Insight • UAE Commercial Law

The Legal Framework for Commercial Contracts in the UAE

Discover the essential legal principles governing commercial contracts in the UAE. Learn what makes a contract enforceable, key clauses to include, and how businesses can protect their interests under UAE law.

Introduction

In the UAE’s fast-growing business landscape, commercial contracts form the backbone of every transaction—whether between multinational corporations or local entrepreneurs. A well-structured agreement not only defines the rights and obligations of the parties but also minimizes the risk of disputes.

Understanding the legal framework that governs commercial contracts in the UAE is therefore essential for any business operating within the country’s jurisdiction. The UAE’s contract law combines the principles of civil law, commercial law, and Sharia-based principles, creating a robust and balanced legal environment that supports fair and transparent business practices.

The Legal Foundation: UAE Civil Transactions Law and Commercial Code

The Civil Transactions Law (Federal Law No. 5 of 1985) serves as the primary source of contract law in the UAE. It defines what constitutes a valid contract, how it is formed, and the conditions for enforceability.

Core validity requirements (Civil Code, Art. 125)

Mutual consent between the contracting parties;
Subject matter that is lawful and possible;
A lawful purpose consistent with UAE public policy and morality.

The Commercial Transactions Law (Federal Law No. 18 of 1993) complements the Civil Code by setting out rules specific to business and commercial activities, including sale of goods, agency, transport, and banking. Together, these laws provide a clear structure for contractual relationships in the UAE—balancing flexibility with legal certainty.

Essential Clauses in a UAE Commercial Contract

Governing Law & Jurisdiction

Specify the governing law (UAE Federal Law or DIFC/ADGM) and forum (courts or arbitration).

Payment & Performance

Define amount, schedule, method, currency, delivery timelines, and obligations.

Termination & Force Majeure

Set termination triggers and define force majeure (Civil Code Arts. 273, 287).

Confidentiality & NDA

Protect trade secrets and sensitive data during and after the contract term.

Dispute Resolution

Consider arbitration for high-value/cross-border matters (UAE Arbitration Law FL 6/2018).

Common Legal Pitfalls in Contract Drafting

Omitting governing law or forum, creating jurisdictional uncertainty.
Ambiguous language around obligations, deliverables, or timeframes.
Execution by unauthorized signatories or without proper company authority.
Non-compliance with UAE public policy (e.g., real estate, banking, healthcare).

Tip: A legal review before signing prevents costly disputes and ensures compliance.

Enforceability of Contracts in UAE Courts

Under UAE law, a contract is binding once mutual consent is established—whether written, verbal, or implied by conduct. Written contracts remain best for evidence.

Courts will enforce contracts that:

Are clear in terms and lawful in purpose;
Do not contradict public order or morality;
Are executed by authorized representatives.

Dispute Resolution: Litigation vs. Arbitration

1) Court Litigation

Civil-law procedure in Arabic; judgments enforceable nationwide. Proceedings can be public and time-consuming.

2) Arbitration

Favored for complex or cross-border matters. Awards are enforceable upon ratification. Choose seat, rules (DIAC/ICC), and language.

Best Practices for Businesses

Engage counsel: Use a qualified legal advisor to draft/review contracts.
Authority: Confirm signatory capacity and company authorizations.
Bilingual: Use Arabic/English where dealing with courts/government.
Dispute clause: Align choice of law, forum, and rules with strategy.
Keep current: Review templates for regulatory updates.

Conclusion

The UAE offers a sophisticated and business-friendly framework for commercial contracts. Yet the strength of any agreement lies in clear drafting and compliance with local law.

Need help drafting or reviewing a UAE commercial contract?

FHS Solutions LLC specializes in contract drafting, negotiation, and dispute resolution across the UAE.

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