An Overview of Commercial Dispute Law

Introduction

The UAE Contracts are governed by two primary legislations, the Civil Code and the Commercial Transactions Law. The Civil Code Law under Federal Decree Law No. 25 of 2025, to be enacted on 1st June 2026, abrogates the Federal Law No. 5 of 1985 governs general civil transactions, while the Commercial Transaction Law, established by Federal Law No. 50 of 2022, specifically addresses commercial and merchant transactions, where the primary goal is to make a profit.

Fundamental Principles of Contract Law

According to Article 113 of the 2025 Civil Code, a contract is formed when an offer and acceptance come together, showing a shared intention to create legal effects. Article 113(2) concerns pacta sunt servanda, which stipulates that a validly formed contract constitutes private law between the parties and can only be revoked or amended by mutual agreement or on legal grounds. A contract shall satisfy the principles of good faith. This duty also extends to the negotiation, as well, when a party who withdraws from negotiations in bad faith can be held liable for the other party’s actual losses. For a contract to be legally valid, Article 124 provides for three requirements.

• Consent
• The object of the contract is certain, lawful, and capable of existing
• The purpose must be lawful.

Specific Commercial Law Principles

The Commercial Transactions Law governs the commercial and merchant transactions, both commercial physical and virtual activities. These businesses shall be governed by the agreement between the parties and the provisions of the Commercial Transaction Law (2022). In the absence of a specific provision or commercial custom, the Civil Code shall apply, provided its application does not conflict with the general principles of commercial activity. Some of the specific commercial law principles are as follows:

• Article 373 of the civil law does not assume joint liability. However, Article 69 of the Commercial Law says that if two or more people owe a business debt, they are automatically jointly responsible unless the law or an agreement says otherwise, in contrast to the Civil Law.
• Civil transactions are subject to specific evidentiary requirements, and Article 8 says that evidence is governed by provisions in force at the time evidence was prepared. While the Commercial Law expedites the process, and commercial obligations can be established by all means of evidence, regardless of the amount involved, as provided under Article 91.
• In Commercial Law, Article 71 provides that if a merchant performs a service or business related to their commercial activities for a third party, they are deemed to have done so for consideration, unlike civil law, which says that the work is for free if the work is of a nature customarily performed gratuitously or falls outside the person’s professional vocation.
• While civil courts can grant an exception ‘reasonable period of grace’ for performance under Article 311(2), commercial courts are generally prohibited from granting a debtor a time limit for payment unless the creditor consents or under general exceptional circumstances as provided under Article 82.
• Interest is prohibited under civil law based on Sharia principles. Any agreement that includes a benefit more than the main amount is generally regarded as null and void. The contract remains valid, as indicated in Article 591(2). But Article 72 of the Commercial Law makes it clear that a creditor can get interest on a business loan. The contract sets the rate; if no rate is given, the market rate is used, provided it does not exceed 9%.
• The general limitation period for actions to enforce a right under civil law is 15 years, though there are shorter periods for some transactions. Under Commercial Law, to ensure the finality of business dealings, Article 92 provides that cases related to merchants’ obligations are barred after 5 years from the date the performance falls due.

Steps for Handling Disputes Under Commercial Law

The handling of disputes involves a structured process that prioritizes contractual agreements, commercial customs, and efficient evidentiary rules.

1. Reviewing the Contractual Disputes

The first step is to refer to the agreement between the parties. Article 2 of the Commercial Law stipulates that commercial businesses and merchants are primarily governed by their specific agreements, unless they contradict the general commercial principles. Also, parties to commercial transactions are encouraged to specify a mechanism of dispute resolution within their contract.

2. Formal Notification

Official summons and notices on commercial matters must be served through the Notary Public as provided under Article 81 of the Commercial Law.

3. Hierarchy of Law

Article 2 of the Commercial Law says that in the absence of any specific agreement, the rules of commercial customs and practices shall apply. It is to be noted that a special or local custom will have precedence over general custom. The rules for previous dealings among the parties are also considered a special custom. In the absence of a commercial custom, civil law applies, unless it does not contradict the general commercial principles. Where the legislation is silent, the court adjudicates according to the Islamic Sharia principles. Natural law and equity will serve as the gap-fillers.

Judicial Remedies

In cases of breach, the buyer has several options through the court:

• The act provides for specific performance, i.e., execution in kind. This remedy aims to force the defaulting party to fulfill the exact terms of the agreements rather than just paying money for the breach. Article 102 of the Commercial Law provides for applying for a court order by the merchant to compel the seller to deliver the specific item. The court may refuse this execution in kind if it would be unduly onerous for the debtor.
• Rescission is the judicial undoing of a contract, intended to release both parties from their obligations because one side failed to perform. Article 234(1) of the Civil Law states that if one party fails to perform a material obligation, the other may apply to the court for rescission. Rescission under Articles 192 and 237 of the Civil Law has the primary effect of returning the parties to their pre-existing situation. Article 102 of the Commercial Code states that if a seller fails to deliver, the merchant has the explicit right to cancel the contract. The party may demand damages. and compensation for losses, considering the contract terminated.
• Parties can agree in their contract, and the agreement will be terminated ipso facto upon a breach of contract without the need for a specific court judgment to confirm the termination, provided a formal notice is served (Article 235 of the Civil Law).
• The court provides for damages either as a standalone remedy or in combination with rescission or execution in kind. Damages are generally assessed based on actual loss.
• Under Article 222 of the Civil Code, if two parties have mutual obligations that are both due, either party may withhold performance of their own obligation (for instance, like paying the price), if the other party fails to perform their reciprocal obligation (for instance, like delivering the goods).

Dispute Resolution Mechanisms

Resolving disputes in commercial transactions meticulously is an essential element in managing risk in this globalized international environment. These disputes are usually resolved through formal court procedures or alternative dispute resolutions.

1. Litigation

The UAE offers a civil law jurisdiction system through the onshore courts and common-law jurisdiction through the offshore courts. The onshore courts follow the federal laws. The offshore court in the free zones follows common-law jurisdiction through its laws aligned with the international judicial system.

Onshore Courts

The litigation process in the UAE is primarily governed by Federal Decree Law No 42 of 2022, which came into force on January 2, 2023. The UAE judicial system provides for a three-tier system, supplemented by specialized offices.

• Case Management Office (CMO): CMO is responsible for preparing and managing cases before they are referred to a judge. They are established at the seat of each court, and their duties include registration, service of process, exchange of submissions, and expert reports.
• Court of First Instance: These courts have the jurisdiction to hear all matters, disputes, and proceedings of civil, commercial, and personal status claims, provided it is not excluded by a special provision.
• Court of Appeal: This court hears the appeals against the orders and judgments issued by the First Instance Court.
• Court of Cassation: This court is the highest level of appeal and entertain challenges based on statutory violations, application problems, or procedural nullity.

A case commences when the plaintiff submits a statement of claim to the CMO. Once the legal fees have been paid, the lawsuit will be fully registered. The case is referred to the appropriate courts, and pleadings are often held in open court, unless in sensitive cases. Following completion of the procedures, the court issues a reasoned and signed judgment. A party has 30 days to appeal a ruling to the Court of Appeals, and a final challenge can be filed within 30 days of the appellate judgment within the Court of Cassation.

Offshore Courts

Apart from the onshore courts, the free zone areas have their own common law jurisdiction system. Dubai International Financial Center (DIFC), following English language, has its own laws and an independent court, DIFC Courts, as governed by Law No 2 of 2025. Their structure comprises the Court of Appeal, Court of First Instance, and a Small Claims Tribunal. They have exclusive jurisdiction over civil and commercial disputes involving DIFC establishments. They also allow external parties to opt in to their jurisdiction through clear written agreements. Abu Dhabi Global Market (ADGM) is also a financial free zone situated in the Emirate of Abu Dhabi, having its own laws and an independent judicial system.

2. Alternative Dispute Resolution

Negotiation and Mediation

Negotiation allows the parties to have direct discussions and helps them to reach a conclusion. This is considered the initial step in any kind of conflict. Mediation is a step above negotiation, because in mediation, there will be a neutral third party who facilitates the discussions and helps them to find a middle ground.

Arbitration

Arbitration is the preferred way for resolving high-value complex disputes. The Federal Law No. 6 of 2018, amended by Federal Decree Law No. 15 of 2023, governs the process of arbitration and is based on the UNCITRAL Model Law. The panel and the arbitrators will be decided and appointed by the parties, and their decision will be binding between the parties. The Arbitration Law helps to uphold party autonomy and is a cost-effective, speedy way to settle disputes.

Conclusion

The Civil Code provides the general foundation for all obligations, and the Commercial Code introduces specific rules tailored for merchants and business dealings. While handling disputes within commercial transactions, the contract is to be reviewed first in order to identify whether the principles mentioned in the contract are fair and do not conflict with the general principles. And for resolving disputes, they shall adhere to the mechanism of dispute resolution provided in the contract.