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The term “contract” is used in business to refer to an obligation and a commitment of two parties connected by an object of offer and acceptance. Contracts are typically defined as an agreement enforceable by law (Maggi & Staiger, 2011). A contract entails a promise that must be fulfilled through legal means (Kanakri & Al-Mulla, 2015). However, it is important to note that not all promises or agreements during the execution of a contract can be deemed as legally important. Two parties conclude a contract by exchanging their corresponding intents based on the specific issues illustrated in the contract law. Under the law of the United Arabs Emirates, contract requirements are detailed in the Civil Transactions Act. Both local and foreign investors in the UAE must negotiate their contracts based on the UAE Contract Laws. In this context, the fundamental features of the contract law in the UAE are examined (Gulf Talent, 2007).
Background Information about the UAE Contract Law
The major objective of entering into a contract as stated the relevant UAE laws is to enhance the agreement between the two parties as an official process that depends on a specific theme or subject. There is an extremely wide range of issues and matters that can attract the need to execute a standard contract. These include the procedures such as property rights management (including physical and intellectual types thereof), marital issues, relationships between a company and its staff members, etc. To understand the contract law through the prism of the UAE legal system, it is important to discuss the principles of the laws and provisions of a contract. Traditionally, good faith, adhesion, contractual liability and the interpretation of contract laws are considered the essential components, among other aspects (Kanakri & Al-Mulla, 2015).
Compared to well-established contract laws such as those of the UK and the United States, the contract law in the UAE includes different compensation principles, among other specifics. Furthermore, the UA contract law implies that the parties must agree on the basic elements of the contract obligation. However, the parties can defer the discussion- and the agreement-related processes as explained under Article 141 of the Civil Code (Gulf Talent, 2007). In case a dispute occurs before the matters are discussed in detail, the court will base its ruling on the missing terms of the contract as stated in the provisions of the contract law. Still, it is essential that the intent of the parties to sign a contract or have a verbal agreement could be proven to the jury with the help of the necessary evidence. This part differentiates the contract law in the UAE context from other popular contract laws (Latham & Watkins, Inc., 2011).
Furthermore, in case the participants do not reach an agreement and, instead, resort to the support of the third party, under the UAE legislation, they may be accused of deception and even fraud. Particularly, when a party fails to make reasonable efforts to reach an agreement or enter into the necessary parallel negotiation with a third party, this is considered a breach of contract (Flannery & Merkin, 2015). Therefore, the law of contract in the legal context of the UAE asserts that the parties must state their intention for the contract to be based on the needs specified in the Article 141 before entering into a written agreement (Kanakri & Al-Mulla, 2015). The law requires the parties to state their intent at the beginning of the negotiation, which is important in case of a legal litigation.
Types of Contract
The crucial applied contract law in the UAE context is the employment contract, which tends to address all issues involving the relationship between employees and their employers in the UAE (Latham & Watkins, Inc., 2011). The state laws prohibit the parties engaged in a contract to have written agreements. The legal outline of the country permits two types of contracts, which are defined as limited and fixed term contracts. A fixed term contract can be ended at any time upon the consent of the parties. A limited contract, in its turn, is imposed for a specific employment term that was agreed upon by the employer and employee. In the UAE, the law accepts the employment of a candidate on a probationary condition. In this sense, both parties can cancel the contract upon agreement. Furthermore, the parties can make the compensation agreement. In this context, the two can agree to offer the payment on a monthly, weekly or daily basis. They can also agree that the employee is paid the compensation in a specific currency, which may be either foreign or local.
Building or Construction is another type of contract commonly executed under the laws of the UAE. According to the Civil Code of the UAE, the specified type of contracts can be declared null and void either by the parties or by the court (Latham & Watkins, Inc., 2011). There are specific provisions that address issues concerning the building and construction contract. These provisions allow the parties to terminate the contract in case there is a default. Another example is the tenancy related contract law, which allows the parties to make a free agreement on the initial rents. However, the law does not permit for the escalation of rent in the first two years of the tenancy contract.
Continuing a tenancy contract in the UAE also implies that certain changes to the rent can be made. For instance, a change in the amount of rent paid by the contractor is a possibility in case of an agreement. However, the law prohibits the increase of rent during the renewal of the contract. The regulation can be deemed as applicable when rental fees make at least a quarter of the current rental index determined by the Real Estate Regulatory Agency (RERA) (Gulf Talent, 2007). For the prevailing rent that is less than the threshold, the law tolerates the request of rent caps. Furthermore, a tenant is obligated to submit payment of 5% of the annual rent before moving to the room. The same amount of money is refunded to the tenant when the contract ends. The law requires the tenant pay the annual rental rates in advance. There is a possibility that the contract may fail to provide a detailed description of the rental payment mode. In this instance, the law requires the tenant to pay the fees for the whole year in four equal payments. All the four installments must also be paid in advance (Kanakri & Al-Mulla, 2015).
The law gives the landowners and tenants specific rights during the contract period and eviction time. Nevertheless, the Tenancy Law created in 2007 permitted the implementation of those rights for a written agreement in the contract under the registration of the RERA (Gulf Talent, 2007). An agreement must also be reached between the parties when abrogating the tenancy contract. If either of the parties wants to terminate the tenancy contract prematurely, the law requires the party in question to provide a three-month notice. If the landowner is the one who wants to terminate the contract prematurely, the law requires them to provide the just cause eviction together with the notice. The documents should be given before terminating the contract or executing eviction of the tenant (Gulf Talent, 2007).
Contract Law in the UAE: Foundations
Good faith and liability make the foundation of the contract law in the UAE. However, apart from the issues mentioned above, a standard form contract and contract interpretation are also viewed as essential elements (Latham & Watkins, Inc., 2011). These principles were developed to guide the initiation, execution and termination of contracts in various areas.
Contract of Adhesion
Under the laws of the UAE, the court does not have the authority to interfere with the agreement details between the parties that have engaged in a contract. As a result, the parties involved in a contract are assured that the agreement made when entering into a contract is enforceable. The standard form of contract, however, does not follow the specified principle. Quite on the contrary, Article 248 of the Civil Code makes it clear that a standard form can be deemed as invalid in case it violates the rights of either of the parties The Public Policy gives the authority to the judge to impose fairness during the judgment under Article 248(Kanakri & Al-Mulla, 2015). When a party tries to prevent the judge from executing the authority given by law, the agreement is considered legitimate.
Article 266.1 also states that the vague areas of the agreement must be interpreted in favor of the supplier. However, the rule as suggested in the provision does not apply in the context of the contract of adhesion (Gulf Talent, 2007). Instead, the principle posits that the customer should be favored when solving uncertainties arising in the contract terms. Therefore, the parties should have a full understanding of the differences in the application of the law in the case of signing the contract of adhesion. Article 145 of the Civil Code also states that the principles of the contract of adhesion must be followed when establishing an agreement between a buyer and a supplier. (Latham & Watkins, Inc., 2011). The provision asserts that there should be no negotiations about the terms and conditions.
The UAE Civil Code states explicitly that the contract interpretation must incorporate the ideas and intentions about which the participants are in complete agreement. The intention should become ostensibly important in a written contract (Kanakri & Al-Mulla, 2015). The specified step is necessary so that no conditions other than those discussed in the contract should be considered if a court trial becomes a necessity. However, in the instance where the conditions of a contract exhibit vagueness, the court has the authority to assess the provisions and render their true meanings to the parties. However, the specified procedure will require following the essential principles of honesty and integrity (Latham & Watkins, Inc., 2011).
It is stated explicitly in Article 265 of the UAE Civil Code that the principles of honesty and integrity must become the basis for signing a contract between the parties (Gulf Talent, 2007). In addition, the participants should base their activities on the rule of law, fairness, and reasonability.
The provisions of the UAE Civil Code, particularly, Article 124, state that the parties of an agreement must comply with their personal obligations that depend on the circumstances in which the agreement was signed to prevent any damage to the stakeholders (Kanakri & Al-Mulla, 2015).
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