Commercial contracts keep businesses moving. They govern everything from the supply of goods and professional services to construction work, distribution arrangements, consultancy agreements and payment obligations. But when one party does not do what it promised, a straightforward business relationship can quickly become a commercial contract dispute in Dubai or elsewhere in the UAE.
A breach does not always mean that the contract automatically comes to an end. The available remedy depends on what went wrong, what the agreement says and the loss caused by the breach.
What Is a Breach of Contract?
A breach occurs when a party fails to perform a contractual obligation properly or within the agreed time. Common examples include:
For businesses dealing with a breach of contract in the UAE, the first step should usually be to read the agreement carefully. Payment dates, notice requirements, cure periods, termination rights, limitation of liability provisions and dispute resolution clauses can significantly affect what happens next.
Which UAE Laws Apply?
Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law came into force on 1 June 2026 and replaced the previous Civil Transactions Law. It provides the general framework governing contractual obligations, performance, termination and compensation.
Federal Decree-Law No. 50 of 2022 concerning the Commercial Transactions Law also governs commercial transactions. In the absence of a provision in commercial legislation, the corresponding principles of civil law may apply.
Contracts Must Be Performed in Good Faith
A contract is more than a list of promises written on paper. Article 221 of the Civil Transactions Law requires contracts to be performed in accordance with their contents and consistently with the requirements of good faith. This principle can also extend to obligations arising from law, custom and the nature of the transaction.
In practical terms, a party should not deliberately obstruct performance, misuse contractual rights, or act so as to defeat the object of the agreement.
What Can the Other Party Do After a Breach?
Article 234 of Federal Decree-Law No. 25 of 2025 on the Non-Performance of Bilateral Contracts. If a party fails to perform an obligation when it is due, the other party may demand performance or terminate the contract, in addition to any other remedies.
This means the affected party may not necessarily have to walk away from the transaction. If performance is still commercially useful, it may seek to have the obligation fulfilled.
Some contracts also contain an automatic termination clause. Article 235 recognises that parties may agree that a contract will be treated as automatically terminated upon non-performance, subject to the conditions provided by law and the wording of the agreement.
This is why sending a termination email without first checking the contract can be risky. A wrongful termination may itself create another contractual dispute.
Can Compensation Be Claimed?
Compensation is one of the most common issues in a breach of contract UAE dispute.
Where performance is impossible, delayed, partial or defective, compensation may be ordered under Article 336 of Federal Decree-Law No. 25 of 2025, unless the debtor proves an external cause for which it is not responsible.
Article 337 further provides that compensation generally becomes due after the debtor has been formally notified, unless the parties’ agreement or the law provides otherwise.
Where compensation has not already been fixed by law or contract, Article 339 allows the court to assess compensation according to the actual harm suffered.
Commercial agreements often contain a liquidated damages clause, which is a pre-determined compensation. Article 340 provides for such clauses but the court may reduce the agreed sum in certain circumstances, including where it is excessive or the contractual obligation has been partially performed. The law also allows the creditor to demand more than the agreed amount in cases of fraud or gross fault.
Practical Steps When a Contract Is Breached
Before starting a claim, businesses should collect the contract, amendments, invoices, purchase orders, payment records, emails, delivery documents and other communications relating to performance.
The next step is usually to identify the exact contractual obligation that has been breached and determine whether the agreement requires written notice or gives the defaulting party time to correct the breach.
At times, a properly drafted legal notice can solve the issue without long drawn proceedings. Mrs. Awatif Al Khouri assists parties to review the contractual terms, determine the correct remedy and evaluate whether going through negotiations, settlement or formal proceedings is the more practical way forward.
The dispute resolution clause should also be checked early. Depending on the agreement, the dispute may need to be brought before the competent UAE courts or referred to arbitration.
Conclusion
A breach of a commercial contract does not have a single automatic consequence. Depending on the circumstances, the affected party may seek performance, cancellation of the contract, compensation or a combination of available remedies.
Notice provisions, termination clauses, evidence of loss and the wording of the contract can all affect the strength of a claim.
For anyone facing a commercial contract dispute in Dubai or elsewhere in the UAE, early review of the agreement can help prevent a manageable disagreement from becoming a costly dispute. Mrs. Awatif Al Khouri provides practical guidance on evaluating the breach, preserving the contractual position and identifying an appropriate course of action under UAE law.
