Tag: Dispute Resolution

Liquidated damages have long constituted a fundamental mechanism for allocating contractual risk, particularly in construction and commercial agreements, by allowing parties to predetermine compensation payable in the event of breach. While the concept was recognised under the previous Civil Transactions Act of 1985 (the “Old Code”) the New Civil Transactions Act of 2025 (the “New Code“) introduces a more structured framework governing judicial intervention in agreed compensation clauses. Unlike the former provision Article 390 which granted courts unfettered discretionary authority to amend agreed compensation to reflect the actual loss suffered, Article 340 of the New Code adopts a more detailed structure that expressly regulates when and how judicial intervention may occur.

 

The revised framework seeks to balance contractual freedom with the need to prevent disproportionate or unjust compensation. As consequence, the enforceability of liquidated damages clauses may increasingly depend on considerations of proportionality and fairness, rather than the singular issue of whether the liquidated damages agreed upon reflect the actual loss suffered.

 

These developments are likely to have significant practical implications for contractors, employers, commercial parties, and legal practitioners, particularly in relation to contractual drafting, evidentiary preparation, dispute management, and litigation strategy.

 

What Has Changed?

 

Article 390 of the Old Code permitted contracting parties to agree in advance on the amount of compensation payable upon breach of contract. However, the same provision granted the courts (and arbitrators, where applicable) broad discretionary power to amend the agreed compensation if it did not correspond to the actual loss suffered. Any contractual attempt to exclude the court’s power was considered void. Importantly, the Old Code contained no guidance as to how the court may exercise its power.

 

While the New Code continues to recognise the validity of liquidated damages clauses, it introduces a more structured framework for judicial intervention by setting out guidelines for the exercise of the court’s power to adjust the quantum of damages in both upwards and downwards directions, depending on the circumstances of the case.

 

Pursuant to Articles 340 (2) and 340 (3), a debtor is entitled to seek a reduction of the agreed compensation in the following circumstances:

 

➢ where the agreed liquidated damages are exaggerated or disproportionate to the actual harm suffered;

 

➢ where the original obligation has been partially performed; and

 

➢ where the creditor, through its own fault, contributed to the damage or aggravated its consequences.

 

On the other hand, Article 340 (4) grants the creditor the right to seek an increase in the agreed compensation in the following circumstances:

 

➢ where the creditor proves that the debtor committed fraud; and

 

➢ where the creditor proves that the debtor committed gross fault.

 

Importantly, Article 340(4) permits the court to determine that no compensation is payable at all where the creditor’s own fault has completely absorbed the debtor’s fault. This reflects a more nuanced approach to the allocation of contractual responsibility and the assessment of damages.

 

Under the New Code, the issue of actual loss suffered may come into play where a debtor seeks to argue that the agreed liquidated damages are exaggerated or disproportionate and therefore should be reduced. However, it appears that a creditor may no longer seek an increase in the amount payable as liquidated damages on the grounds that the creditor in fact suffered greater actual loss.

 

Cassation Courts and the Future Interpretation of Article 340:

 

The practical application of Article 340 is likely to give rise to several important questions that remain open for interpretation. One of the principal questions is whether the situations expressly mentioned by the legislature regarding the debtor’s right to seek reduction of liquidated damages, and the creditors seek an increase in agreed compensation, are exhaustive and restrictive in nature, or whether the courts may extend such intervention by way of analogy or broader equitable considerations.

 

Equally significant is the question of how the courts will define and distinguish “gross fault” from ordinary fault, particularly given that the new provision expressly permits increasing liquidated damages only in cases involving fraud or gross fault. This also raises the question of how the courts may approach situations where the debtor’s conduct constitutes fault, negligence, or breach, but does not reach the threshold of gross fault? Whether ordinary fault alone may justify any form of judicial intervention beyond the agreed compensation remains unclear under the statutory text.

 

Another key issue is likely to be whether the courts will permit damages in excess of the actual loss suffered by a creditor, if it is able to prove fraud or gross fault by a debtor. It appears unlikely, given that Article 339 (which addresses the position where the parties have not agreed liquidated damages) retains the concept of the judge awarding damages to reflect the actual loss suffered, and as the concept of punitive damages is contrary to Sharia law.

 

Practical Takeaways: Dos and Don’ts

 

Dos

 

➢ Do clearly define the triggering events for liquidated damages, including delay, non-performance, or partial breach.

 

➢ Do ensure proportionality between the agreed compensation and the anticipated commercial loss, especially if you are the party likely to be claiming liquidated damages, as disproportionality is a ground for downward revision, and not upward revision.

 

➢ Do draft precise and unambiguous clauses to avoid disputes concerning interpretation.

 

Don’ts

 

➢ Do not treat liquidated damages as punitive penalties, as the Civil Code recognises compensation rather than punishment.

 

➢ Do not ignore evidentiary requirements, especially when seeking upward revision of agreed compensation. ■

The UAE’s new Civil Transactions Law (the New Code), came into force on 1 June 2026. The New Code makes a number of important changes to the law governing legal capacity, minority, and judicial protection. In particular, it lowers the age of majority, clarifies the age of discernment, expands the court’s supervisory role in relation to management of property, and introduces clearer consequences for transactions entered into without court-ordered judicial assistance.

 

1. What has changed

 

The New Code refines the legal framework governing legal capacity and the protection of minors and persons requiring assistance. The New Code:

 

➢ reduces the age of majority to 18 Gregorian years (Article 84);

 

➢ clarifies that a person below seven Gregorian years lacks discernment, and expressly fixes the age of discernment by reference to the Gregorian calendar (Article 85);

 

➢ permits the court, after inquiry, to authorise a discerning minor who has completed 15 Gregorian years to manage all or part of his property, either absolutely or subject to conditions (Article 149); and

 

➢ expands the judicial assistance regime to cover not only certain sensory disabilities but also illness requiring assistance, and provides that a transaction requiring judicial assistance is voidable if concluded without such assistance after the assistance decision has been issued (Article 158).

 

2. What the position was before

 

The now repealed Civil Code (the Old Civil Code) contains the core rules on legal capacity, but in a less precise and coordinated manner.

 

Previously, the age of majority was 21 Hijri (lunar) years. Now, its 18 Gregorian years. While a Hijri year is approximately 10 to 11 days shorter than a Gregorian year, the substantive change is the reduction of the age of majority to 18 Gregorian years. The New Code also adopts Gregorian precision in relation to discernment: a child below seven was previously treated as lacking discernment, but the New Code now expressly fixes that threshold at seven Gregorian years.

 

Similarly, under the Old Civil Code, a minor who had completed 18 Hijri years could, with authorisation, take delivery of all or part of his property for management. The New Code lowers that threshold to 15 Gregorian years, but balances that reduction by requiring court inquiry, permitting partial or conditional authorisation, and expressly empowering the court to require accounts and revoke or restrict the authorisation where appropriate.

 

While contracts of management concerning a minor’s property were recognised previously, the earlier provision did little more than state that such contracts were valid in accordance with the conditions determined by law. The New Code now identifies, in non-exhaustive terms, the types of contracts that are valid.

 

Finally, judicial assistance existed under the Old Civil Code, but in narrower terms. The earlier provision applied to persons unable to express their will due to specified conditions, and did not expressly state the consequence of a transaction concluded without the judicial assistant once assistance had been ordered. The New Code widens the class of protected persons and expressly provides that such a transaction is voidable if concluded without the court-ordered judicial assistance after the assistance decision has been issued.

 

3. Why the change matters

 

i. Contradicting certainty

 

These changes are not merely technical. They affect the threshold question of who can bind themselves contractually, and from what age.

 

The reduction of the age of majority to 18 Gregorian years and the express adoption of Gregorian thresholds for discernment bring the Civil Code into closer alignment with modern commercial practice and remove unnecessary uncertainty associated with older lunar-year formulations. In disputes involving younger contracting parties, age and capacity will now be assessed against a clearer and more familiar standard.

 

ii. Court supervision and controlled autonomy

 

The New Code does not simply liberalise the position of minors. It does so on a controlled basis.

 

Under Article 149, a discerning minor who has completed 15 Gregorian years may be authorised to manage all or part of his property, but only after the court has made the necessary inquiries.^[1] The court may grant absolute or restricted authority, require accounts, and later revoke or restrict that authority if the circumstances warrant it. That is a more active supervisory model than before, and allows the court to make a determination on a case-by-case basis, rather than adopt a ‘one size fits all’ approach. It also allows minors to participate in financial decision-making from an early stage, but only within a judicially supervised framework.

 

4. Practical takeaways

 

i. Do’s

 

➢ verify age and capacity at the outset of the transaction, particularly where the contracting party is young or may be acting with limited authority;

 

➢ inquire, obtain, and review any guardianship, trusteeship, management authorisation, or judicial assistance orders before contracting;

 

➢ confirm that the transaction falls within the scope of any authority granted by the court or by law; and

 

➢ undertake a capacity analysis and document carefully the basis on which the transaction is being entered into.

 

ii. Dont’s

 

➢ assume that a minor or protected person has general authority to manage property without checking the terms of the relevant authorisation;

 

➢ treat transactions by persons of diminished or impaired capacity as immune from challenge merely because they were concluded formally; or

 

➢ overlook the possibility that a transaction may be voidable because judicial assistance was required but not obtained.

 

iii. Issues to watch in the courts

 

The following issues are likely to require clarification through case law:

 

➢ what factors and evidence the courts will consider in deciding whether to grant, restrict, or revoke a minor’s authority to manage property;

 

➢ how broadly the courts will interpret the scope of court-granted management authorisation under Article 149;

 

➢ how narrowly or broadly the courts will interpret the distinction between ordinary acts of management and transactions requiring additional scrutiny or approval; and

 

➢ how the courts will approach transactions concluded without the participation of a judicial assistant after an assistance order has been made, including in cases where the transaction is challenged solely by reference to the absence of judicial assistance.

 

For businesses and their advisers, the practical message is clear. The New Code modernises the law on legal capacity, but does so by combining lower age thresholds with greater court supervision and clearer routes to challenge. Parties should therefore verify capacity, authority, and court-imposed limits with greater care before contracting. ■

 

 

 

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[1] The New Code does not specify the nature of inquiries.

Laws ordinarily have prospective effect. This principle protects legal certainty and allows parties to organise their affairs based on the law applicable at the relevant time. Article 27 of the UAE Constitution enshrines this principle in relation to criminal laws, but not with respect to civil and commercial laws.

 

As will be evident immediately below, the legislature may enact civil and commercial laws with retrospective effect. It is therefore necessary to examine whether any provisions of the Civil Transactions Act of 2025 (“the New Code”) may have this effect. This inBrief examines Articles 4, 6 and 7 of the New Code governing limitation periods and transitional arrangements.

 

As a general rule, the New Code does not have retrospective effect:

 

Article 4 (1), effective from 1 June 2026, establishes the general rule:

 

“The Law shall come into force from the date of its effectiveness and shall not apply to facts and transactions preceding it, unless the Law stipulates otherwise.”

 

Consequently, the New Code applies only to facts and transactions arising after 1 June 2026. Facts and transactions that occurred prior to this date continue to be subject to the Civil Transactions Act of 1985 (the “Old Code”), unless there is express legislation to the contrary.

 

However, time limits are affected:

 

Article 6 provides as follows:

 

(1) New provisions relating to the statute of limitations (non-hearing of a case due to lapse of time) shall apply from the time they come into force to any period that has not yet been completed.

 

(2) Old provisions shall apply to matters concerning the commencement, suspension, and interruption of the limitation period regarding the time prior to the new provisions coming into force.

 

Article 7 provides as follows:

 

“If a new provision sets a limitation period shorter than that prescribed by the old provision, the new period shall apply from the time the new provision comes into force, even if the old period had already commenced.

 

If the remaining portion of the period prescribed by the old law is shorter than the period set by the new provision, the limitation period shall expire upon the lapse of that remaining portion.”

 

The practical effects of Articles 6 and 7 may be summarized as follows:

 

➢ To the extent that the New Code establishes new time-limitation periods, they will come into immediate effect with respect to causes of action that arose prior to the New Code coming into effect, even where the limitation period under the New Code is shorter.

 

➢ If the time period prescribed under the Old Code is due to expire before the time period under the New Code does, then the matter will become time-barred on the earlier date.

 

➢ If any events occurred prior to the New Code coming to effect which effect the application of the time bar (for example, an event that stops or suspends the clock), then those will be assessed under the provisions of the Old Code. Any such events that occur on or after 1 June 2026 will be assessed under the provisions of the New Code.

 

Consequently, this means that parties who intend to commence litigation find themselves with less time than was initially contemplated to do so. Fortunately, however, the New Code for the most part maintains the limitation periods provided for in the Old Code. An important exception is Article 431 of the New Code, on claims relating to the fees and expenses of doctors, pharmacists, lawyers, engineers, experts, professors, teachers, and brokers. These claims were subject to a five-year limitation period under the Old Code. Article 431 of the New Code reduces this to three years.

 

For example, where an engineer’s fees became due on 1 January 2025, the claim would ordinarily have expired on 1 January 2030 under the Old Code. However, because the limitation period remained incomplete on 1 June 2026, the new three-year period applies from that date, resulting in the claim becoming time-barred on 1 June 2029.

 

A separate question arises where the New Code prescribes a longer limitation period than the Old Code. Unlike situations involving shorter limitation periods, Article 7 does not expressly address this scenario. One example is found in Article 510 of the New Code, which provides that an action for warranty against defects shall not be heard after one year from the day following delivery of the sold item, whereas Article 551 of the Old Code prescribed a limitation period of only six months.

 

Where the six-month period had commenced before 1 June 2026 but had not yet expired by that date, there is a credible argument that Article 6 supports the application of the new one-year limitation period from the date the New Code entered into force, on the basis that the limitation period remained incomplete. However, the New Code does not expressly address this situation, and the extent to which longer limitation periods may apply to pre-existing claims remains open to judicial interpretation. Until judicial guidance emerges, caution should be exercised when assessing the impact of the New Code on claims affected by extended limitation periods.

 

Conclusion

 

The transitional provisions demonstrate an attempt to balance legal certainty with the effective implementation of the New Code. While the general rule remains that legislation does not operate retrospectively, Articles 6 and 7 provide an important framework for determining how ongoing limitation periods are treated following the entry into force of the New Code. Parties assessing existing claims should therefore carefully consider the transitional provisions when evaluating limitation-related issues after 1 June 2026. ■

Federal Decree-Law 25/2025 Issuing the Civil Transactions Law (the New Code) comes into effect on 1 June 2026, replacing Federal Law 5/1985 Concerning the Issuance of the Civil Transactions Law (the Current Code); UAE’s principal piece of civil legislation.

 

This article forms part of a series examining the changes introduced by the New Code, and deals with the law on assignments.

 

An assignment is the transfer by one party (the assignor) of a right, benefit, or interest under a contract or obligation to a third party (the assignee), who consequently steps into the assignor’s position.

 

1. What is the position under the Current Code?

 

The Current Code provides a statutory framework for the assignment of debt (hawalat al-dayn), while the assignment of rights (hawalat al-haqq) remains uncodified. The assignment of rights, however, has been recognised and enforced by the UAE courts, who have developed a body of jurisprudence drawing on the statutory provisions applicable to the assignment of debt, together with general principles of contract law and Islamic jurisprudence. In the absence of binding precedent, this body of case precedent provides guidance, but not a binding framework.

 

The New Code introduces, for the first time, a specific legislative framework governing, among other things, warranties, priority, and notification requirements in the context of assignment of rights. The law on the assignment of debt is not a new introduction but rather a refinement of the existing legislative framework.

 

2. What has changed?

 

Assignment of Rights

 

The New Code codifies the assignment of rights, consolidating principles previously developed through case precedent and practice within a single statutory regime. The New Code provides that:

 

➢ a right may be assigned by a creditor to a third party without the debtor’s consent, unless the assignment is restricted by law, agreement, or the nature of the obligation (Article 405);

 

➢ only rights that are legally transferrable may be assigned, together with associated securities, including pledges, guarantees, and any accrued instalments (Articles 406 and 409);

 

➢ an assignment is effective against the debtor and third parties upon notification to or acceptance by the debtor. Where the effectiveness against third parties is founded upon the debtor’s acceptance (rather than notification), such acceptance must bear a fixed date (Article 407);

 

➢ the assignee may, prior to notification or acceptance, take steps necessary to preserve the assigned right (by seeking attachment orders, for example) (Article 408);

 

➢ where the underlying contract is silent, the following default warranties (the Warranties) apply (Articles 411-412):

 

– the assignor does not warrant the debtor’s solvency unless expressly agreed, and where such a warranty is given, it is limited to the debtor’s solvency at the time of the assignment;

 

– in an assignment for consideration, the assignor warrants the existence of the assigned right at the time of the assignment; and

 

– in a gratuitous assignment (i.e., one made without consideration), no warranties are given by the assignor.

 

➢ by reference to the Warranties, where the assignor knew, at the time of assignment, the assigned right did not exist, it is liable to compensate a good faith assignee for any resulting loss (Article 413);

 

➢ the assignor is liable to compensate the assignee for loss caused by its own acts, and any agreement to exclude or limit this liability is void (Article 414); and

 

➢ where competing claims arise in respect of the same assigned right, priority is determined by the date on which the assignment becomes effective against third parties, rather than the date the assignment is concluded (Articles 416-417).

 

Assignment of Debt

 

The New Code retains, but refines the existing framework governing assignment of debt. The New Code provides that:

 

➢ a debt may be assigned to a new debtor unless restricted by law, agreement, or the nature of the obligation, and the assignment is concluded only with the consent of the incoming debtor and the creditor (Article 418);

 

➢ the discharge of the original debtor is contingent on the creditor’s acceptance of the assignment. In the absence of such acceptance, including where the creditor expressly or impliedly refuses the assignment, the original debtor remains liable (Article 419(1) and (2));

 

➢ where the creditor is notified of the assignment and given a reasonable period to approve, failure to give approval within that period is deemed a refusal (Article 419(3));

 

➢ securities attached to the assigned debt, including guarantees and mortgages, continue notwithstanding the assignment. However, providers of personal or real security are not bound by the assignment unless they have expressly consented (Article 421); and

 

➢ the sale of mortgaged real property does not, by itself, transfer the secured debt to the purchaser. An express agreement is required, and the mortgagee creditor’s consent must be obtained prior to registration of the sale (Article 424).

 

 

3. Why do the updates in the New Code matter?

 

Commercial and litigation impact

 

➢ The codification of the assignment of rights fills a legislative gap, providing a clear statutory framework for an area previously governed by judicial practice and commentary. Parties may now rely on codified rules when structuring transactions, drafting assignment provisions, and advancing or defending claims.

 

➢ Further, the rules on priority and competing claims are particularly relevant in insolvency and enforcement proceedings, where the timing of notification may determine the outcome.

 

Allocation and assumption of risk

 

➢ The distinction between assignments for consideration and gratuitous assignments has direct consequences for the allocation of risk between the parties. In an assignment for consideration, the assignor warrants the existence of the right, whereas in a gratuitous transfer no such warranty is given and the assignee assumes the risk that the right may not exist.

 

➢ The assignor’s liability for its own acts cannot be excluded by agreement, limiting the extent to which risk can be contractually allocated between the parties.

 

4. Practical Takeaways

 

Do’s

 

For the assignment of rights:

 

➢ notify the debtor promptly following any assignment of rights as priority against third parties and the debtor depends on the timing of notification, not the date the assignment was concluded;

 

➢ ensure that notification is given to the debtor in a manner that evidences receipt; and

 

➢ in gratuitous assignments, conduct appropriate due diligence on the existence of the right being transferred.

 

For the assignment of debts:

 

➢ obtain the creditor’s express consent prior to completing the assignment and, in real estate transactions, prior to registration of the sale; and

 

➢ ensure that providers of personal or real security expressly consent to remain bound following an assignment of the underlying debt.

 

Don’ts

 

➢ use boilerplate assignment clauses without reviewing them against the New Code’s requirements;

 

➢ treat the New Code as a substitute for a properly negotiated assignment agreement tailored to the underlying transaction; and

 

➢ assume that an assignment interrupts or resets the statutory limitation period.

 

For the assignment of rights, don’t:

 

➢ assume that notification is optional (a common misunderstanding of the fact that debtor consent is not required) – notification is critical to priority and third-party effectiveness; and

 

➢ rely on undated debtor acceptances as a substitute for formal notification.

 

For the assignment of debts, don’t:

 

➢ proceed to registration of a real estate sale without first obtaining the mortgagee creditor’s consent to any intended transfer of the secured debt. ■

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. ■