Civil Law and UAE: Pre-Contractual Liability (Culpa in Contrahendo)

1. Introduction

Culpa in contrahendo means fault in contracting. It refers to civil liability arising from wrongful conduct during the period before a final contract is concluded.

Typical examples include:

• negotiating without a genuine intention to contract;
• suddenly terminating negotiations in bad faith after creating substantial reliance;
• deliberately concealing material information;
• making fraudulent or misleading statements;
• misusing confidential information obtained during negotiations;
• inducing the other party to incur unnecessary expenses;
• deliberately allowing the other party to believe that agreement is virtually certain when the negotiator knows that it will not proceed.

The UAE position has undergone a major statutory change from 1 June 2026.

Under the former 1985 Civil Transactions Law, culpa in contrahendo was not expressly codified as a separate doctrine. Courts generally approached wrongful pre-contractual conduct through tort principles and the general prohibition against unlawful harm.

The new Federal Decree by Law No. 25 of 2025 on the Civil Transactions Law now expressly regulates negotiations in Articles 121–123. Article 121 requires the initiation, conduct and termination of negotiations to comply with good faith and expressly provides liability for bad-faith negotiation or termination.

Therefore, current UAE law has moved from a predominantly judge-developed/tort-based approach toward an expressly codified pre-contractual liability regime.

2. Meaning of Culpa in Contrahendo

The Latin expression culpa in contrahendo literally means:

“fault in contracting.”

It concerns conduct occurring during the formation process, before the final contractual relationship has been completed.

The basic structure is:

Negotiations → reliance → wrongful conduct → damage → pre-contractual liability

It must be distinguished from:

Contractual liability

A valid contract exists and one party breaches it.

Tort liability

An unlawful act causes damage independently of a contractual obligation.

Pre-contractual liability

The parties are negotiating, or are in the process of forming a contract, and one party's bad-faith conduct causes legally compensable damage.

3. Current UAE Statutory Framework

Federal Decree by Law No. 25 of 2025

The new Civil Transactions Law entered into force on 1 June 2026 and repealed the former 1985 Civil Transactions Law.

The most important provisions for culpa in contrahendo are:

• Article 121 — Negotiations and good faith
• Article 122 — Duty of disclosure
• Article 123 — Confidentiality
• Articles 124 onward — Contract formation and consent

These provisions create a much clearer legal framework than existed under the previous Civil Code.

4. Article 121 — Good Faith During Negotiations

Article 121 provides three particularly important rules.

Rule 1 — Good faith applies to negotiations

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

Thus, good faith is no longer confined to the performance of a concluded contract.

Rule 2 — Negotiations do not create an obligation to contract

The fact that negotiations have occurred does not itself require the parties to conclude the contemplated contract.

This preserves freedom of contract.

Rule 3 — Bad faith creates liability

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

The law also expressly identifies deliberate failure to disclose a material statement affecting the validity of the contract as an example of bad faith.

5. Freedom to Withdraw Still Exists

An important examination point is that Article 121 does not force parties to sign contracts.

A party may decide:

• the price is unacceptable;
• financing is unavailable;
• regulatory approval cannot be obtained;
• the project is commercially unattractive;
• the risk allocation is unacceptable;
• the transaction is no longer strategically desirable.

Simply withdrawing does not automatically create liability.

The problem arises when the manner of negotiation or withdrawal is conducted in bad faith.

Thus:

Freedom not to contract survives; bad-faith negotiation is now expressly regulated.

6. What Is Bad Faith?

The new law does not provide an exhaustive definition of every possible form of bad faith.

Potential examples include:

A. Deliberate deception

A party knowingly gives false information concerning an important aspect of the proposed transaction.

B. Deliberate concealment

A party intentionally conceals information that materially affects the validity of the proposed contract.

C. Abusive negotiation

A party continues negotiations principally to obtain information or another commercial advantage while having no genuine intention to proceed.

D. Bad-faith termination

A party deliberately creates substantial reliance and then terminates negotiations in circumstances amounting to bad faith.

E. Misuse of confidential information

Information obtained during negotiations is used for an unauthorized commercial purpose.

The precise boundaries will increasingly have to be developed by UAE courts under the new statutory regime.

7. Article 122 — Duty to Disclose Decisive Information

Article 122 creates a significant new obligation.

A party who knows information that is decisive to the other party's consent must disclose it where:

• the other party's ignorance may reasonably be presumed; or
• the other party has placed trust in the negotiating counterparty.

The statute describes essential and decisive information as information having a direct and necessary connection with the content of the contract or the status of the parties.

8. Bilateral Nature of the Disclosure Duty

The duty is not necessarily imposed only on the seller or stronger party.

Article 122 places disclosure obligations on both parties.

Each party must exercise appropriate care to provide relevant information concerning:

• the negotiations;
• the intended contract;
• practical circumstances;
• facts relevant to the contractual process.

This is particularly important in:

• M&A transactions;
• joint ventures;
• real-estate transactions;
• construction projects;
• financing;
• franchising;
• technology transactions;
• long-term supply agreements.

9. Burden of Proof Under Article 122

Article 122 establishes an important evidentiary mechanism.

The party alleging that information which should have been disclosed was concealed must establish that the information was subject to disclosure.

The other party then bears the burden of proving that it did disclose the information.

This makes the preservation of:

• emails;
• due-diligence reports;
• meeting minutes;
• disclosure schedules;
• data-room records;
• letters;
• negotiation notes

particularly important.

10. Article 122 Cannot Simply Be Contracted Out Of

A particularly important feature is that parties may not agree to:

• exclude the disclosure duty;
• waive it;
• reduce it;
• contract around the mandatory obligation.

A clause attempting to do so is void.

Where the disclosure obligation is breached, the injured party may seek annulment of the resulting contract under Article 122.

This represents a substantial strengthening of pre-contractual protection.

11. Article 123 — Confidentiality

Article 123 provides that a person who, without permission:

• uses; or
• discloses

confidential information obtained in connection with negotiations or a contract may be liable under the general rules.

Thus, pre-contractual liability has three interconnected components:

Good faith + Disclosure + Confidentiality

12. Damages Under Article 121

The new law makes an important distinction concerning the type of loss recoverable.

Where bad-faith negotiations or termination cause liability, compensation covers actual damage.

Generally, it does not include:

• expected profits from the contract that was never concluded; or
• lost opportunities to obtain those expected profits,

unless otherwise agreed.

This is a crucial distinction.

13. Reliance Loss vs Expectation Loss

Reliance loss

Expenses incurred because of reliance on the negotiations.

Examples:

• legal fees;
• technical consultants;
• valuation expenses;
• travel;
• due-diligence expenses;
• engineering studies;
• transaction costs.

Expectation loss

The profit the claimant expected to earn if the contract had been concluded.

Example:

Expected profit from a 10-year supply contract.

Under Article 121, the normal statutory compensation focuses on actual damage, not the hypothetical profits of the contract that never came into existence.

14. Essential Elements of Culpa in Contrahendo

A useful framework is:

1. Negotiation

There must be a genuine pre-contractual relationship or negotiation process.

2. Duty

A legal duty of good faith, disclosure or confidentiality must apply.

3. Fault

There must be conduct inconsistent with that duty.

4. Damage

The claimant must suffer legally recognizable actual damage.

5. Causation

The damage must result from the wrongful pre-contractual conduct.

6. Absence of an Exclusion

The claim must not be defeated by applicable statutory or contractual limitations.

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

Judgment: 11 August 2016

This is the most directly relevant UAE mainland authority.

The parties were negotiating a proposed lease. They had reached the stage of exchanging and commenting on a draft, but no completed lease contract was formed.

The property was subsequently leased to another person without the negotiating party being properly notified.

The Dubai Court of Cassation treated the conduct as capable of constituting fault causing damage, rather than treating the negotiations themselves as a completed contract.

The reported damage included an advance payment of approximately AED 423,989 relating to insurance/commission. The liability was characterized under the then-existing unlawful-act/tort framework.

Principle

Under the former law:

Negotiations alone did not create a contract, but wrongful conduct during negotiations could generate tortious liability.

Importance today

This case is particularly important because it represents the old legal position.

Article 121 of the new Civil Transactions Law now provides an express statutory framework that goes beyond the earlier tort-based approach.

16. Case Law 2 — Taaleem P.J.S.C. v National Bonds Corporation P.J.S.C. & Deyaar Development P.J.S.C. [2010] DIFC CFI 014

This DIFC case concerned extensive negotiations concerning a major property transaction.

The DIFC Court examined whether the parties had actually reached a binding agreement even though some terms remained to be finalized.

The court concluded that a binding agreement had been reached based on the objective assessment of the parties' communications and conduct.

Principle

The court must distinguish between:

Negotiations that remain negotiations

and

Negotiations that have already resulted in a binding contract.

Relevance

This is essential to culpa in contrahendo.

Before awarding pre-contractual damages, the court must first determine whether:

1. no contract existed; or
2. a contract had actually been concluded.

If a contract exists, the dispute may instead concern contractual liability.

Jurisdictional caution

This is a DIFC case, applying DIFC law and not a direct interpretation of Article 121 of the current federal Civil Transactions Law.

17. Case Law 3 — Hexagon Holdings (Cayman) Ltd v DIFC Authority & DIFC Investments LLC [2019] DIFC CFI 013

This dispute involved lengthy negotiations concerning a major development arrangement.

The court considered whether obligations to negotiate in good faith could be treated as enforceable contractual obligations.

It held that an obligation to negotiate was generally unenforceable under the applicable DIFC contractual framework because of problems concerning certainty and judicial assessment of whether negotiations should have succeeded.

Principle

A court cannot ordinarily force commercial parties to reach an agreement simply because negotiations have continued for a long period.

Relevance

This provides an important contrast with the current federal UAE regime.

Under current UAE federal law:

Parties still do not have to conclude the contract.

But their conduct while negotiating must comply with Article 121's good-faith requirement.

Thus:

Duty of good faith ≠ duty to reach agreement.

18. Case Law 4 — Nureen v Nikir & Niplu [2023] DIFC SCT 298

This dispute involved a Letter of Intent relating to the proposed acquisition of a 50% shareholding.

The parties negotiated the proposed transaction and a payment of AED 2 million was made under the LOI. The transaction was not completed within the contemplated period, and the claimant sought repayment.

The dispute required the Tribunal to examine the legal effect of the LOI and the parties' conduct during the negotiation process.

Principle

A Letter of Intent does not automatically have the same legal effect as a final agreement.

Its effect depends upon:

• wording;
• intention;
• conditions;
• obligations expressly created;
• conduct of the parties.

Relevance to culpa in contrahendo

LOIs are one of the principal areas in which pre-contractual liability can arise.

A party should clearly distinguish between:

• non-binding negotiations;
• binding preliminary obligations;
• confidentiality;
• exclusivity;
• deposits;
• break fees;
• final contractual obligations.

19. Case Law 5 — BAM Higgs & Hill LLC v Affan Innovative Structures LLC [2021] DIFC CFI 106

This construction dispute involved a Letter of Intent under which the parties contemplated entering into a formal subcontract.

The LOI authorised commencement of works and contemplated execution of the formal subcontract within a specified period.

Principle

A Letter of Intent may create legal obligations even though the parties contemplate a later formal contract.

The court must examine:

• the language;
• scope;
• conduct;
• commercial context;
• whether obligations were intended to take immediate effect.

Relevance

The case illustrates why pre-contractual disputes require careful classification.

A document called an “LOI” is not necessarily legally meaningless.

20. Case Law 6 — Dant Investment LLC v Olive Green Holding Ltd [2024] DIFC CFI 038

This case concerned an Aircraft Purchase Agreement (APA) preceded by a Letter of Intent.

A USD 400,000 deposit was involved, and the dispute concerned whether the purchaser had satisfied the conditions precedent and whether termination was valid.

Principle

Courts examine the actual contractual structure and conditions rather than simply relying upon the label attached to a preliminary document.

Relevance

The case is useful for understanding the transition:

LOI → negotiations → conditions → final contract → termination

It demonstrates why parties should clearly state which provisions of a preliminary agreement are intended to be binding.

21. Case Law 7 — Gate Mena DMCC / Huobi Mena FZE v Tabarak Investment Capital Ltd

The dispute involved an Agreement of Appointment and subsequent Letters of Intent/Addenda concerning cryptocurrency-related services.

The documentation contained an entire-agreement clause referring to prior agreements, understandings, negotiations and discussions.

Principle

The legal significance of preliminary communications depends heavily upon:

• contractual wording;
• incorporation;
• entire-agreement clauses;
• subsequent documents;
• the actual contractual structure.

Relevance

Modern commercial negotiations increasingly occur through:

• emails;
• term sheets;
• electronic communications;
• LOIs;
• digital documents.

The case illustrates the importance of determining precisely when negotiations have been transformed into contractual obligations.

22. Case Law 8 — Michael George Forbes v Robert Kidd [2023] DIFC CFI 081

This case involved a Letter of Engagement and extensive prior dealings.

The court considered whether a contract had been created despite the absence of a formally signed document.

It concluded that the defendant's subsequent conduct, including continuing to instruct the relevant service provider and making payment, demonstrated mutual consent under the applicable UAE Civil Transactions Law provisions.

Principle

Contract formation may sometimes occur through conduct even where the parties have not completed a formal signed document.

Relevance

This is critical to pre-contractual liability because the first question is always:

Was there actually no contract?

If conduct establishes a contract, the dispute may be governed by contractual rather than purely pre-contractual principles.

Jurisdictional caution

The decision was made by the DIFC Court applying UAE law in the circumstances, and it is not a Federal Supreme Court authority interpreting current Article 121.

23. Summary of the Case Law

24. The Most Important Change: Old Law vs New Law

25. Is Every Withdrawal from Negotiations Unlawful?

No.

This is one of the most important points.

Suppose:

A and B negotiate for six months. A ultimately decides that the price is too high and ends negotiations.

There may be no liability merely because A withdrew.

Now change the facts:

A never intended to conclude the transaction, but deliberately continued negotiations for six months solely to obtain B's confidential technology and pricing information.

This may constitute bad faith.

Therefore:

Withdrawal itself is not necessarily wrongful; the circumstances and manner of withdrawal matter.

26. Example: Bad-Faith Termination

Suppose a developer tells a contractor:

“We have decided to award you the project. Begin expensive design work immediately.”

The developer knows internally that the board has already decided to award the project to another contractor.

The contractor spends AED 500,000 on:

• engineering;
• consultants;
• site surveys;
• design work.

The developer then abruptly ends negotiations.

Under Article 121, the important questions include:

• Was the developer negotiating in good faith?
• Was the representation misleading?
• Did the developer deliberately create reliance?
• What actual damage resulted?
• Was the contractor's expenditure reasonably connected with the negotiations?

The potential claim would focus on actual damage, rather than automatically awarding the profits the contractor would have earned from the final project.

27. Example: Legitimate Withdrawal

A buyer negotiates to purchase a company.

During due diligence, the buyer discovers:

• regulatory difficulties;
• unacceptable liabilities;
• financing problems.

The buyer honestly terminates negotiations.

Even if the seller incurred:

• legal costs;
• accounting costs;
• due-diligence expenses,

the buyer's withdrawal does not automatically constitute bad faith.

The court would have to determine whether the buyer's conduct actually violated Article 121.

28. Example: Failure to Disclose

A seller knows that a building is subject to a material legal restriction directly affecting its intended use.

The buyer is unaware of this fact and reasonably relies upon the seller's knowledge.

The seller deliberately conceals the restriction during negotiations.

This may engage:

• Article 121 — bad faith;
• Article 122 — disclosure duty;
• potentially contractual validity/remedies.

Article 122 is especially significant because the parties cannot simply contract out of the mandatory disclosure obligation.

29. Example: Confidential Information

Company A provides Company B with:

• technical designs;
• customer lists;
• pricing data;
• business strategy

during negotiations for a joint venture.

The transaction fails.

Company B uses the information to compete against Company A.

Article 123 may become relevant because it expressly addresses unauthorized use or disclosure of confidential information obtained through negotiations or the contract.

30. Culpa in Contrahendo and Letters of Intent

Letters of Intent are particularly important.

An LOI may contain:

Non-binding provisions

• proposed price;
• proposed transaction;
• anticipated completion date.

Binding provisions

• confidentiality;
• exclusivity;
• governing law;
• dispute resolution;
• access to information;
• costs;
• break fee.

Therefore:

“Letter of Intent” is a label, not necessarily the complete answer to its legal effect.

The court examines the document and the parties' conduct.

The DIFC cases involving Nureen, BAM Higgs & Hill, and Dant Investment illustrate the importance of examining preliminary documentation carefully.

31. Culpa in Contrahendo and Due Diligence

The new disclosure regime is particularly relevant to due diligence.

The parties should identify:

• what information has been requested;
• what information has been supplied;
• what information remains outstanding;
• what information is material;
• what assumptions underlie the transaction;
• what representations have been made.

A well-maintained due-diligence record can become critical evidence if a later dispute arises.

32. Culpa in Contrahendo and M&A Transactions

M&A transactions are particularly exposed because negotiations can continue for months.

Potential issues include:

• undisclosed liabilities;
• pending litigation;
• regulatory restrictions;
• financial misstatements;
• ownership defects;
• undisclosed change-of-control provisions;
• tax liabilities;
• intellectual-property problems.

Article 122's disclosure framework is therefore particularly significant for corporate transactions.

33. Culpa in Contrahendo and Construction

Construction negotiations can involve:

• tenders;
• preliminary designs;
• Letters of Intent;
• mobilisation;
• site investigations;
• engineering work;
• provisional instructions.

A contractor may spend substantial money before the final contract is signed.

The new Article 121 framework makes the negotiating process itself legally significant where bad faith is established.

However:

A contractor cannot assume that every tender or LOI guarantees award of the final construction contract.

34. Culpa in Contrahendo and Confidentiality Agreements

NDAs remain important.

However, Article 123 means that contractual confidentiality should be viewed alongside the statutory obligation.

A negotiating party should therefore clearly define:

• confidential information;
• permitted use;
• permitted disclosure;
• return/destruction obligations;
• exceptions;
• duration.

35. Culpa in Contrahendo and Digital Negotiations

Modern negotiations often take place through:

• email;
• WhatsApp;
• online data rooms;
• electronic signatures;
• digital term sheets;
• automated negotiation systems.

These communications may become evidence concerning:

• intention;
• representations;
• disclosure;
• reliance;
• termination;
• confidentiality.

Therefore, businesses should preserve the entire negotiation record.

36. Culpa in Contrahendo and AI

AI introduces new questions.

Suppose an AI system negotiates a contract on behalf of a company.

The AI:

• makes representations;
• provides information;
• rejects offers;
• generates counteroffers;
• creates expectations.

If the AI makes a materially false representation, the legal question becomes:

To what extent should the conduct of the AI be attributed to the company that deployed it?

The relevant legal analysis may involve:

• authorization;
• programming;
• supervision;
• attribution;
• disclosure duties;
• contractual agency;
• causation.

The existence of an automated system does not automatically eliminate the company's legal obligations.

37. Causation in Pre-Contractual Liability

The claimant must connect the wrongful conduct to the actual damage.

For example:

Bad-faith statement

↓

Claimant relies on statement

↓

Claimant incurs AED 200,000 expenses

↓

Negotiations fail

↓

Loss

The claimant must establish the causal connection.

A purely speculative loss is much more difficult to recover.

38. Actual Damage vs Lost Opportunity

This distinction deserves special attention.

Suppose:

A party spends AED 100,000 on due diligence because of bad-faith negotiations.

That may constitute actual damage, depending on the facts.

But the party cannot automatically say:

“I would have made AED 10 million profit from the contract, therefore I want AED 10 million.”

Article 121 specifically excludes expected benefits and lost opportunities relating to the unexecuted contract unless otherwise agreed.

39. Is Culpa in Contrahendo Contractual or Tortious?

Under the former UAE approach, liability arising before a contract was concluded was generally treated through the law of tort/unlawful acts.

Dubai Court of Cassation Civil Appeal No. 267/2016 is a leading example of that approach.

Under the current law, however, Article 121 expressly creates a statutory pre-contractual regime.

Therefore, it is more accurate today to describe it as:

An independent statutory pre-contractual liability regime, supplemented where appropriate by the general law of civil liability.

The exact doctrinal classification and interaction with general tort principles will likely be developed further by UAE courts.

40. Difference from Fraud

Fraud is one possible form of wrongful pre-contractual conduct, but culpa in contrahendo is broader.

Fraud

Deliberate deception.

Culpa in contrahendo

Broader category involving bad-faith negotiation, termination, disclosure failures and other wrongful pre-contractual conduct.

Therefore:

Every fraudulent negotiation may potentially involve pre-contractual liability, but not every instance of pre-contractual liability necessarily requires fraud.

41. Difference from Misrepresentation

Misrepresentation generally concerns a false statement influencing contractual consent.

Culpa in contrahendo can include:

• false statements;
• concealment;
• bad-faith termination;
• misuse of confidential information;
• abusive negotiation conduct.

Thus, misrepresentation may be one component of a wider pre-contractual liability analysis.

42. Difference from Breach of Contract

Breach of contract

Contract exists → obligation breached → damages

Culpa in contrahendo

Contract not concluded or formation process ongoing → pre-contractual duty breached → actual damage

This distinction is essential.

43. Important Practical Test

When faced with a UAE pre-contractual liability problem, ask:

Step 1

Was there actually a contract?

If yes → consider contractual liability.

Step 2

If no, were the parties negotiating?

If yes → Article 121 may apply.

Step 3

Was the conduct in good faith?

Step 4

Was material/decisive information withheld?

Article 122.

Step 5

Was confidential information misused?

Article 123.

Step 6

What actual damage occurred?

Step 7

Was the damage caused by the wrongful conduct?

Step 8

Is the claimant seeking prohibited expectation loss?

Article 121 becomes critical.

44. Exam Formula

A simple formula is:

Negotiation + Duty + Bad Faith + Damage + Causation = Pre-Contractual Liability

But:

Negotiation alone ≠ Liability

and:

Withdrawal alone ≠ Bad Faith

and:

Negotiation ≠ Contract

45. Key Principles for UAE Law in 2026

1. Negotiations do not automatically create a contract.
2. Parties remain free not to conclude a contract.
3. The initiation of negotiations must be in good faith.
4. The conduct of negotiations must be in good faith.
5. Termination must also comply with good faith.
6. Bad-faith negotiation can create liability even without a final contract.
7. Actual damage is the principal statutory measure.
8. Expected profits from an unexecuted contract are normally excluded.
9. Decisive information must be disclosed in the circumstances specified by Article 122.
10. The disclosure obligation cannot be contractually excluded.
11. Unauthorized use/disclosure of confidential negotiation information can create liability.
12. Courts must distinguish a genuine negotiation from an already concluded contract.

46. Revision Table

47. Conclusion

Pre-contractual liability (culpa in contrahendo) has become significantly more important in UAE civil law from 1 June 2026.

The former 1985 Civil Transactions Law did not contain a dedicated statutory regime for negotiations. UAE courts therefore dealt with wrongful pre-contractual conduct largely through general civil/tort principles, with Dubai Court of Cassation Civil Appeal No. 267/2016 being a particularly important historical authority.

The current Federal Decree by Law No. 25 of 2025 fundamentally clarifies the position through Articles 121–123:

Article 121 → Good faith in negotiations and termination

Article 122 → Disclosure of decisive information

Article 123 → Confidentiality

The new system carefully balances two competing principles:

Freedom of contract

A person cannot normally be forced to conclude a contract merely because negotiations have occurred.

Good-faith negotiation

A person cannot use the negotiation process deceptively or abusively and then escape all responsibility simply because the final contract was never signed.

The central rule can therefore be remembered as:

“No duty to conclude, but a duty to negotiate, disclose and terminate in good faith.”

For examination purposes, Dubai Court of Cassation Civil Appeal No. 267/2016 is the key historical UAE mainland case, while Taaleem, Hexagon, Nureen, BAM Higgs & Hill, Dant Investment, Gate Mena/Huobi and Forbes v Kidd provide useful UAE/DIFC comparative authorities concerning negotiations, Letters of Intent, contract formation and the legal consequences of pre-contractual conduct. The DIFC authorities should be cited separately because they arise under DIFC law or particular UAE-law questions and should not be treated as direct interpretations of current Federal Article 121.