Contract Law Overview in the UAE:
Key Principles and Case Studies
NEWS
Key Principles in UAE Contract Law.
1. Legal Framework
The UAE Federal Law No. 5 of 1985, generally known as the *Civil Code*, controls contract law in the UAE. This comprehensive code establishes the fundamental concepts of contract formulation, execution, and enforcement. Additionally, the UAE Commercial Code (Federal Law No. 18 of 1993) governs commercial activities and business-related contracts.
2. Contract Formation
According to the UAE Civil Code, a contract is created when two or more parties agree on the terms and conditions, have the competence to contract, and are not acting illegally. The basic ingredients are:
- Legally enforceable agreement requires a clear offer and acceptance. Both parties must communicate their agreement unequivocally.
- Unlike common law systems, the UAE Civil Code does not need contemplation to verify contracts. Instead, the emphasis is on mutual consent and authorised purpose.
- The contract’s objective must align with public policy and morality.
3. Contract Performance
Parties are bound to carry out their contractual obligations as agreed. The UAE Civil Code emphasises the concept that agreements must be upheld. If one party fails to perform, the other party may demand specific performance, damages, or contract termination.
4. Breach of Contract
The UAE Civil Code handles breaches by stating that non-performance or faulty performance allows the aggrieved party to seek damages. The party in breach may also be forced to correct the failure or compensate for any losses incurred by the violation.
5. Contract Termination.
- Contracts can be cancelled based on specific factors, including mutual agreement.
- Failure to fulfil commitments might result in termination if it causes considerable harm to the other party.
- Contract termination may occur due to unforeseeable occurrences, such as natural catastrophes, that prevent performance.
1. Dubai Duty-Free vs. Construction Firm
A disagreement erupted between Dubai Duty-Free (DDF) and a construction company over delays in the building of a retail space. DDF sought damages for the delay, alleging a breach of the contract’s performance requirements. The Dubai Courts found in favour of DDF, emphasising the contractor’s inability to achieve the agreed-upon schedule and the subsequent damages experienced by DDF. This case demonstrated the UAE judiciary’s strong attitude to enforcing performance deadlines and assessing damages for delays.
2. Abu Dhabi Investment Authority vs. International Contractor.
In a dispute between the Abu Dhabi Investment Authority (ADIA) and an international contractor, ADIA attempted to terminate the contract owing to claimed unsatisfactory work. The contractor claimed that the firing was improper and sought damages for loss of revenue. The Abu Dhabi Court of First Instance confirmed ADIA’s authority to terminate, citing severe violations that jeopardised the project’s quality. This case highlighted the necessity of meeting contractual quality requirements, as well as the judiciary’s responsibility in enforcing them.
3. Real Estate Dispute in Dubai.
A real estate developer and a buyer had a disagreement over a property selling contract. The buyer complained that the developer did not deliver the property according to the requirements. The Dubai Court of Cassation found in favour of the buyer, awarding compensation for the developer’s inability to comply to the agreed-upon parameters. This decision proved the judiciary’s dedication to upholding contract conditions and safeguarding consumer rights.
Contract law in the UAE offers a systematic framework for making, carrying out, and enforcing agreements. The basic principles, based on the UAE Civil Code and Commercial Code, emphasise mutual consent, legitimacy, and performance. Case studies demonstrate how these ideas might be used to dispute resolution and contractual enforcement. Understanding these principles and how they are used will assist parties in navigating the complexity of UAE contract law while also ensuring fair and equitable business practices.
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