A country's legal system governs its society by enforcing laws and justice. Common law and civil law are the two main types of legal systems where common law relies on legal precedent, and civil law depends on written statutes and codes.
As a result of its rapidly expanding economy and strategic location, the UAE has experienced significant growth in recent years, prompting considerable interest in its legal system. Understanding the UAE's legal framework is essential to comprehend the differences between standard and civil law jurisdictions.
Is UAE a Common Law or Civil Law Jurisdiction?
In the UAE, the legal system is predominantly civil law-based and has three primary sources of law. These include federal laws and decrees applicable across all Emirates, local laws enacted by individual Emirates that are enforceable to the extent they don't contradict federal laws, and Shari'ah, the Islamic law.
However, the UAE also boasts two financial free zones, the Dubai International Financial Centre (DIFC) in Dubai and the Abu Dhabi Global Market (ADGM) in Abu Dhabi. Both of these operate under their legal system, which is based on common law and has English language courts.
The DIFC courts have a Technology and Construction Division established in 2017, employing specialist judges and industry-specific rules. ADGM has its own commercial regulations, management, and financial services regulators. ADGM's legal system is based on English common law, including English statutes and ADGM enactments drafted from English statutory precedents and commercially respected common law jurisdictions' examples.
The laws and regulations of the DIFC are developed by the DIFC Authority, except for rules related to financial services, which the Dubai Financial Services Authority develops. These laws and regulations are based on internationally respected common law standards and principles, tailored to meet the region's unique needs.
Exploring the Framework of UAE Contract Law
When you and another party agree to enter into a contract under UAE contract law, you negotiate the terms, conditions, and costs. A contract is formed once you decide on the essential elements, whether verbally or in writing. If any disputes arise later, contract law applies, which includes statutory laws and court rulings.
In everyday situations, the parties may have agreed on essential elements and formed a contract, but an unexpected event occurs. They might have been aware it could happen but believed they could resolve it. However, they realize that they cannot. Instead of resorting to confrontation, they seek advice from a lawyer.
Forming Contracts in the UAE
Contracts in the United Arab Emirates are governed by the Civil Code, which is the legal framework for all civil rights and obligations. The Commercial Code also extends to commercial contracts. In addition, specific contract types, such as land transactions and ship sales, are regulated by various statutes.
The Civil Code is derived from Islamic law principles. It distinguishes between fundamental elements necessary for a contract's existence and those that influence the binding nature of its provisions. For a contract to be formed under the Civil Code, there must be a mutual agreement on fundamental elements, a permissible and definable subject matter, and a lawful basis for contract obligations.
Courts in the UAE carefully examine various factors such as offer and acceptance, term clarity, and contracting parties' capacity to determine whether a contract has been formed.
Verbal Agreements and The Significance of Good Faith
Verbal agreements are enforceable under UAE law as both parties intend to enter into a contract and agree on the essential terms. However, it is advisable to document the terms in writing to avoid future disputes.
In addition, all contracts in the UAE are subject to the duty of good faith, which requires transparency and fairness from both parties. This obligation is implied in the Civil Code and extends to contracts governed by foreign law and pre-contract negotiations. Therefore, parties must align with legal, customary, and contractual principles to fulfill their duty of good faith.
If you want to terminate a contract in the UAE, only three legal ways are outlined in the Civil Code. These include ending the contract by mutual consent, pursuing litigation, or following the guidance of the law. Check out our recent article to learn more about terminating an agreement in the UAE.
When disputes arise in written contracts, the dispute resolution clause is an essential component that demands careful consideration and drafting. Remembering that court judgments can be difficult to enforce internationally is critical. At the same time, arbitration awards tend to be more readily upheld in numerous countries worldwide, though some challenges may still arise. As you negotiate the selection of the law and jurisdiction, consider this.
What are the most popular standard forms of contract?
The Common Contracts Projects initiative by the Ministry of Economy aims to provide a range of contracts for businesses and entrepreneurs to establish their companies and engage in trade activities in the UAE. These model contracts simplify managing and conducting businesses, promote trade movements, organize legal procedural frameworks, and ensure the effective implementation of agreements.
The Joint Venture Agreement facilitates the formation of a joint venture company between partners who hold an equal share of 50% each. This agreement governs the relationship between the company's shareholders and outlines the basis for establishing the joint venture.
The Advisory Agreement is designed for individuals who wish to benefit from specialist advisory services and assistance in the UAE. It includes the provision of specific personnel nominated by the advisor, and the relationship is governed by UAE law.
The Agency Agreement appoints an agent to promote and sell the principal's products in the territory outlined in the agreement. The agent is designated as either exclusive or non-exclusive, subject to the terms and conditions outlined in the contract.
The Assignment Agreement is a generic template for assigning legal rights, titles, and obligations under an agreement to an assignee governed by UAE law.
The Intellectual Property Right Assignment Agreement transfers all rights and titles of a financial nature to the assignee for an unlimited period from the start date of the work delivered.
The Consulting Services Agreement is tailored for companies requiring consultancy services in the UAE. The agreement is between the customer and consultant companies, both incorporated and existing under the laws of their respective countries of incorporation.
The Distribution Agreement distributes products exclusively or non-exclusively in the UAE. The agreement outlines the terms and conditions for the distributor to accept the appointment from the supplier, with the territory limited to the UAE only.
The Restaurant Franchise Agreement facilitates franchising a restaurant concept and licensing of intellectual property. The franchisor authorizes the opening and operation of one restaurant outlet under specific requirements, and the franchisee will pay an initial franchise fee and a percentage of royalties calculated on the turnover.
The Memorandum of Association is a generic template of a Limited Liability Company with multiple shareholders intended to facilitate the establishment of a company in the UAE.
The Services Agreement is suitable for a work-for-hire arrangement focusing on Intellectual Property rights related to specific services provided in the UAE.
The Trademark License Agreement grants permission for a registered trademark holder in the UAE to license its use. The agreement outlines the obligations and rights of the licensee concerning the use of the trademark.