In the UAE, commercial contracts are more than paperwork—they define business relationships, obligations, and remedies. Yet, even carefully negotiated agreements can lead to disputes if not drafted correctly. Ambiguous terms, missing clauses, or unenforceable provisions can result in costly legal battles.
This blog explains how poorly drafted contracts cause disputes and offers tips to avoid legal pitfalls.
Understanding Contract Risks in the UAE
Contracts in the UAE are governed primarily by Federal Law No. 5 of 1985 (Civil Transactions Law) and Federal Law No. 18 of 1993 (Commercial Transactions Law). Free zones like DIFC and ADGM operate under common law, creating a different framework for contract enforcement.
Contracts must comply with the applicable legal system. Overlooking these rules may lead to disputes, delays, or even contract invalidation. Poorly drafted contracts often result in breach claims, financial loss, and reputational damage.
Common Legal Pitfalls
Here are mistakes that frequently lead to disputes in UAE contracts:
1. Vague or Ambiguous Language
Unclear terms cause misinterpretation. Obligations, timelines, pricing, or delivery schedules should be explicit. Courts usually interpret vague terms against the drafter.
2. Missing or Unclear Payment Terms
Payment issues are a leading cause of litigation. Contracts should clearly define timelines, currency, transfer methods, and penalties for late payment.
3. Inadequate Dispute Resolution Clauses
Contracts must specify governing law and dispute resolution methods. Without this, enforcement may be delayed or contested.
4. No Termination or Exit Clauses
Contracts lacking exit strategies create legal entanglement. Notice periods, post-termination responsibilities, and force majeure provisions are essential.
5. Ignoring UAE-Specific Legal Requirements
Penalty clauses, non-compete terms, and employment or tax provisions must comply with UAE laws. Non-compliance can make contracts unenforceable.
6. Unclear Governing Law and Jurisdiction
The UAE has multiple legal systems. Contracts should clearly define applicable law and jurisdiction to avoid parallel litigation and inconsistent rulings.
7. Poorly Defined Force Majeure
Generic force majeure clauses may fail during events like pandemics, political unrest, or regulatory changes. Specific definitions reduce liability risks.
Importance of Governing Law and Jurisdiction
Choosing the right governing law is critical. For example, DIFC law has a six-year limitation period for claims, while UAE civil law allows fifteen years. Jurisdiction clauses determine the forum for disputes, whether:
- Onshore UAE courts (civil law, Arabic)
- DIFC or ADGM courts (common law, English)
- Arbitration bodies like DIAC or DIFC-LCIA
Correctly aligning law and jurisdiction avoids enforcement delays and conflicting judgments.
Benefits of Well-Drafted Contracts
Risk Management
Clearly defined obligations, liabilities, and force majeure clauses prevent misunderstandings and disputes.
Business Protection
Termination, indemnity, and dispute resolution clauses protect financial and reputational interests.
Legal Compliance
Arabic-English drafting, adherence to UAE laws, and proper jurisdiction ensure enforceability.
Operational Efficiency
Detailed scope, deliverables, timelines, and payment schedules improve execution and reduce internal conflicts.
Confidence in Dealings
Professionally drafted contracts build trust with clients, partners, and investors, reducing litigation risks.
Final Thoughts
In the UAE, commercial contracts must reflect civil law, Sharia principles, or common law depending on jurisdiction. Vague terms, unclear payment schedules, missing exit strategies, or poorly defined dispute resolution clauses can lead to costly legal disputes.
Whether operating in DIFC, ADGM, or mainland UAE, proactive, informed contract drafting protects your business and ensures smoother transactions.
For businesses seeking expert assistance, AR Associates provides comprehensive contract drafting and legal support. Ensure your agreements are enforceable, clear, and compliant under UAE law. Contact us today to protect your interests.
