The New UAE Civil Code in Commercial Litigation

Federal Decree-Law No. 25 of 2025 (the New Civil Code) comes into force on 1 June 2026, replacing Federal Law No. 5 of 1985 (the Old Civil Code). While the New Civil Code is not a complete overhaul of the Old Civil Code, the amendments introduced will reshape how commercial disputes are pleaded, defended and remedied before the UAE courts. An important development is the introduction of an express regime governing liability for pre-contractual conduct. The practical significance for commercial litigation is that it shifts evidence away from a narrow focus of the written contract to closer scrutiny of the conduct of the parties during negotiations.

Pre-Contractual Conduct as a Cause of Action

A significant reform under the New Civil Code is the statutory regulation of pre-contractual conduct. 

The New Civil Code introduces liability for:

• Bad faith withdrawal from negotiations
• Pre-contractual disclosure of material information during negotiations 
• Misuse or disclosure of confidential information obtained during negotiations

A party that terminates negotiations late in the process or uses negotiations tactically to obtain information may face litigation exposure. The evidential focus will be on what each party knew, what was communicated, and whether information was disclosed at the appropriate time.

Bad faith withdrawal from negotiations

The statutory duty to negotiate in good faith introduced by Article 121 of the New Civil Code is likely to impact the way commercial disputes are assessed, as the courts are expected to scrutinise parties’ conduct during the negotiation phase. 

In practice, claims for breach of good faith in contractual negotiations will turn on the evidence of how parties conducted themselves, rather than broad assertions of unfairness. The courts are likely to focus on whether a party’s behaviour objectively departed from honest and reasonable negotiating standards, and whether the evidence supports a genuine intention to conclude or settle with a legitimate reason for delay or withdrawal. Recoverable damages for bad faith withdrawal from negotiations are expressly limited to wasted costs, with the evidentiary burden on claimant.

Pre-contractual disclosure of material information

Article 122 establishes a duty of disclosure in respect of “material and decisive information”, where information decisive to a party’s decision to contract is known to one party, and unknown to the other, but is deliberately withheld in a manner that misleads or undermines informed consent. The claimant alleging concealment bears the burden of proof, while the defendant will need to show that disclosure was made or that the information was already known to the claimant. 

The statutory duty of disclosure may change the way in which misrepresentation and mistake claims are positions in a claim because the claimant may also plead non-disclosure as a primary statutory breach. In practice, this is likely to broaden the factual investigation undertaken by the courts, shifting disputes towards a detailed analysis of whether information was decisive for consent, what each party new and when information was communicated.  

Misuse or disclosure of confidential information

In addition, the New Civil Code creates a standalone cause of action where confidential information shared during pre contractual negotiations is subsequently misused. This significantly heightens risk in settlement and ADR contexts where parties routinely exchange sensitive commercial information in the expectation of settlement. 

Although the New Civil Code does not expressly regulate ADR, its principles are likely to influence how courts assess conduct in ADR, particularly where negotiations appear to have been used to extract information, test litigation strategy or obtain unfair bargaining advantage. The misuse of confidential information disclosed during negotiations may give rise to damages, requiring parties to consider carefully whether their conduct in settlement negotiations could itself attract liability.

Broader Pleadings and Expanded Evidence

The New Civil Code encourages broader and more adaptable pleadings, allowing claimants to pursue multiple causes of action in parallel, or in the alternative, based on the same underlying conduct. To succeed, a claimant will need to prepare a well-documented account of what was said, omitted or implied during negotiations. Depending on the facts, a claimant may seek to plead claims based on:

• Mistake: where consent was affected by an assumption that was known or should have been known to the counterparty.
• Misrepresentation: including forms of misleading silence or non-disclosure.
• Exploitation: where urgency, dependence or vulnerability has been leveraged to obtain a grossly imbalanced agreement.

From a defence perspective it increases exposure as defending one aspect of the case may not dispose of others if the same factual circumstances support multiple causes of action. 

The heightened legal significance of pre-contractual conduct expands the scope of evidence in commercial disputes outside of the final contract. The claimant will be able to submit broader evidence to demonstrate how discussions progressed, what critical facts were disclosed or withheld and the chronology of negotiations. Key documentation will be required as evidence such as draft agreements, emails, minutes of meetings, SMS or instant messages and even internal board meetings and communications explaining strategic reasoning will be relevant to establish whether each side negotiated and consented fairly.  

The preservation of documentation will be crucial to establish the adequacy of disclosure and reliance on what was said. The practical impact for commercial parties will be:

• a need for greater discipline in record keeping and preservation particularly related to conduct leading up to execution of the final agreement.
• reservation of rights when circulating sensitive information and internal records of communications including reasons for delay or withdrawal. 

The courts are likely to scrutinise both parties’ exchanges and internal deliberations when assessing whether conduct crossed into actionable misconduct.

A New Emphasis on Judicial Rebalancing 

A noteworthy feature of the New Civil Code is the expansion of situations in which the courts may adjust the commercial position between the parties, rather than enforcement or termination. 

The new provision of exploitation in Article 179 of the New Civil Code applies in circumstances where one party takes advantage of another’s vulnerability to secure a contract on excessively disproportionate terms. Where the threshold is met, the court has scope to not only set the contract aside, but to rebalance or adjust it. 

The exploitation provision is not only relevant to commercial contracts but also to settlement agreements. A party may argue that financial distress, litigation exposure or commercial stress was improperly leveraged to achieve a materially one-sided settlement. The courts may apply this provision cautiously, distinguishing between legitimate commercial pressure and legally actionable exploitation. Nevertheless, the provision introduces a new cause of action against settlement agreements which may affect negotiating dynamics and post-settlement risk. 

Limitation Periods

While the New Civil Code retains the general limitation structure of the Old Civil Code, it refines the position in specific areas including claims involving discerning minors (children over the age of seven), exploitation, annulment rights and latent defects. These provisions will be particularly important in disputes where the commencement of time depends on knowledge, discovery or the cessation of the defect. 

Transitional Period

A key issue will be how the New Civil Code applies to existing contracts and ongoing disputes. In the absence of express transitional provisions, its application is likely to be guided by the constitutional principle of non retroactivity, with pre existing rights and obligations being assessed under the Old Civil Code. 

In practice, the application of the New Civil Code is likely to be tested in proceedings. Parties will need to navigate dual frameworks for some time to come, distinguishing between the applicable law. Courts will have to consider distinctions between the legal facts and continuing legal relationships.

Final remarks

The New Civil Code is a recalibration of how commercial disputes will be framed, evidenced and resolved, particularly in the sphere of pre-contractual conduct which shifts disputes from the signed contract to the broader context in which the consent was formed. Parties must anticipate that the courts will scrutinise not only what was agreed, but how it was negotiated, what was disclosed and whether the agreement reflects genuine, informed consent. 

The New Civil Code provides claimants with broader causes of action and the courts with greater remedial discretion. In turn, it imposes a higher evidentiary burden on all parties. By embedding good faith, disclosure and evidentiary foresight into the commercial practice, businesses will be best positioned to navigate the higher standards of pre-contractual conduct and the inevitable evolving litigation landscape.