues negotiations and encourages the buyer to spend substantial money.

Potential liability may arise if the statutory requirements of bad faith and actual damage are proved.

34. Negotiation Liability in M&A

M&A transactions create particularly significant risks.

Relevant information may include:

undisclosed debt;

litigation;

tax liabilities;

regulatory investigations;

change-of-control restrictions;

related-party transactions;

intellectual-property ownership;

sanctions exposure;

employee claims;

environmental liabilities.

Article 122's decisive-information obligation is therefore particularly significant in corporate acquisitions. (LEXAI)

35. Negotiation Liability in Construction

Construction negotiations can involve:

tendering;

design development;

pricing;

technical proposals;

mobilisation planning;

financing;

site investigation;

subcontractor arrangements.

The new law does not mean that a developer must appoint a contractor simply because negotiations have progressed.

But deliberate bad-faith conduct can expose a party to liability for actual loss.

This is especially important where the contractor:

spends money;

reserves labour;

purchases equipment;

hires consultants; or

abandons another opportunity

because of misleading conduct.

36. Negotiation Liability and Confidential Information

Consider:

Company A discloses its AI algorithm to Company B during negotiations for a joint venture.

The joint venture fails.

Company B uses the algorithm to create its own competing product.

Article 123 can potentially become relevant because the information was obtained during negotiations and was used without authorization. (UAE Legal Notes)

This is separate from the question of whether a contract was ultimately formed.

37. Negotiation Liability and Brokers/Agents

A broker may make statements on behalf of a principal.

Possible questions include:

Did the broker have authority?

Was the statement authorized?

Was the principal aware?

Was the broker acting within apparent authority?

Was the information false?

Did the buyer rely upon it?

The recent Al Mheiri v Cameron litigation illustrates the importance of third-party representations under UAE-law misrepresentation principles. (DIFC Courts)

38. Negotiation Liability and AI

The new doctrine can become particularly important in AI-assisted contracting.

Suppose an AI system:

generates a financial representation;

omits a material liability;

sends misleading negotiation communications; or

discloses confidential information.

The legal question remains:

Which human or legal entity is responsible for the AI-assisted conduct?

The AI system itself does not automatically become the civil-law defendant.

The court would examine:

who deployed it;

who controlled it;

instructions provided;

human review;

authorization;

foreseeability;

causation;

actual damage; and

contractual arrangements.

39. Causation

Bad faith alone is insufficient.

The claimant must connect the wrongful negotiation conduct with actual damage.

The basic structure is:

Bad-Faith Conduct → Reliance → Actual Loss → Causal Connection

Example:

A falsely tells B that a transaction is almost certain to close.

B spends AED 200,000 on due diligence.

The transaction fails because of an entirely unrelated government prohibition that neither party knew about.

The causation analysis becomes much more difficult.

40. Mitigation of Loss

A claimant should also act reasonably after discovering the wrongful conduct.

For example:

If B learns on 1 March that A has terminated negotiations, B should not knowingly continue incurring AED 500,000 of additional unnecessary expenses until June and then automatically claim all of them.

The court can examine:

reasonableness;

foreseeability;

avoidability;

causal connection; and

actual loss.

41. Recognition of Reliance Expenditure

The following expenses may potentially become relevant where causation and bad faith are established:

lawyer fees incurred specifically for negotiations;

technical consultant fees;

engineering reports;

feasibility studies;

valuation fees;

inspection expenses;

travel directly connected to negotiations;

due-diligence costs;

transaction-specific administrative expenses.

But each item must be connected to the wrongful conduct and satisfy the applicable legal requirements.

42. What Is Usually Not Recoverable Under Article 121?

The default rule excludes:

Expected profit

Profit the claimant hoped to earn from the uncompleted contract.

Lost opportunity to obtain that profit

A hypothetical gain from the contract that never came into existence.

This is an important legislative limitation. (Afridi & Angell)

43. Negotiation Liability vs Contractual Liability

44. Negotiation Liability vs Fraud

These concepts overlap but are not identical.

Negotiation bad faith

Can arise from broader wrongful negotiation conduct.

Fraud/deception

Requires the elements of legally actionable deception.

Therefore:

Every fraud occurring during negotiations may raise negotiation-phase liability, but not every bad-faith negotiation necessarily amounts to fraud.

This distinction is important under the new Article 121 framework.

45. Negotiation Liability vs Abuse of Rights

Abuse of rights concerns wrongful exercise of an existing legal right.

Negotiation liability concerns wrongful conduct during the process of attempting to create a legal relationship.

The two concepts may overlap in some circumstances, but they should not be treated as identical.

46. Recognition Formula

For exam purposes:

Negotiation Phase Liability = Pre-Contractual Relationship + Good-Faith Duty + Wrongful Conduct + Actual Damage + Causation

For disclosure:

Decisive Information + Duty to Disclose + Concealment + Causation = Potential Liability

For confidentiality:

Confidential Information + Unauthorized Use/Disclosure + Damage = Potential Liability

47. Practical Example

Facts

Company A and Company B negotiate a joint venture.

A tells B:

“All regulatory approvals have already been obtained.”

B relies on the statement and spends:

AED 300,000 on legal advice;

AED 150,000 on technical studies;

AED 50,000 on travel and negotiations.

The parties never sign the final agreement.

B later discovers that A knew the approval had never been obtained.

Analysis

Under Article 121, the questions include:

Were the negotiations conducted in bad faith?

Was the statement deliberately false?

Was the regulatory approval information decisive?

Did B rely on the statement?

Did B suffer actual damage?

Were the expenses caused by A's conduct?

Are the expenses reasonable?

Are the claimed amounts actual losses rather than expected profits?

If established, Article 121 provides a statutory basis for considering compensation for actual damage. (Afridi & Angell)

48. Another Example — No Liability

A and B negotiate a franchise agreement.

They exchange:

five drafts;

financial projections;

due-diligence reports.

A ultimately concludes that the investment does not meet its required return and withdraws.

There is no evidence that:

A lied;

A concealed decisive information;

A misused confidential information;

A never intended to negotiate;

A deliberately induced unnecessary expenditure.

Result

The mere failure to conclude the contract should not automatically establish Article 121 liability.

The statutory protection of freedom not to conclude a contract remains important. (Afridi & Angell)

49. Important Evidentiary Documents

For a negotiation-liability claim, preserve:

Before negotiations

initial proposal;

tender;

invitation;

NDA;

term sheet.

During negotiations

emails;

meeting minutes;

WhatsApp/business communications;

draft contracts;

due-diligence reports;

representations;

disclosure schedules.

At termination

termination notice;

withdrawal email;

explanation for withdrawal;

competing transaction evidence, if relevant.

Damage

invoices;

professional fees;

consultant bills;

travel records;

technical expenses;

financial records.

50. Current Legal Position — Important Date Distinction

Because the UAE law changed on 1 June 2026, an examination answer should distinguish:

Contracts/negotiations governed by the old framework

The former 1985 Civil Transactions Law and its jurisprudence remain relevant to historical transactions subject to transitional rules.

Current negotiations

For the current regime, Articles 121–123 of Federal Decree-Law No. 25 of 2025 are central. (britishchamberdubai.com)

Therefore, old cases such as Dubai Cassation 267/2016 should not be presented as though they directly interpreted the new Article 121.

They are historical foundations for understanding the development of UAE pre-contractual liability.

51. Mainland UAE vs DIFC

This distinction is essential.

Mainland UAE

The new Federal Civil Transactions Law applies, subject to its scope and special legislation.

DIFC

The DIFC has its own legal framework, including its Contract Law and common-law-influenced jurisprudence.

ADGM

ADGM operates under its own framework heavily based on English common law.

Therefore, DIFC authorities such as:

BAM Higgs & Hill;

Al Mheiri v Cameron;

Taaleem; and

Sam Precious Metals

should be described as DIFC authorities, not automatically as binding mainland UAE precedent.

52. Ten Important Cases — Revision Table

(qspace.qu.edu.qa)

53. Key Principles for Examination

Principle 1

Negotiations do not automatically create a contract.

Principle 2

A party generally remains free to refuse to conclude the proposed contract.

Principle 3

Article 121 nevertheless requires good faith in proposing, conducting and terminating negotiations.

Principle 4

Bad-faith negotiation can produce liability for actual damage.

Principle 5

Expected profits from the contract that was never concluded are generally excluded under Article 121.

Principle 6

Article 122 creates a statutory duty concerning essential and decisive information.

Principle 7

The disclosure duty cannot simply be waived by contract.

Principle 8

Article 123 protects confidential information obtained during negotiations.

Principle 9

Misrepresentation and fraud remain separate but related causes of action.

Principle 10

The claimant must establish causation and actual damage.

54. Exam Answer Formula

A strong short-answer formula is:

Negotiation → Good Faith → Disclosure → Confidentiality → No Automatic Duty to Contract → Bad Faith → Actual Damage → Causation → Compensation

Or, more simply:

Freedom to negotiate + duty to negotiate fairly = UAE negotiation-phase liability.

55. Conclusion

The UAE Negotiation Phase Liability Doctrine has undergone a significant statutory development.

Under the previous framework, UAE courts generally treated negotiations as non-binding and relied upon tort, good faith, fraud and abuse-of-rights principles where wrongful conduct caused damage. Dubai Court of Cassation Civil Appeal No. 267/2016 is the leading historical example. (SAT & Co.)

Since 1 June 2026, however, the position is expressly regulated by Articles 121–123 of Federal Decree-Law No. 25 of 2025:

Article 121: good faith during proposal, negotiation and termination;

Article 122: disclosure of essential and decisive information;

Article 123: protection against unauthorized use or disclosure of confidential information. (Afridi & Angell)

The most important principle is:

UAE law does not force parties to conclude a contract merely because they negotiated, but it now expressly regulates how they must behave while negotiating.

Thus, the modern doctrine can be summarized as:

Negotiations are voluntary → the final contract is not compulsory → good faith is mandatory → decisive information must be disclosed → confidential information must be protected → bad-faith conduct causing actual damage may generate civil liability.