Examining the New UAE Civil Code—Part 3: Contract Negotiation, Formation and Interpretation

On 1 June 2026, the New UAE Civil Code (Federal Decree Law No. 25/2025) entered into force, repealing the Old UAE Civil Code (Federal Law No. 5/1985).

The New Civil Code contains a number of important changes to the law governing civil matters in the UAE, including several that affect commercial relationships.  These include the changes to the building blocks of every commercial relationship:  how parties must conduct negotiations, how contracts are formed, and how they will be interpreted once concluded.

This article examines key changes in the New Civil Code, which both modernises and sharpens rules around contract negotiation, formation and interpretation.  As with Part 1 and Part 2 in this series, our analysis focuses on what is new, what matters, and what commercial parties should be doing to adapt to these changes.¹

Pre‑contract conduct and good faith in negotiations

Reflecting and extending UAE law’s longstanding recognition of an obligation of good faith in commercial dealings, the New Civil Code contains an express, comprehensive regime for good faith, mandatory disclosure, and confidentiality in pre-contract negotiations.

Article 121 of the New Civil Code provides for the following express rules in respect of pre-contract negotiations (Articles 121(1) to (4) of the New Civil Code):

• the initiation, conduct and termination of pre‑contract negotiations must be in accordance with the requirements of good faith;
• ·negotiations do not oblige parties to conclude a contract;
• a party who negotiates or ends negotiations in bad faith is liable for the other party’s actual loss suffered (but not loss of expected profits unless agreed); and
• deliberate non‑disclosure of material information affecting contract validity is deemed to be bad faith.

Supplementing this good faith obligation, Article 122 provides for the following pre-contract disclosure obligations (Articles 122(1) to (4) of the New Civil Code):

• each negotiating party must disclose information of decisive importance to the other’s consent where ignorance is presumed or trust has been placed in the counterparty;
• the disclosure obligation falls on both parties, who must exercise due care to provide the other with information related to the negotiations, contract, and the practical circumstances and facts of the contractual process;
• the party alleging non‑disclosure must prove it, and the other party must prove disclosure;
• critically, parties may not limit or exclude this disclosure duty and any such clause is void; and
• the aggrieved party may request annulment of the contract if the disclosure obligation is breached.

Article 123 imposes liability on any person who, without permission, uses or discloses confidential information obtained during negotiations or from the contract.

Why is this important?

Taken together, Articles 121 to 123 represent a shift in the pre-contractual landscape in the UAE. Whilst under the Old Civil Code, the obligation of good faith in negotiations was recognised, the New Civil Code provides a comprehensive, codified framework which cannot be contracted out of. For commercial parties, three matters in particular standout:

• first, the disclosure obligation is mandatory, bilateral and cannot be excluded.Therefore, any attempt to include a clause in a term sheet, heads of terms or preliminary agreement that limits or excludes the duty to disclose material information will be void as a matter of law;
• second, deliberately withholding material information is deemed to be bad faith. In practice, this places greater importance on the quality and completeness of disclosure exercises during the negotiation phase, particularly in M&A, joint venture and project finance transactions where there are typically information asymmetries; and
• third, parties are now expressly liable for negotiating or terminating negotiations in bad faith, which could give parties recourse to damages. Even though not expressly stated, this could be even when no contractual relationship was formed.

Contract formation

The New Civil Code’s architecture of contract formation is familiar from the Old Civil Code – but with key modernising differences.

Article 125 of the New Civil Code addresses offer and acceptance – two of the three pillars of contract formation.  Reflecting the Old Civil Code, it provides that offer and acceptance may be expressed by any manifestation of will, even implicit, to conclude a contract.²  Importantly, Article 125 includes the following changes in relation to sequencing:

• if multiple offers are made by a party before acceptance, the final offer prevails;
• an acceptance that adds to, restricts or modifies the offer is a rejection and will be considered a new offer; and
• a purported ‘acceptance’ given after the offer has expired is simply a new offer.

Similarly, consistent with the Old Civil Code, Article 130 of the New Civil Code obliges an offeror to keep open the specific time limit for acceptance.  Where no time limit is specified, it is to be deduced from the circumstances, the nature of the transaction, or custom.  If an offer is withdrawn before the time limit expires, the offeree may claim compensation for loss suffered, excluding loss of expected profit from contract conclusion.

Why is this important?

The codification of these sequencing rules in Articles 125 and 130 brings clarity to the mechanics of offer and acceptance. The express provision that a counter-offer constitutes both a rejection of the original offer and a new offer in its own right is a point of practical importance. In complex commercial negotiations, where multiple rounds of mark-ups of draft contracts are exchanged, parties should be alive to the fact that each revised term sheet or amended draft may, as a matter of law, extinguish the preceding offer and replace it with a fresh one. This has implications for when (and on what terms) a binding contract has been concluded, particularly where the parties have commenced performance before final documentation is agreed.

Similarly, the rule that a purported acceptance after an offer has lapsed is merely a new offer reinforces the importance of managing and, where possible, expressly stipulating acceptance periods. The capping of compensation for premature withdrawal of an offer, excluding loss of expected profit from contract conclusion, is also notable, as it limits the remedy available to any aggrieved offeree and may encourage offerors to take a more flexible approach to setting acceptance windows.

Fundamental mistake

Mistake is a key doctrine of UAE law that affects contract formation and validity.  The New Civil Code maintains this doctrine, but implements some important changes to the corresponding provisions of the Old Civil Code.  Articles 162 to 166 of the New Civil Code clarify the applicable threshold (the mistake must be ‘fundamental’, ‘essential’ or ‘material’), and the recognised categories of mistake, and also overlays a good faith requirement.

Accordingly, where a contracting party commits a fundamental mistake, it may seek annulment if the other party made the same mistake, knew of it, or could easily have discovered it (Article 162(1) of the New Civil Code).  A fundamental mistake is one that is so serious that a party would not have otherwise entered into the contract (Article 163 of the New Civil Code). In particular, a mistake is fundamental if it relates to (a) an essential quality of the subject matter (as understood by the parties or by reference to the circumstances and good faith) or (b) the contracting party where this was the principal reason for contracting (Article 163 of the New Civil Code).  Finally, a party who makes a mistake may not rely upon it in a manner contrary to good faith and is bound by the contract it intended to conclude if the other party shows willingness to perform it (Article 166 of the New Civil Code).

Why is this important?

By clarifying that the threshold for annulment is a ‘fundamental’or ‘material’ mistake, one of such gravity that the party would not have otherwise entered into the contract, the New Civil Code provides a clearer and more predictable standard than the Old Civil Code. The recognised categories of mistake (essential quality of the subject matter and identity or attributes of the counterparty) are consistent with established civil law principles but are now set against a good faith overlay, requiring that the essential nature of a quality be assessed not only by reference to the parties’ subjective intentions but also by reference to the surrounding circumstances and the requirements of good faith.

The obligation that a party may not invoke a mistake in a manner contrary to good faith is a particularly important safeguard against opportunistic reliance on the doctrine.  It prevents a party from using a purported mistake as a pretext to escape a bargain that has simply turned out to be less favourable than expected.  Combined with the provision that the mistaken party is bound by the contract if the counterparty is willing to perform on the terms originally intended, the New Civil Code strikes a balance between protecting genuinely mistaken parties and preserving contractual certainty.

Framework agreements and standard forms

The New Civil Code now expressly recognises two broad forms of contracting that are prevalent in commercial transactions across numerous sectors in the UAE – framework agreements and standard forms. These documents were not expressly provided for under the Old Civil Code.

Article 138 recognises framework agreements as contracts that set the principal terms governing contracts later concluded between the same parties.  There is a presumption that the framework forms part of those subsequent contracts unless expressly or implicitly agreed otherwise.

Article 221(3) states that, in contracts drawn up on standard forms to standardise contractual relationships, terms added to those forms prevail over the original terms, even if the original terms are not struck out.

Why is this important?

The express recognition of framework agreements under Article 138 is a welcome development that reflects commercial reality across a range of sectors in the UAE, including projects, construction, procurement, financial services, and logistics, where ‘umbrella agreements’ governing future call-off contracts or work orders are commonplace. 

The presumption that the framework agreement forms part of subsequent contracts concluded under it provides a useful default position.  However, parties should be mindful that this presumption can be displaced by express or implied agreement.  Accordingly, care should be taken when drafting call-off or work order documentation to ensure that the relationship between the framework terms and the subsidiary contract is clearly articulated, and that any intended departures from the framework terms are expressly stated. 

Article 221(3), which provides that terms added to standard form contracts prevail over pre-printed terms even without the latter being struck out, is equally significant.  Standard form contracts are ubiquitous in sectors such as construction, insurance, banking, and telecommunications, and this provision gives primacy to the bespoke, negotiated elements of the deal. 

When read alongside Article 223, which empowers the court to modify or exempt a party from unfair conditions in a contract of adhesion, this reinforces the New Civil Code’s protective stance in favour of the party who does not draft the standard terms.  Parties that rely on standard forms should therefore review those forms carefully, and ensure that any added or bespoke terms are clearly distinguished from the pre-printed standard conditions.

Contract interpretation

The Old Civil Code contained detailed provisions on contract interpretation which, fundamentally, were aimed at discerning the parties’ common intention – through the express words used or, where ambiguity existed, through an inquiry into their common intention.  The New Civil Code is consistent with this approach to contract interpretation but with refinements aimed at achieving fairness and justice in interpretation.

Article 120 of the New Civil Code sets out rules for interpreting contracts.  The following three new rules standout:

• contracts should be interpreted to achieve justice and good faith between the parties (Article 120(11) of the New Civil Code);
• ·obligations are to be construed by reference to the factual circumstances at the time of contracting (Article 120(12) of the New Civil Code); and
• ambiguity or inconsistency is construed in favour of the party bearing the burden of the obligation or the weaker party (Article 120(13) of the New Civil Code).

Why is this important?

These new interpretative provisions embed justice and good faith in the interpretation exercise, and a protective aspect in cases of ambiguity.  This is likely to be of particular significance in disputes arising from long-term contracts, such as concession agreements, joint ventures, offtake agreements and construction contracts, where changed circumstances may give rise to arguments that a particular interpretation, whilst textually supportable, produces an outcome that is unjust or contrary to the spirit in which the parties contracted. The requirement that obligations be construed by reference to the factual circumstances at the time of contracting is a useful clarification and may assist in resolving disputes over the meaning of ambiguous terms, by anchoring the inquiry in contemporaneous evidence of what the parties understood at the point of contract formation. 

Perhaps most significantly for commercial parties, the rule that ambiguity or inconsistency is construed in favour of the party bearing the burden of the obligation or the weaker party introduces a protective interpretative presumption.  This is likely to be deployed in disputes involving contracts of adhesion, consumer contracts, and other agreements where there is an imbalance of bargaining power.  Drafting parties should pay close attention to this rule and ensure that their contracts are as clear and unambiguous as possible, since any drafting opacity may ultimately be resolved against them.

Implied terms

In relation to implied terms, Article 221(2) states that a contract is not limited to its express terms, but also includes what is required by law and custom, and ‘the nature of the obligation’. 

This is a small but potentially impactful change from the Old Civil Code, which implied terms required by the ‘nature of the transaction’.  At first glance, this change would appear to limit the scope for implication, by tying implication to a specific obligation (or obligations) rather than the overall transaction.

Why is this important?

This subtle but important change in Article 221(2) warrants careful consideration.  By tying the implication of terms to the specific obligation rather than the transaction as a whole, the New Civil Code may narrow the basis on which a court or tribunal can imply terms. 

Under the Old Civil Code, a court or tribunal could look at the broader commercial context of the entire transaction and imply terms necessary for the transaction to function as the parties intended.  Under the New Civil Code, the inquiry is more focused:  the court or tribunal must identify the particular obligation at issue and determine what the nature of that obligation requires.  This could, in practice, make it more difficult to imply sweeping obligations that are not closely tied to a specific contractual duty. 

For commercial parties, this reinforces the importance of comprehensive and detailed drafting.  If a particular obligation or duty is important to the functioning of the contract, it should be expressly stated rather than left to the uncertain territory of implied terms.  Equally, it will be important to see how UAE courts will interpret and apply this change in practice.

What should you be doing?

The implementation of the New Civil Code should prompt commercial parties to take stock of their contracting arrangements. 

Parties entering into new contracts should ensure that their drafting reflects the New Civil Code’s emphasis on good faith, justice, and the protection of parties.  In particular, framework agreements and standard form contracts should be reviewed to ensure compliance with the new provisions, including the rule that bespoke terms prevail over pre-printed standard conditions. 

Careful thought should also be given to the consequences of Article 221(2) on implied terms: parties should not assume that obligations will be implied on the same basis as under the Old Civil Code, and should instead ensure that all material obligations are expressly set out. 

Existing contracts should also be reviewed for ambiguous or inconsistent clauses that may be impacted by the new interpretation rules.  Where interpretation disputes already exist, consideration should be given to whether and to what extent existing positions are supported by, or conflict with, these new rules.  Interpretation rules in precedent contracts should be reviewed and updated to the extent the New Civil Code’s interpretation rules are intended to be excluded.

Finally, the mandatory and non-excludable nature of the pre-contract disclosure obligation should prompt businesses to put in place negotiation processes, information barriers, and disclosure protocols.  The reason being that with these new changes the cost of non-compliance is not merely a contractual claim for damages; it is the potential annulment of the contract itself.

Keep an eye out for Part 4 of our series, where we will be looking at the New Civil Code's provisions relating to compensation and damages