UAE Arbitration Enters a New Era: What the New Civil Transactions Law Means for Existing Contracts and Future Disputes

Every arbitration begins with the same story: two parties entered into an agreement, something went wrong, and a tribunal must resolve the dispute. But tribunals do not decide cases in a vacuum — they are guided by the governing law. In the UAE, for more than four decades, that law was Federal Law No. 5 of 1985, the Civil Transactions Law, which quietly underpinned virtually every arbitral award governed by UAE law.

The challenge was its age. Enacted long before the internet, digital commerce and globalisation transformed business, the 1985 code increasingly struggled to reflect modern commercial realities. Arbitrators experienced these shortcomings first-hand. Construction contracts were largely left to judicial discretion, often producing inconsistent outcomes. Article 390, governing liquidated damages, gave judges and arbitrators broad authority to adjust agreed compensation to reflect actual loss, reducing carefully negotiated contractual provisions to little more than guidelines. Conduct during pre-contract negotiations also remained legally uncertain. In effect, sophisticated international parties choosing UAE arbitration were relying on a legal framework older than many of the lawyers applying it.

Recognising these limitations, the UAE chose replacement over reform. Federal Decree-Law No. 25 of 2025, the new Civil Transactions Law, came into force on June 1, 2026, replacing the 1985 legislation in its entirety. It also marks the culmination of a broader legislative modernisation programme, following reforms to the Civil Procedure, Commercial Transactions, Competition and Personal Status laws.

What Happens to Arbitration Clauses Signed Before June 1, 2026?

The good news is that existing arbitration clauses remain valid. They do not expire, become ineffective or require re-execution. Arbitration agreements are governed by Federal Law No. 6 of 2018 (the Arbitration Law) rather than the Civil Transactions Law.

Indeed, the new legislation reinforces the doctrine of separability, under which an arbitration agreement survives challenges to the underlying contract. While contracts signed before June 2026 continue to be governed by the old Civil Transactions Law for issues concerning their formation and validity, parties should recognise that the legal landscape surrounding those contracts has changed in three important respects.

1. Limitation Periods Have Changed.
   
   

Articles 6 and 7 of the new law provide that limitation periods apply immediately to claims that had not expired before the law came into force. Where the new limitation period is shorter, it runs from June 1, 2026.

Consider a subcontractor holding an unpaid claim dating back to 2023 and assuming ample time remains to commence proceedings. That assumption could now prove costly. Any party with outstanding but unfiled claims should recalculate limitation periods under the new legislation without delay.

2. Some Contractual Provisions May Not Survive the Transition.
   
   

The new law introduces mandatory provisions that may override existing contractual terms regardless of when the contract was signed. These include contractual limitation periods that are shorter than the statutory three-year period for decennial liability claims, as well as contractual caps on decennial liability.

One provision is particularly relevant to arbitration. Article 958 provides that an arbitration clause contained only within the pre-printed general conditions of an insurance policy may be unenforceable unless it is set out in a separate agreement signed by both parties. Insurers and policyholders relying on standard-form arbitration clauses should review their contracts carefully.

3. Tribunals May Have to Navigate Two Legal Regimes.
   
   

Practitioners generally agree that parties should avoid leaving this issue to chance.

Hogan Lovells offers a useful illustration: a contract signed before 2026 but terminated in 2031, with arbitration commencing in 2033, would remain governed by the old Civil Transactions Law. However, an arbitral tribunal hearing the dispute in 2033 may still be influenced by principles introduced under the new law when considering procedural fairness, abuse of rights, construction defects and evidential standards.

For this reason, parties should expressly identify the applicable legal framework whenever contracts are amended or supplemented. K&L Gates similarly notes that although the new code does not govern contracts concluded before June 2026, it is likely to shape future judicial and arbitral decision-making.

What's Actually New for Arbitral Claims?

The substantive reforms will influence how claims are pleaded and argued before arbitral tribunals.

For the first time, the legislation expressly imposes a duty to negotiate in good faith. A party that negotiates dishonestly, conceals material information or misuses confidential information during pre-contract discussions may now incur liability even if no final contract is concluded.

The treatment of liquidated damages has also evolved. Article 340 preserves parties' ability to agree liquidated damages but no longer permits courts to adjust compensation simply by reassessing the actual loss. Instead, the law specifies the circumstances in which agreed amounts may be reduced or increased. Upward adjustments will generally be permitted only where there is evidence of fraud, bad faith or gross negligence by the debtor.

Enforcement also assumes greater importance. An arbitral award has little practical value until recognised and enforced by the courts. Under Article 53(1) of the Arbitration Law, an award may be annulled if it conflicts with public policy — a concept interpreted broadly under UAE law.

As the new Civil Transactions Law places greater emphasis on public order, tribunals must consider issues such as illegality, nullity and abuse of rights more carefully. Failure to do so may expose an otherwise sound award to enforcement challenges.

The Drawbacks

The reforms also present significant challenges.

The most immediate is interpretative uncertainty. For four decades, arbitrators relied on an extensive body of Court of Cassation jurisprudence interpreting the 1985 code. That body of precedent will now have limited application, while new case law under the revised legislation will take years to develop. This uncertainty inevitably increases legal costs, prolongs proceedings and affects parties' negotiating positions.

Secondly, the transitional limitation rules may operate harshly in practice. Parties who believed they had complied with existing deadlines under the old law could suddenly find themselves facing significantly shorter limitation periods beginning on June 1, 2026.

Thirdly, mandatory statutory provisions inevitably restrict party autonomy, a cornerstone of arbitration. Where legislation overrides negotiated contractual terms irrespective of the contract date, and courts retain broader powers to modify agreements in exceptional circumstances, commercial certainty is reduced.

Even the revised enforcement framework has been described by commentators as a "double-edged sword"—streamlining enforcement while simultaneously expanding the grounds on which courts may intervene. Scholars have also criticised the new code's conflict-of-law provisions, arguing that they represent a missed opportunity for comprehensive modernisation.

On balance, the new Civil Transactions Law represents a significant step towards modernising UAE private law. For arbitrators and commercial parties alike, however, the coming decade will require careful attention. Deadlines should be recalculated, contractual provisions reviewed, and assumptions based on the old legal framework abandoned. The old rulebook has gone; arbitration strategy must now evolve with the new one.

 

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