Author: afridi-angell

The recent escalation of hostilities involving the United States, Israel, Iran and several Gulf States has increased security risks across key transport and energy routes in the region. Reports of attacks on commercial shipping, rising war-risk insurance premiums, and the potential disruption of navigation through the Strait of Hormuz have already begun affecting maritime and aviation activity.

 

For businesses operating in or through the Middle East, such developments can raise immediate questions regarding the performance of contractual obligations, particularly in sectors reliant on shipping, logistics, commodities, construction supply chains, and energy transport.

 

This inBrief outlines how these developments may affect contractual obligations under UAE law and highlights key issues businesses should consider when assessing contractual risk.

 

Regional disruption and supply chain impact

 

The Strait of Hormuz remains one of the most strategically important maritime corridors in the global energy market. A significant proportion of the world’s oil and liquefied natural gas exports transit the Strait, meaning that disruption to navigation in the region can quickly affect shipping availability, insurance markets, and global supply chains.

 

Recent reports indicate that some shipping operators have delayed voyages, altered routes, or reassessed operations in the Gulf in response to increased security risks. At the same time, war-risk insurance premiums have reportedly risen sharply, and in some cases, cover has been restricted or withdrawn. Airspace restrictions and operational changes have also affected certain aviation routes across the region.

 

These developments may affect contractual performance in several ways, including:

 

– delays in shipment or delivery of goods;
– reduced availability of vessels or aircraft;
– withdrawal or significant increases in insurance costs;
– increased freight and logistics expenses; and
– disruption to energy supply or raw material availability.

 

Where such issues arise, parties will often first examine whether the relevant contract provides relief through force majeure or other contractual risk-allocation mechanisms.

 

Force majeure under UAE law

 

Although the UAE Civil Code does not contain a single comprehensive definition of force majeure, the concept is recognised in several provisions.

 

Article 273 of the Civil Code provides that if a force majeure event renders the performance of a contract impossible, the corresponding obligation ceases and the contract may be automatically cancelled. UAE courts have historically interpreted this principle strictly. The key requirement is impossibility of performance, rather than mere inconvenience or increased cost.

 

Accordingly, the fact that performance has become more expensive or commercially unattractive will not ordinarily be sufficient to establish force majeure.

 

Where a contract contains a force majeure clause, the availability of relief will depend primarily on the wording of the clause. Provisions referring to events such as war, hostilities, blockades, governmental restrictions, or disruptions to transport routes may be particularly relevant in the present circumstances.

 

Parties seeking to rely on force majeure should also ensure that any contractual procedures—particularly notice requirements—are carefully followed.

 

Exceptional circumstances and contractual hardship

 

Where performance remains possible but has become significantly more onerous, a party may seek relief under Article 249 of the Civil Code.

 

Article 249 provides that if exceptional events of a general nature occur which could not reasonably have been foreseen and which render performance oppressive so as to threaten the obligor with serious loss, a court may adjust the obligation to a reasonable level after balancing the interests of both parties.

 

Unlike force majeure, this provision does not terminate the contractual obligation. Instead, it allows a court to rebalance the contract where circumstances have fundamentally altered its economic equilibrium.

 

In situations involving sustained geopolitical disruption, significant increases in shipping costs, or systemic constraints affecting transport or energy markets, parties may seek to rely on Article 249 where strict force majeure arguments cannot be established.

 

Liability and extraneous causes

 

Article 287 of the Civil Code may also be relevant in certain circumstances. This provision states that a party may avoid liability if it can demonstrate that the harm arose from an extraneous cause in which it played no part, such as force majeure, a sudden incident, or the act of a third party.

 

Where contractual non-performance results directly from external events such as conflict-related disruptions to shipping routes or government restrictions affecting transport operations, parties may seek to rely on this principle in defending claims for damages.

 

Insurance and contractual risk allocation

 

Another practical issue concerns contractual insurance obligations.

 

Many commercial arrangements—including charterparties, commodity sale agreements, financing arrangements, and shipping contracts—require vessels or cargo to maintain specified levels of insurance coverage. If war-risk insurance becomes unavailable or prohibitively expensive, parties may encounter difficulties complying with these contractual requirements.

 

Disputes may arise as to whether the inability to obtain insurance constitutes a contractual breach or whether the underlying circumstances justify suspension or renegotiation of contractual obligations.

 

Similarly, increases in freight costs or the imposition of war-risk surcharges may raise questions regarding cost allocation where contracts do not expressly address such contingencies.

 

Practical steps for businesses

 

Businesses with exposure to regional transport routes or energy supply chains may wish to consider the following steps:

 

– review key commercial contracts to identify force majeure provisions, delivery obligations, insurance requirements, and cost-allocation mechanisms;

– confirm the scope of marine, cargo, and political risk insurance coverage;

– monitor potential supply chain disruptions that may affect contractual performance; and

– ensure timely communication with contractual counterparties and compliance with any contractual notice requirements.

 

Conclusion

 

Periods of geopolitical instability frequently give rise to contractual disputes concerning delay, non-performance, and increased costs. Under UAE law, parties seeking relief must carefully assess whether the circumstances amount to force majeure, exceptional hardship, or simply commercial difficulty.

 

The outcome in any particular case will depend on the facts, the contractual wording, and the applicable legal framework. Businesses affected by regional disruption should therefore review their contractual position at an early stage in order to manage risk and preserve available remedies. ■

Introduction

The Civil Transactions Act, commonly referred to as the Civil Code, is arguably the single most important piece of civil legislation in the UAE.

 

While there are extensive laws regulating specific subject matter such as labour relations, real estate and leasing, companies, banking, and other commercial activities, the fundamental principles which form part of those laws are rooted in the Civil Code. This includes concepts such as good faith, abuse of rights, party autonomy, fault, harm, causation, unjust enrichment, and nullity.

 

The importance of the New UAE Civil Transactions Act of 2025 (“the New Code”), which comes into effect on 1 June 2026, is therefore impossible to overstate. The New Code replaces the Civil Transactions Act of 1985 (the “Old Code”), and constitutes both an overhaul of the law, and a legislative response to four decades of economic, social, and technological developments which has seen the UAE become a global centre for investment, digital innovation, and complex transactions. The New Code addresses these developments by modernising language, refining legal concepts, and introducing solutions aligned with contemporary realities, while preserving fundamental values such as justice and legal certainty.

 

In this inBrief, the first of a series examining the nature and consequences of the changes introduced by the New Code, we offer, as an important introduction, a conceptual analysis of select key features of the New Code, including its role in bridging legislative gaps, clarifying terminology, introducing new regulatory areas, and expanding judicial discretion.

 

From Silence to Structure: How the New Code Addresses Longstanding Omissions

 

One of the most prominent legislative objectives of the New Code is to fill substantive gaps that existed in the Old Code. One such example is the law regulating assignments. The Old Code confined itself to the issues around the assignment of debts, while being silent on the assignment of rights. In the absence of legislative provision, the courts developed clear principles on the assignment of rights. However, as UAE’s legal system does not recognise the concept of binding precedent, these principles were considered guiding practice. The New Code at Articles 405 to 424 codifies these principles into law, thus providing welcome certainty.

 

The New Code now contains provisions on pre-contractual negotiations, which was not an area that was previously covered by legislation, and has already understandably garnered wide interest.

 

Articles 121, 122, and 123 of the New Code now govern negotiations and the conduct of parties leading up to the formation of a contract. The New Code imposes specific obligations on the parties where pre-contractual negotiations are concerned, which, most notably, include duties to negotiate in good faith and disclose relevant information. Furthermore, the New Code stipulates that abusive termination of negotiations may give rise to liability, granting the aggrieved party the right to claim compensation even in the absence of an executed contract. Such compensation is a statutory or tortious liability rather than a contractual liability, which are considered distinct sources of obligation under Article 121 of the New Code.

 

Notwithstanding these advances, it is noteworthy that the new provisions do not expressly address the legal status of admissions made by parties during the negotiation process. In particular, uncertainty remains as to whether such admissions may be relied upon in subsequent legal proceedings if negotiations fail and no contract is formed. Previously, at least one judgment of the Dubai Court of Cassation held that such admissions are not admissible as evidence. Article 123 of the New Code provides that anyone who uses or discloses, without authorisation, confidential information obtained during negotiations or the contract, shall be held liable in accordance with the general rules. Whether this provision encompasses inadmissibility of admissions made during negotiations, or only extends to safeguarding confidential information exchanged during negotiations, remains to be clarified through judicial interpretation.

 

On the flip side of the coin, the New Code omits altogether matters from the Old Code which have since been addressed in specific legislation. Examples include the burden of proof, previously set out in Article 112 to Article 123 of the Old Code, which is now set out in the Federal Decree-Law No. 35 of 2022 Promulgating the Law of Evidence in Civil and Commercial Transactions. Similarly, rules governing bankruptcy and insolvency which were previously contained in Articles 401 to 413 of the Old Code, have been omitted in light of the enactment of Federal Decree-Law No. 51 of 2023 on Financial Reorganization and Bankruptcy Law and Federal Decree-Law No. 19 of 2019 on Insolvency. This streamlining of legislation is a welcome development.

 

The Expansion of Judicial Reasoning and the Reconfiguration of Legal Sources

 

Article 1 of the New Code significantly broadens the discretionary power that may be exercised by the UAE Courts in the absence of applicable statutory provisions. Under the Old Code, the judges were directed to refer to the Islamic Sharia in such circumstances. However, their discretion was restricted by a hierarchical methodology that required judges to consult the Maliki and Hanbali schools of Islamic jurisprudence first, and if no guidance was found, to then look to the Shafi and Hanafi schools. This formulation imposed not only a restrictive waterfall methodology of reference, but also an implicit confining of judicial reasoning to those specific schools of Islamic jurisprudence.

 

The New Code removed this fetter from the courts and empowers judges with discretion to refer to, interpret and apply Islamic Sharia more broadly as the circumstances warrant. This development reflects a conscious legislative choice to replace methodological rigidity with principled flexibility. At the same time, it raises a practical question as to the contours of “Sharia” as a source of law, given its breadth and conceptual diversity. This places a heightened responsibility on higher courts, particularly the Court of Cassation, to articulate guiding principles that can ensure coherence and consistency over time.

 

The New Code also introduces natural law and rules of justice as additional subsidiary sources to which the court may resort if no solution is found in statutory provisions, Sharia, or customary principles. This underscores the legislator’s expectation that judges will exercise active intellectual effort in seeking fair solutions in the absence of legislative provision. However, the absence of a codified definition or criteria for what constitutes natural law and rules of justice may pose interpretative challenges and uncertainty, particularly in complex commercial disputes.

 

Precision of Terminology and Structure in the New Code

 

Beyond substantive reform, the New Code reflects a deliberate drafting philosophy centered on precision, structure, and accessibility. This plays a central role in ensuring consistent interpretation, predictable application, and effective compliance.

 

For example, under the Old Code (Article 890), a subcontractor (i.e. a person or entity engaged by a main (or prime) contractor to perform part of the contractor’s obligations to a third party) was described as Second Contractor. The New Code, at Article (832) replaces Second Contractor with Subcontractor which is linguistically and conceptually precise, immediately conveying the legal nature of the relationship as one derived from and dependent upon a primary contract.

 

Through such refinements, the New Code demonstrates a commitment to simplifying language, improving organisation, and aligning statutory terminology with established legal usage, thereby enhancing both the intelligibility and practical effectiveness of the law.

 

Conclusion

 

The promulgation of the New Code marks a decisive moment in the evolution of private law in the UAE, and showcases the UAE’s legal system as one that is attentive to its historical foundations while being responsive to the demands of a rapidly transforming society.

 

As is the case with all legislation, the true impact of the New Code will ultimately depend on the courts’ interpretation and application of its provisions, particularly the level of guidance flowing from the superior courts in the initial years. In this sense, the New Code should be viewed, not as the final word but, as the beginning of a renewed dialogue between the legislators and the judiciary. ■