Law of Contract UAE

The main purpose of the contract is to make an agreement official involving two or more parties regarding a specific subject matter. Contracts often cover extremely wide range of matters such as terms of employment, independent contractor relationship, sale of real property, dispute settlement and ownership of intellectual property created as component of a work for hire (Larson 2003). This paper intends to discuss the nature of contract law in the UAE. First, it will discuss the brief history of contract law and types of contract. It will also discuss other principles related to contract law such as contract of adhesion, good faith, interpretation of contract, contractual liability and so forth.

History of Contract Law

Contract law’s development into a modern kind is mainly based on the Latin philosophy called ‘all pacts should be maintained’ (pacta sunt servanda) that started when trade first became a business trend. As this law was created, the common law legal system recognized the concept called breach of contract. Consequently, the common law system also realized that remedies must be created to amend any misunderstanding associated with contracts. Remedies also effectively ensure fairness within contract relationships so that both parties would not be able to make business relationships taken for granted whenever they wanted. Consequently, the contract law systems has been developed through the years in order to ensure the contracts serve as an effective legal instrument and to present remedies that are available when negative situations such as breakdown in relationships or breach of contract happens between two or more parties (Contract Law Research Area 2008).

Types of Contract

The first kind of contract that is often used in UAE as well as in other nations is the employment contract. The employment in UAE addresses all aspects involved in employee-employer relationships in the United Arab Emirates. The contract laws of the country do not require contracts to be made in writing. Two kinds of contracts are allowed in the country such as limited and fixed term contract (also known as unlimited contract). The fixed term contract can be terminated only if any party involved wanted to do so while the limited contract imposed a specified period of employment (UAE Employment 2010).

In this nation, employing individuals within a probationary period wherein both parties (employer and employee) may cancel the contract is an accepted norm. However, when this period is finished, it would be considered part of the overall term of employment. Compensations may be provided monthly, weekly or daily when an employee and an employer agree on compensation matter. Similarly, compensations can be in a specific form of currency once both an employee and employers agree on such terms (UAE Employment 2010).

Another type of contract is the building/construction contract. The UAE Civil Code states that a building contract can be cancelled upon agreement of both parties or upon application to the court. With some exemptions, building/construction contracts in the UAE consist of specific provisions allowing a party to terminate for default (Cama 2008). Contract laws related to tenancy also serve as a good example of commonly employed contracts. Contract laws permits parties to agree freely on the initial rents. On the other hand, during the first twenty-four months of the tenancy contract, no rent increase is permitted (UAE Tenant Law is Pro-Tenant 2010).

Previous laws allow landlord and the tenant to new rent level during the renewal of the tenancy contract. On the other hand, new rental law prohibits increasing rent during contract renewal if the existing rental fees are equivalent to or less than 25 percent of the new rental index established by the Real Estate Regulatory Agency (RERA). Rent caps will apply if the existing rent is below threshold. Before the occupancy, rental law requires the tenant to remit a security deposit equal to 5 percent of the annual rent. Similar amount is often refunded to the tenant. Rental fees are often given in advance for the whole year, either in cash or cheques. If the tenancy contract does not explicitly stated when rent payments will be made, rental fees for the whole year should be given in four equal installments in advance (UAE Tenant Law is Pro-Tenant 2010).

Furthermore, both landlords and tenant have their right within the contract duration and eviction. However, according to the new Tenancy Law of 2007, these rights would be enforceable if the agreement is in a written contract and registered with RERA. Similar law also stated that contracts between landlord and the tenant cannot be cancelled by one party without the consent of the other party. If either landlord or tenant wanted to terminate the contract prematurely, three month’s notice should be provided. For the landlord, the ‘just cause’ eviction should be included in the notice prior to termination of tenancy contract and tenant’s eviction: (UAE Tenant Law is Pro-Tenant 2010).

Tenant’s failure to give rental fees within 30 days after landlord’s notification

Tenant subleases the property without landlord’s permission

Tenant employs the premises for immoral or illegal purposes

When tenant breaks any conditions on the tenancy contract agreement and he/she failed to solve the breach within one month’s notice from the landlord

The tenant employs the premises for the intention prohibited by the tenancy contract

When the contract expires and the tenants still occupy the property sans landlord’s objection, the contract will be renewed either for similar period or for a year (UAE Tenant Law is Pro-Tenant 2010).

Other Related Principles of UAE Contract Law

Contract of Adhesion

Under the UAE law, the rule of thumb is that the court is not allowed to interfere in what parties have agreed under the contract; hence, it presents some assurance that the terms agreed is enforceable. On the other hand, Contract of Adhesion is excluded to this rule. Article 248 of the UAE Civil Code allows a judge to remove terms of contract which is considered unfair to the adhering party (customer). This authority is acquired from Public Policy, which signifies that the parties cannot prevent the judge from imposing his authority under Article 248 and if they try to attempt so, then such agreement will be considered as void. Another strange aspect that emerges from a Contract of Adhesion is that while Article 266.1 of UAE Civil Code suggests that the general rule is that any uncertainties arise in any terms of contracts should be solved in favor of the supplier; such rule does not apply in a Contract of Adhesion. Rather, Contract of Adhesion stated that any uncertainty in the contract must be solved in favor of the customer (Zainal & Grainger 2007).

Because of the aforementioned differences to the normal rules in contractual matters and given the powers that the court may impose over the contract, it would be prudent to realize when Contract of Adhesion becomes applicable. First, usual misconception is that any contract which is provided to a purchaser/consumer on standard terms can be considered under Contract of Adhesion. The truth is otherwise (Zainal & Grainger 2007). Article 145 of the UAE Civil Code states that, first, the supplier should provide customers standard terms and conditions that are similar to the terms and conditions he/she offer to all other customers. Second, terms and conditions within the contract should be non-negotiable. Article 145 states that a Contract of Adhesion can be concluded if those conditions are satisfied. On the other hand, if the supplier amends the contract’s terms and conditions even in a minor manner upon customer’s request, then this will only be considered as ordinary contract and not as Contract of Adhesion. Furthermore, Contract of Adhesion is still enforceable even if the customer does not read or give inquiries about the contractual terms and conditions or even if customer is illiterate (Zainal & Grainger 2007).

Interpretation of Contracts

The primary rule of UAE civil code is that contracts should be interpreted based on the parties’ intentions and definitions. These intentions should become apparent on construction of sentences and words. As a result, if there is a stated provision in the contract, a judge should not provide any condition or clause that is different to the expressed terms and conditions within the contract. Furthermore, if the contract’s words are relatively apparent in specific point, the court is not allowed to change such obvious meaning (Doing Business in the United Arab Emirates 2006).

On the other hand, if the contract’s conditions show some vagueness or if the judge recognizes that specific messages in the contract do not match the apparent intention of both parties, then the court will be allowed to examine the contract provisions as well as true meaning of ‘parties’ in the contract. Court’s investigation, however, must adhere to the principles trust and honesty between contracting parties and based on applicable customs. Key interpretations guidelines include: customs should be applicable among merchants who have similar force as an expressed provision and generally speaking, the debtor must be provided with the benefit of the doubt (Doing Business in the United Arab Emirates 2006).

Good Faith

The Article 265 of the UAE civil code (which is similar to Egyptian civil code of the Article 148), stated the contract should be performed in good faith and based on its terms. Furthermore, the contracting parties should perform all the things that are deemed important in the contract based on the usage, fairness and rules of law. Fairness involves actions that will discourage breach of contract. Generally speaking, Arab law depends on the idea of good faith to assist the performance of contractual promises instead of a way of escaping responsibilities stated in the contract (Doing Business in the United Arab Emirates 2006).

Contractual Liability under the UAE Law

The Article 124 of UAE Civil Code stated that personal obligations or rights will emerge out of dispositions, legal circumstances and the law. The sources of obligations include contracts, independent acts, actions that cause harm and the law. On the other hand, this section will only focus on the first obligation which is the contract. In contracts, any liability as a result of breach of contract falls in the principle of contractual liability. Furthermore, a breach committed by contracting party must be existent and damages as the result of that breach should have been suffered by the other contracting party. However, the claimant should prove that the other party indeed breached the contract (Al Mulla 2010).

Damages under the contractual liability (and tortuous liability) include loss of opportunity, consequential damages, interests and moral damages, loss of profits and direct damages. The civil code stated that if compensation is not pre-agreed contractually for direct damages, then the court will investigate the amount of damages sustained. The law also recognized consequential damages. On the other hand, this is only included in tortuous liability and not within the scope contractual liability. Provisions of Loss of profits can be found on article 292 of the Civil Code (or tortuous liability) and on article 389 of the explanatory note. The Civil Code stated that the damages involved in the loss of profits must be certain in the future and not based on probable or hypothetical damages. Consequently, they also do not accept speculative damages. Moral damages may include infringement of liberty, dignity, honor, reputation, social standing and financial condition and these damages is also considered under the contractual liability and tortuous liability (Al Mulla 2010).

Conclusion

The main purpose of the contract is to make an agreement official involving two or more parties regarding a specific subject matter. Contracts often cover extremely wide range of matters such as terms of employment, independent contractor relationship, sale of real property, dispute settlement and ownership of intellectual property created as component of a work for hire. Contract law’s development into a modern kind is mainly based on the Latin philosophy called ‘all pacts should be maintained’ (pacta sunt servanda) that started when trade first became a trend. As this law was created, the common law legal system recognized the concept called breach of contract. Consequently, the common law system also realized that remedies must be created to amend any misunderstanding associated with contracts. Remedies also effectively ensure fairness within contractual relationships so that both parties would not be able to make business relationships taken for granted whenever they wanted.

Similar principle also applies in the UAE law. The contract law of UAE recognizes contract’s enforceability and even discourages the court from interfering with contractual agreements with few exceptions including Contract of Adhesion. Article 248 of the UAE Civil Code allows a judge to remove terms of contract which is considered unfair to the adhering party (customer). This authority is acquired from Public Policy, which signifies that the parties cannot prevent the judge from imposing his authority under Article 248 and if they try to attempt so, then such agreement will be considered as void.

If breach of contract occurred, UAE contract law also has its own remedies to ensure fairness among the contracting parties including paying for damages for contractual liability and tortuous liability. Damages under the contractual and tortuous liability include loss of opportunity, consequential damages, interests and moral damages, loss of profits and direct damages. The civil code stated that if compensation is not pre-agreed contractually for direct damages, then the court will investigate the amount of damages sustained.

The law also recognized consequential damages. Moral damages may include infringement of liberty, dignity, honor, reputation, social standing and financial condition and these damages is also considered under the contractual liability and tortuous liability. The Civil Code stated that the damages involved in the loss of profits must be certain in the future and not merely based on probable or hypothetical damages. Consequently, they also do not accept speculative damages. The law clearly discourages speculative damages to ensure fairness between involved parties.