Contract Law Under the UAE Civil Code: Essential Elements and Enforceability

03 October
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The United Arab Emirates (UAE) has a distinct legal system shaped by a mix of Islamic Sharia law, civil law, and some elements of common law. When it comes to contracts, the UAE Civil Code (Federal Law No. 5 of 1985) provides the framework that governs contracts and their enforceability. Whether you're a business owner, a contractor, or even a consumer, understanding the essentials of contract law in the UAE is vital and professional legal firms in UAE can assist you for the same.

What Makes a Contract Legally Binding in the UAE?

Under the UAE Civil Code, a contract is essentially an agreement between two or more parties to establish a legal obligation. But not all agreements are automatically enforceable. For a contract to be legally binding, it needs to meet several essential criteria, which the UAE Civil Code lays out quite clearly.

Offer and Acceptance- This is where it all starts. One party makes an offer, and the other party accepts it. Seems straightforward, right? Well, in the UAE, this step can happen verbally or in writing, or even by conduct (actions that imply agreement). According to Article 125 of the UAE Civil Code, mutual consent must be clear for a contract to come into existence.
Lawful Subject Matter- A contract must be for a lawful purpose. You can’t enforce a contract for something illegal. If, for instance, someone tries to enforce a contract for the sale of prohibited goods in the UAE, like narcotics, the court will deem the contract void. It’s not just about the agreement but also the legality of what’s being agreed upon.
Capacity to Contract- The UAE Civil Code (Article 211) states that parties entering into a contract must have the legal capacity to do so. This means they need to be of legal age (18 years old) and mentally capable of understanding the agreement. If one party is underage or not in the right mental state, the contract could be declared invalid.
Clear and Definite Terms- A contract has to be clear about what’s being agreed to. Vague or uncertain terms could lead to disputes or even render the contract unenforceable. For example, if a contract doesn’t clearly state the amount of money to be paid or the service to be provided, it could be hard to enforce.
Consideration (Compensation)- In contract law, consideration refers to something of value being exchanged between the parties. According to the UAE Civil Code (Article 128), a contract is valid only if it involves a mutual exchange- be it money, goods, or services. Without consideration, the contract lacks legal standing. If you're unsure whether your contract meets these requirements, legal firms in Dubai can provide expert advice to ensure your agreements are enforceable.

Enforceability of Contracts in the UAE

Let’s look at a few key points about enforceability-

Written vs. Oral Contracts- Although written contracts are preferred for their clarity, oral contracts are legally enforceable in the UAE. But here’s the kicker: proving an oral contract in court can be tricky. Courts generally favor written agreements because they are easier to verify, which makes them more reliable in legal disputes.
Formalities for Certain Contracts- Some contracts, like those related to real estate or employment, have specific formal requirements. For instance, real estate contracts must be registered with the appropriate authorities (e.g., the Dubai Land Department). If these formalities aren’t met, the contract may be deemed unenforceable. In 2020, the Dubai Land Department saw a 35% increase in contract registrations, emphasizing the importance of complying with these formalities.
Time Limits for Enforcing Contracts- Contracts in the UAE have time limits for enforceability, depending on the type of contract. This is known as the statute of limitations. Under Article 473 of the Civil Code, most civil claims must be brought within 15 years from the date the claim arose, while commercial disputes often have a shorter limitation period of 10 years.
Public Policy Considerations- If a contract violates public policy or morals, it will be rendered void. For instance, a contract that discriminates against someone based on race, gender, or religion would not be enforceable in UAE courts. The UAE has been modernizing its legal framework, and in 2020, sweeping reforms were introduced, including changes to personal status laws that better align with international standards.

Recent Updates and Reforms in Contract Law

The UAE has made significant strides in reforming its legal framework in recent years, particularly to attract foreign investment and promote a business-friendly environment. In 2021, the UAE announced updates to the Commercial Companies Law, which allows 100% foreign ownership of onshore companies, eliminating the need for a local partner. This change has a direct impact on contractual agreements between international and local parties.

Additionally, in 2020, the UAE introduced amendments to the Civil Code that clarify the rules around force majeure events- situations that prevent a contract from being fulfilled due to extraordinary circumstances like natural disasters or pandemics. Following the COVID-19 outbreak, many businesses in the UAE invoked the force majeure clause, leading to a significant rise in contract disputes. In fact, 2020 saw a 45% increase in the number of commercial disputes filed in Dubai courts, many of which were centered on contractual obligations disrupted by the pandemic.

How Are Contract Disputes Resolved in the UAE?

1. Negotiation and Mediation

Most people try to sort things out directly before going to court. Mediation is quite popular here- it is an informal process where a neutral third party helps both sides find common ground. It’s quicker, less costly, and definitely less stressful than a full legal showdown.

2. Litigation

If mediation doesn’t do the trick, the next step is court. Civil cases go through three levels in the UAE: the Court of First Instance, the Court of Appeal, and the Court of Cassation. Depending on the complexity, cases can take six months to a year to resolve.

3. Arbitration

Arbitration is becoming a go-to option, especially for business disputes. It’s private and faster than court. The UAE, being part of the New York Convention, means arbitration awards here can be enforced in over 150 countries. Arbitration is growing fast-by 2023, the Dubai International Arbitration Centre (DIAC) was handling a record number of cases annually, with a significant increase in international disputes. This shows arbitration’s rising popularity for resolving contract issues efficiently. DIFC law firms in Dubai are highly experienced in handling complex arbitration cases.

Knowledge of UAE contract law will help you avoid wasting time, money, and energy. Contracts are not only agreements but they are tools which in fact provide your business with shields of the law.

If you have contract related problems, we at Alqada Claim Recovery Services have expert Dubai advocates and legal consultants, willing to assist you in the fulfillment, management and in the termination of even the slightest of disputes.

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