The Central Role of Good Faith and Mandatory Rules in Governing UAE Construction Contracts

Construction contracts in the United Arab Emirates (UAE) occupy a unique position within the broader civil law tradition. While the region’s legal systems share certain features with common law jurisdictions -- such as the emphasis on freedom of contract and enforceability -- they also diverge significantly in their philosophical and doctrinal foundations.

Rooted in Islamic Shari’ah, influenced by the French Civil Code, and framed by overarching concepts such as public order, good faith, and mandatory obligations, the UAE’s contractual regime represents a hybrid model requiring careful navigation by construction professionals and legal practitioners.

This article examines the key contractual principles governing construction contracts in the UAE.

 

2. Binding Obligations: The Law of the Parties

 

The foundation of contractual relations in the UAE lies in the principle that a contract is binding and effective under Federal Law, consistent with Qur’anic injunctions that agreements must be honoured. Both commercial and civil contracts impose binding obligations: parties are required to perform as agreed, and the contract itself assumes the force of law between them.

However, this freedom is not absolute. The subject matter must have a valid cause (purpose) and must not contravene public order or morality. Contracts conflicting with public interest -- for example, those relating to inheritance restrictions, prohibited trade, or unlawful ownership -- are void to the extent of their inconsistency.

 

3. Mandatory Obligations and Public Order

A distinguishing feature of UAE contractual law is the existence of mandatory provisions (dispositions impératives), statutory rules that cannot be excluded or amended by agreement. These provisions safeguard public interest and prevent contractual abuse. Examples relevant to construction contracts include:

 

• Exceptional circumstances (Art. 249 of Federal Law No. 5 of 1985 on Civil Transactions (“Civil Code”))
• Unfair contract terms (Art. 248)
• Liability for structural defects (Art. 882)
• Prohibition of exemption from liability for fraud or gross negligence

Even where parties choose foreign law or jurisdiction, UAE Courts retain the authority to apply mandatory rules, particularly where public order considerations arise. Courts have consistently held that legislation designed to protect public interest over individual preference forms part of public order.

 

4. Privity and Third-Party Rights

Unlike common law, which traditionally limits third-party rights, the UAE Civil Code (Art. 252) expressly allows contracts to confer benefits on third parties, although obligations cannot be imposed upon them. This is particularly relevant in construction projects where employers, contractors, subcontractors, and end users interact through complex contractual chains.

Through assignment or novation, rights may be transferred, enabling beneficiaries -- such as purchasers or tenants—to obtain enforceable entitlements similar to collateral warranties in English law. Assignments of rights (Arts. 1106–1133 of the Civil Code) are valid even without the debtor’s consent, provided notice is given, thereby supporting commercial efficiency in project financing.

 

5. Subcontractors’ Rights

Under Article 891 of the Civil Code, subcontractors have no direct claim against employers unless the main contractor assigns such rights expressly. This contrasts with jurisdictions such as Bahrain, Kuwait, and Qatar, where subcontractors and workmen enjoy statutory direct rights of action for amounts owed by the employer to the main contractor.

 

6. The Doctrine of Good Faith

 

One of the most distinctive elements of UAE contract law is the explicit duty of good faith (Art. 246 of the Civil Code). Contracts must be performed “in accordance with their contents and in a manner consistent with the requirements of good faith”.

Good faith extends beyond honesty; it embodies cooperation, fairness, and mutual respect. It prevents parties from exploiting one another or benefitting from inequitable conduct. Courts interpret good faith objectively, taking into account industry norms and equitable principles.
Good faith does not alter contractual obligations but influences the Court’s approach to remedies and damages. A party acting in bad faith may see its claims reduced or dismissed despite formal contractual entitlement.

 

7. Appurtenant and Implied Obligations

 

Article 246(2) extends contractual obligations beyond express terms to include those implied by law, custom, or the nature of the transaction. This reflects a holistic interpretative approach, whereby Courts consider broader intent and customary practice to fill gaps where terms are unclear.

Unlike common law, there is no fixed list of implied terms. Instead, Courts exercise discretion to derive obligations consistent with fairness and commercial reasonableness. Construction contracts (muqawala agreements) inherently include statutory provisions on liability for defects and damages, even where not expressly stipulated.

 

8. Abuse of Rights

 

Closely linked to good faith is the prohibition on abuse of rights (Art. 106 of the Civil Code). A lawful right becomes unlawful when exercised with the intention of causing harm, achieving an improper purpose, or securing disproportionate advantage.

This doctrine prevents parties from relying on strict contractual wording to perpetrate injustice --for example, by terminating contracts in bad faith or withdrawing financing without proper justification. Motivation and proportionality are key factors in determining abuse.

 

9. Unfair Contract Terms and Contracts of Adhesion

 

Article 248 empowers Courts to revise or invalidate unfair terms in adhesion contracts --agreements where one party, typically in a stronger bargaining position, dictates terms with limited or no negotiation.

Although rarely applied in commercial settings, this provision is a vital safeguard against exploitative clauses in standard-form construction contracts or monopoly-based supply arrangements. Determining unfairness is a matter for the Court of First Instance, assessed case by case in light of justice and equity.

 

10. Unforeseen Circumstances (Imprévision)

 

Article 249 provides a statutory mechanism for relief where exceptional, unforeseeable, and public circumstances make contractual performance excessively onerous. Unlike force majeure or frustration, which suspend or terminate obligations, this doctrine enables the Court to adjust obligations to a “reasonable level”.

The principle was widely invoked during the 2008 financial crisis, the Covid-19 pandemic, and periods of extreme commodity price volatility. However, Courts have applied it cautiously, requiring a truly public, unforeseeable event not attributable to ordinary commercial risk.

 

11. Conclusion

The contractual framework governing construction law in the UAE reflects a sophisticated balance between contractual autonomy and judicial oversight. The principles of good faith, public order, and fairness permeate every stage of contractual interpretation and performance. For practitioners and industry participants, the message is clear: while the UAE upholds the sanctity of contract, it tempers this with an enduring commitment to justice, equity, and societal welfare.

A firm understanding of these civil law doctrines is essential for drafting, negotiating, and implementing construction contracts that can withstand judicial scrutiny in the Gulf region.

 

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