In the intricate landscape of business law, not every breach is treated the same. The line dividing civil and criminal breaches is crucial—and often blurred in real-world scenarios. Understanding this distinction can make the difference between a commercial dispute and a criminal conviction.
Civil vs. Criminal Breach: A Legal Overview
Civil breach refers to the violation of obligations arising from contracts or agreements between private parties. It’s rooted in UAE Federal Law No. 5 of 1985 (the Civil Transactions Law), which governs contractual relationships, liability, and remedies. The aggrieved party typically seeks compensation, enforcement, or annulment.
Criminal breach, on the other hand, involves violations that threaten public interest, regulated by UAE Federal Decree-Law No. 31 of 2021 (the Penal Code). These often include fraud, breach of trust, embezzlement, and are prosecuted by the Public Prosecution.
A Real Case: When Trust Replaces Law
The scenario:
Two business partners co-founded a limited liability company (LLC) in the UAE. One partner formally transferred all his shares to the other, giving him full legal and management control. The transfer was officially recorded with the Department of Economic Development and notarized.
However, there was an unofficial agreement, signed privately and not notarized or submitted to any authority, in which both partners agreed to continue sharing profits and losses equally at year-end.
When the time came to divide the profits, the managing partner refused, citing the official documents that confirmed his sole ownership.
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Legal Analysis Under UAE Law
Primacy of Official Documentation, UAE law places significant legal weight on officially notarized and registered documents.
- Article 125 of the Commercial Companies Law (Federal Decree-Law No. 32 of 2021) emphasizes the legal effect of company incorporation documents and partner registers.
- Courts will rarely enforce informal arrangements unless supported by strong secondary evidence, such as consistent financial practices, written correspondence, or witness testimony.
Nature of the Breach: Civil or Criminal?
- The breach in this case is primarily civil. The aggrieved party may initiate a commercial claim before the Civil Court, citing breach of fiduciary obligation or unjust enrichment.
- Evidence is crucial: WhatsApp messages, emails, bank transfers, or third-party testimony can help prove the unofficial agreement and establish expectations between the parties.
When It Becomes Criminal
- If it is shown that the managing partner deliberately misled or engaged in fraudulent conduct, the case may cross into criminal territory:
- Article 404 of the UAE Penal Code criminalizes breach of trust when someone lawfully receives funds or property and then embezzles or disposes of them in bad faith.
- Article 451 covers deception and fraudulent acquisition of assets under false pretenses.
- A complaint could lead to criminal charges for embezzlement, punishable by imprisonment and fines.
- If it is shown that the managing partner deliberately misled or engaged in fraudulent conduct, the case may cross into criminal territory:
From Practice: What the Courts Really Do
As a legal practitioner in the UAE, I’ve consistently observed that when a clear contractual or commercial relationship exists between the parties, such disputes are almost always treated as civil breaches. Even where accusations of dishonesty or unfairness arise, courts often resist criminalizing what is essentially a breakdown in business terms.
This approach reflects the judiciary’s understanding that business partners may disagree, but unless fraud or criminal intent is clearly proven, such matters are best resolved through compensation, not punishment.
In fact, the Dubai Court of Cassation has confirmed in several rulings that the presence of a contractual relationship negates the intent required for criminal breach of trust. Filing a criminal case in such contexts often leads to dismissal, with the court redirecting the matter to civil litigation.
So, from a practical legal standpoint:
If there is a documented or provable commercial agreement, the case will almost certainly remain in the civil realm—even if one party feels deeply wronged.
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Why Do Business Partners Rely on Informal Agreements?
This question raises broader concerns about business culture and legal literacy:
- To avoid taxes or official fees.
- To bypass regulatory oversight, such as foreign ownership restrictions.
- Out of misplaced trust, assuming that personal relationships outweigh legal protections.
But when trust fails, informal arrangements offer little protection. In a court of law, what is documented is what exists.
Legal Lessons for Entrepreneurs and Investors in the UAE
- Never substitute official documents with informal promises. Always formalize agreements, even between trusted parties.
- Include profit-sharing clauses in MOAs or shareholder agreements and register them accordingly.
- Seek legal advice when restructuring ownership or management, even in amicable situations.
- Understand the legal consequences of misrepresenting ownership or breaching fiduciary duties—it may not remain a civil matter if criminal conduct is involved.
Conclusion
Business relationships are built on both trust and law. When the law is sidelined, even sincere intentions can lead to serious disputes. In the UAE’s evolving legal landscape, partners and investors must prioritize clarity, transparency, and formal documentation.
From my legal experience, the message is clear:
If your dispute arises from a contractual relationship, you are likely in civil court, not criminal, regardless of how unfair the outcome may seem.
Relying on verbal understandings or informal contracts exposes all parties to unnecessary legal risk—and limits their options when things fall apart.
Khairallah Advocates & Legal Consultants
Trusted Legal Insight Since 2008
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Author: Lawyer Jouslin Khairallah
