GILS Commercial contracts: UAE
GENERAL CONTRACT LAW REGULATIONS
UAE
1. Is it mandatory for a commercial contract to be governed by local law?
It is not mandatory to use the local laws of the UAE as governing law of the contract. It is common practice among businesses in the UAE to use English law as the governing law of the contract.
Having said so, in event of disputes, the parties will have a challenge to persuade a local court in the UAE to apply a foreign law; they will need to establish such law as a matter of fact.
If the transaction is taking place in the UAE or the performing party is domiciled in the UAE, it would be advisable to use the laws of the UAE as the governing law of the Contract.
The parties may also agree to apply the laws of Dubai International Financial Centre in the contract when there is an agreement on referring disputes to the courts of Dubai International Financial Centre (DIFC). Likewise, English law may be selected as a governing law of the contract when the parties agree to refer their disputes to the courts of Abu Dhabi Global Market (ADGM).
2. What language applies to commercial contracts on the territory of the Country? Is it possible to establish the prevailing language?
The parties can prepare their contract in any language; however, the local courts in the UAE will only accept contracts when submitted in Arabic language or translated to Arabic by a locally sworn and licensed translator.
3. Is it possible to use electronic signatures for the execution of commercial contracts between private entities?
Yes, to the extent that the captured signature can be established to:
(a) have been issued (by authentic digital signature service provider) or
For example, digital signature can be obtained through an authenticated electronic signature process provided by the UAE Federal Government (UAE Pass).
(b) pertains to an individual when confirmed by such individual by an email, electronic message communicated from an address, or a number previously acknowledged by such individual to be his/her address or number.
4. Are there any requirements to the form of a commercial contract? Are there any standard forms of commercial contracts?
The parties to the contract should agree upon the essential elements, there should be an offer and acceptance, the subject matter of the contract must be something which is possible and defined or capable of being defined and permissible to be dealt in; and there must be a lawful purpose for the obligations arising out of the contract.
For certain specific relationship, a specimen imposed by the respective authorities must be adhered to. For example, employment contract for employees in the private sector, memorandum of association for limited liability companies in some of the Emirates or Free Zones, the articles of association of private or public joint stock companies.
5. Are there any types of preliminary agreement or “gentleman’s agreement” in the Country?
There is no such type of agreements in the UAE.
Having said so, it is common for the parties in large transactions to enter into non-binding forms of agreement such as letter of intent, heads of terms, memorandum of understanding.
6. What currency is allowed to be used for commercial contracts in the Country?
There is no prohibition to use foreign currency as the currency of the contract. The local courts in the UAE issue judgements in local Dirham currency.
7. Are there options for the limitation of liability of a party under the commercial contract?
Yes, the parties to the contract can limit the liability in advance, pursuant to Article 390(1) of the Civil Code promulgated by Federal Law No. (5) of 1985. The article states that the contracting parties may fix the amount of compensation in advance by making a provision therefore in the contract or in a subsequent agreement, subject to the provisions of the law.
It is important to note that contractual limitation of liabilities may not apply for breach of law or deliberate gross of misconduct in relation to civil duties.
8. Is the concept of release from liability or indemnity enforceable in the Country?
Yes, a written consent or agreement by a party to release the liability of another party is enforceable in UAE.
Indemnity as a legal concept under English law is not available in the UAE, the court will regard an agreement by a party to indemnify the other as an agreement to compensate for loss or expense when such loss or expense is actually incurred by the claiming party.
9. Is there the concept of “consequential damages” in the Country? Can it be excluded from liability?
The concept of “consequential damages” in UAE is explained in Article 389 of the Civil Code promulgated by Federal Law No. (5) of 1985.
Where the value of compensation is not fixed by law or by the contract, the judge shall assess the value of the loss to be equivalent to the damage suffered at the time of the occurrence thereof. It may be excluded from liability.
10. Is the concept of “force majeure” recognized by the legislation and courts on the territory of the Country?
Yes, the “force majeure” concept is recognized in UAE under Article 273 of the Civil Code promulgated by Federal Law No. (5) of 1985. This Article states that “In contracts binding on both parties, if force majeure supervenes which makes the performance of the obligation impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled.
11. Are export control provisions due to the economic sanctions specified by legislation and enforceable in the Country?
Yes, the export control provisions due to the economic sanctions are specified by the legislation and enforceable in UAE. The laws relating to the provision are Cabinet Decision No: 74 of 2020 And Federal Law No. 13 for 2007, amended by law No. 2 for 2008 (the Export Control Law) And Executive Office of the Committee for Goods Subject to Import and Export Control.
12. Is there a mandatory dispute resolution regime in the Country for commercial contracts?
There is no mandatory dispute resolution regime in the UAE.
The parties can agree on their dispute resolution method in their contract.
13. May the arbitration (local or foreign) be chosen by parties as a method of dispute resolution?
The parties may choose arbitration (local or foreign), as a method of dispute resolution by including a clause in the contract. The arbitration in UAE is governed by Federal Law No. (6) of 2018 The Arbitration Law.
Authors: Issam Dahman, Managing Partner
