What is the function of the law of contract in business law?

In the UAE, contract law provides a legal structure that ensures agreements are clear, enforceable, and fair. Understanding how contract law works will help you avoid costly disputes, protect your rights, and operate smoothly in a competitive market.

In the UAE, contract law provides a legal structure that ensures agreements are clear, enforceable, and fair. Understanding how contract law works will help you avoid costly disputes, protect your rights, and operate smoothly in a competitive market.

Understanding contract law in the UAE

The foundation of UAE contract law is Federal Law No. 5 of 1985, known as the UAE Civil Code.

“A contract is the meeting of an offer made by one party with the acceptance of the other, which establishes an obligation on each of them to do or refrain from doing something.”

This means that for any agreement to be valid in the UAE, it must include:

• A clear offer and acceptance – both parties must agree on the same terms.
• A lawful purpose – the subject matter of the contract must be legal (for example, you cannot enforce a contract for illegal goods).
• The capacity to contract – the parties must be legally competent (for instance, a company must be properly registered to sign contracts).

The capacity to contract – the parties must be legally competent (for instance, a company must be properly registered to sign contracts).

The essential functions of contract law

Contract law is not just about signing papers. It plays four major roles in business:

Clarity and certainty

Contracts define the rights and duties of each party.

Example: A service contract between a Dubai IT company and a client should specify:

• The scope of work,
• Payment terms,
• Delivery deadlines,
• Penalties for late performance.

Without these details, misunderstandings are inevitable and disputes become harder to resolve.

Risk management and prevention of disputes

Contract law provides mechanisms to prevent and resolve conflicts. By drafting a contract carefully, you can:

• Limit financial exposure,
• Define what happens if a party fails to perform,
• Include dispute resolution clauses (e.g., UAE courts or arbitration centers like DIAC or ADGM Arbitration Centre).

This is especially important in the UAE, where many transactions involve cross-border elements between local and international parties.

Enforceability through UAE courts

A contract governed by UAE law is legally enforceable.

If one party breaches the contract, the other party can:

• File a claim in a local court,
• Request compensation for damages,
• Seek enforcement of specific obligations.

Example: If a supplier fails to deliver goods to a company in Dubai, the buyer can bring the matter before the Dubai Courts, provided the contract includes proper legal clauses.

Supporting business growth and investment

Strong contract laws build trust in the economy. Investors are more willing to do business in the UAE when they know their agreements will be protected by law.

This is why free zones such as Dubai Multi Commodities Centre (DMCC) or Dubai Internet City (DIC) require companies to have clear contracts before issuing licenses or permits.

Key types of business contracts in the UAE

Understanding which contracts are most common can help you prepare for business in the UAE. Some of the most frequently used contracts include:

• Commercial agency agreements
• Employment contracts
• Franchise agreements.
• Shareholders’ agreements for company structuring.
• Non-disclosure agreements (NDAs) to protect sensitive information.

Each type of contract has specific legal requirements and may require registration with UAE authorities.

The cost of not having proper contracts

Operating without clear contracts exposes businesses to significant risks:

• Difficulty proving verbal agreements,
• No legal remedy in case of fraud or non-payment,
• Possible penalties for failing to comply with UAE commercial laws,
• Loss of business reputation.

Example: A restaurant owner hires a contractor to renovate their premises but fails to sign a formal contract.
If the work is delayed or incomplete, the owner may have little legal recourse to recover their losses.

Protect your business with expert legal advice

Contract law in the UAE provides a solid framework for business success. By understanding its function, you can secure your agreements, prevent disputes, and build stronger relationships with partners and clients.

Before signing any business contract, consult a lawyer experienced in UAE law.
At AGN Legal Partners, we help businesses draft, review, and negotiate contracts to ensure full compliance with local regulations.

Contact us today to protect your interests and grow your business with confidence.

Our lawyers, who are experts in business law, are available to answer all your questions and provide advice. We offer face-to-face meetings or videoconferencing. You can make an appointment directly online at https://www.agn-avocats.fr/.

AGN AVOCATS – Business Law
contact@agn-avocats.fr
09 72 34 24 72