Introduction
The United Arab Emirates (UAE) has established itself as a leading global business hub, attracting foreign investors, multinational corporations, and entrepreneurs across diverse sectors. With its unique legal framework, a blend of civil law principles, Sharia law influences, and common law systems in certain free zones, drafting commercial contracts for the UAE jurisdiction requires particular care. What may be standard practice in common law jurisdictions can lead to enforceability issues or unintended consequences in the UAE.
This article explores common pitfalls encountered when drafting commercial contracts governed by UAE law and offers practical tips to ensure clarity, enforceability, and commercial certainty.
Understanding the UAE Legal Landscape
Before drafting any commercial contract, it is essential to understand the UAE’s dual legal structure:
- Onshore UAE (Civil Law System): Governed primarily by Federal laws, including the UAE Civil Transactions Law (Federal Law No. 5 of 1985) and Commercial Transactions Law.
- Financial Free Zones (Common Law System): The Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) operate under independent common law frameworks with their own courts.
Failing to distinguish between these jurisdictions is one of the most frequent drafting errors.
Common Pitfalls in Drafting UAE Commercial Contracts
1. Incorrect Choice of Law and Jurisdiction
A common mistake is specifying a foreign governing law while choosing UAE onshore courts for dispute resolution. UAE courts may disregard foreign law clauses if they conflict with UAE public policy or mandatory provisions.
Tip: Ensure alignment between governing law and dispute resolution forum. For DIFC or ADGM contracts, clearly state the relevant free zone law and courts.
2. Over-Reliance on Common Law Concepts
Concepts such as time is of the essence, penalty clauses, or entire agreement clauses do not operate in the same way under UAE civil law.
For example:
- Penalty clauses are subject to judicial discretion and may be reduced by UAE courts.
- Good faith is a statutory obligation under UAE law, overriding strict contractual wording.
Tip: Draft with UAE civil law principles in mind and avoid copying templates from common law jurisdictions without adaptation.
3. Vague or Incomplete Contractual Obligations
UAE courts place significant emphasis on the intention of the parties and actual performance. Ambiguous obligations can result in judicial interpretation that may not align with commercial expectations.
Tip: Clearly define rights, obligations, deliverables, timelines, and payment terms with precision.
4. Improper Termination Provisions
Under UAE law, unilateral termination without valid cause may expose a party to compensation claims, even if the contract provides termination rights.
Tip: Include detailed termination grounds, notice requirements, and consequences of termination, ensuring compliance with UAE statutory protections.
5. Inadequate Force Majeure Clauses
While force majeure is recognised under UAE law, courts assess it strictly and on a case-by-case basis. Broad or poorly drafted clauses may not offer sufficient protection.
Tip: Define force majeure events clearly and align contractual language with statutory concepts such as impossibility of performance.
6. Failure to Address Mandatory UAE Law Provisions
Certain areas such as agency arrangements, employment related contracts, and distribution agreements are subject to mandatory UAE laws that cannot be contracted out of.
Tip: Conduct a mandatory law check before finalising contracts to ensure enforceability.
Practical Drafting Tips for UAE Commercial Contracts
1. Use Clear and Bilingual Drafting Where Necessary
Arabic is the official language of UAE courts. In case of conflict between English and Arabic versions, Arabic generally prevails.
Best Practice: Prepare bilingual contracts or include a clear language precedence clause, supported by accurate legal translation.
2. Include Robust Dispute Resolution Clauses
Arbitration is widely recognised and enforced in the UAE, particularly under the New York Convention.
Best Practice: Specify the seat, rules, language, and enforcement mechanism clearly, especially for cross-border contracts.
3. Address Payment Security and Remedies
Late payments and non-performance are common sources of disputes.
Best Practice: Include clear payment milestones, interest provisions (where permissible), and security mechanisms such as guarantees or post-dated cheques (where legally appropriate).
4. Draft with Good Faith in Mind
UAE law imposes a duty of good faith in contract performance and negotiation.
Best Practice: Avoid overly aggressive clauses that may be viewed as unconscionable or abusive.
5. Tailor Boilerplate Clauses
Standard boilerplate clauses such as indemnities, limitation of liability, and confidentiality must be adapted to UAE law.
Best Practice: Review boilerplate clauses critically rather than treating them as standard.
Conclusion
Drafting commercial contracts for the UAE jurisdiction requires more than technical drafting skills, it demands a nuanced understanding of local laws, judicial practice, and commercial realities. By avoiding common pitfalls and adopting jurisdiction specific drafting strategies, parties can significantly reduce legal risk and enhance contractual certainty.
Whether operating onshore or within free zones such as DIFC or ADGM, legal professionals and businesses should prioritise tailored drafting and seek jurisdiction specific legal advice to ensure enforceability and commercial success.
Author’s Note: This article is intended for informational purposes and does not constitute legal advice.
EK 