The New Philosophical Framework of UAE Contract Law
The enactment of Federal Decree-Law No. 25 of 2025 Issuing the Civil Transactions Law represents one of the most significant private-law reforms in the legislative history of the United Arab Emirates. While the Law modernizes numerous technical doctrines, its true importance lies in the philosophical transformation it brings to contract law. Contracts are no longer treated merely as mechanical exchanges of consent, but as legally protected relationships governed by good faith, transparency, proportionality, and social balance. This evolution reflects the UAE’s transition from a developing legal system to a mature jurisdiction capable of reconciling commercial certainty with ethical responsibility.
At the heart of the new Law lies the reaffirmation of the principle that a contract, once validly concluded, constitutes the law of the contracting parties. However, the 2025 Law qualifies this principle by embedding it within a broader normative framework. Contractual autonomy is preserved but no longer operates in isolation. Courts are now expressly empowered to interpret contracts in light of justice, honesty, trust, and prevailing custom, rather than adhering strictly to literal wording where ambiguity or imbalance arises. This approach significantly reduces the scope for opportunistic formalism and strengthens substantive fairness.
Good Faith: A Binding Obligation at Every Stage
One of the most transformative developments under the 2025 Law is the elevation of good faith from a general ethical notion into a binding legal obligation governing the entire contractual lifecycle. Good faith now applies not only to performance, but also to negotiations, formation, interpretation, execution, and termination. Parties are required to act honestly and responsibly, refraining from conduct that undermines legitimate expectations or exploits informational or structural asymmetries.
Pre-Contractual Negotiations Under a Legal Standard
This development is particularly evident in the express regulation of pre-contractual negotiations. For the first time in UAE civil law, negotiations are placed under a clear legal standard of good faith. While parties remain free to withdraw from negotiations and are not compelled to conclude contracts, liability may arise where negotiations are conducted or terminated in bad faith. This includes creating false expectations, entering negotiations without genuine intent, or withdrawing opportunistically after inducing reliance by the counterparty.
The Mandatory Duty of Disclosure
The introduction of a mandatory duty of disclosure represents a decisive break from the earlier legal framework. Parties who possess information of decisive importance to the consent of the other party must disclose it where ignorance is presumed or trust is placed. This obligation applies symmetrically and cannot be waived or contractually excluded. Deliberate silence in such circumstances may constitute bad faith and give rise to annulment or compensation. Under the new Law, silence is no longer legally neutral; it may carry direct civil consequences.
Good Faith in Interpretation and the Abuse of Rights
Good faith also plays a central role in the interpretation and performance of contracts. Even where contractual rights exist, their exercise may be deemed unlawful if carried out maliciously, disproportionately, contrary to custom, or in a manner that causes excessive harm relative to the benefit sought. This codification of the doctrine of abuse of rights represents a clear legislative commitment to preventing the misuse of contractual powers under the guise of formal entitlement.
Contract Validity: Void vs. Voidable Contracts
The Law further introduces a refined and coherent structure governing contract validity. It clearly distinguishes between valid, void, and voidable contracts. Void contracts, affected by defects in essential elements, lawful cause, subject matter, or required form, produce no legal effect and are incapable of ratification. Voidable contracts, on the other hand, arise where consent is impaired by mistake, duress, misrepresentation, exploitation, or diminished capacity. These contracts remain effective unless annulled, thereby striking a balance between transactional stability and protection against injustice.
The Philosophy of Contract Dissolution and Termination
The regime governing dissolution and termination reflects a restorative rather than punitive philosophy. Contracts may be dissolved by mutual agreement, by unilateral right were permitted by law or contract, or through judicial intervention. The primary objective of dissolution is to restore equilibrium between the parties. Where possible, parties are returned to their pre-contractual positions; where restitution is impossible, compensation is awarded based on actual harm rather than speculative or expected profit.
Preserved Traditional Mechanisms: Contractual Options
Traditional concepts rooted in Islamic jurisprudence, such as options affecting the binding nature of contracts, are preserved and systematised. Options of condition, inspection, and designation provide structured flexibility, allowing parties to reassess commitments without immediate recourse to litigation. These mechanisms reflect the Law’s broader objective of balancing contractual certainty with fairness and adaptability.
Comparative Note: Civil Transactions Law 2025 vs. Civil Code 1985
The Federal Law No. 5 of 1985 laid the foundational framework of UAE civil law and was heavily influenced by classical civil-law models and Islamic jurisprudence. While it recognized good faith and equity as guiding principles, these concepts were largely implicit and judicially developed rather than expressly codified. As a result, their application often depended on judicial discretion rather than clear statutory mandate.
Under the 1985 Civil Code, good faith was primarily associated with contract performance and interpretation, with limited express regulation of pre-contractual conduct. There were no comprehensive statutory framework governing negotiations, nor a clearly articulated duty of disclosure. Liability for bad-faith negotiations existed in principle, but its contours were uncertain and inconsistently applied.
The 2025 Law addresses these gaps directly. It codifies good faith as a binding obligation at every stage of the contractual process and introduces explicit rules governing negotiations, disclosure, and abuse of rights. This shift significantly enhances legal predictability while expanding judicial tools to address unfair conduct.
Similarly, while the 1985 Code recognized void and voidable contracts, the newer Law provides greater structural clarity, refined limitation periods, and clearer rules on ratification and restitution. The doctrine of exploitation, in particular, has been more precisely articulated, offering enhanced protection to weaker parties without undermining contractual stability.
In terms of dissolution, the 1985 Code largely treated termination as a consequence of breach or defect. The 2025 Law reframes dissolution as a mechanism for restoring balance, emphasizing proportionality, restitution, and fairness rather than punishment. This reflects a broader evolution in legal philosophy from formal enforcement toward equitable correction.
Overall, the Civil Transactions Law 2025 represents maturation of the 1985 Code. It retains the civil-law and Sharia-inspired foundations of the earlier regime while recalibrating them to meet the demands of a modern, sophisticated, and globally integrated economy.
Conclusion
The Civil Transactions Law 2025 marks a decisive evolution in UAE contract law. It preserves freedom of contract while embedding it within a robust framework of good faith, transparency, proportionality, and judicial equity. For businesses, the message is unequivocal: commercial success must be pursued with integrity and openness. For practitioners, the Law provides powerful statutory tools to challenge unfair conduct and defend legitimate expectations. Ultimately, the new Law affirms that in the UAE’s modern legal order, contracts are not merely instruments of exchange, but expressions of lawful, ethical, and socially responsible commitment.
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