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UAE Contract Law: Simplifying How Contracts Work in the UAE

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00

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contract, india, termination

We often do not realise how ubiquitous contracts are; every day people enter into contracts directly or indirectly From buying a simple pen to a multi-billion-dollar business venture, contract law is involved. People enter into various contracts like license agreements, employer-employee agreements or service agreements, etc. Each country has its own laws governing the formation of contracts.

Significance in the UAE

All contracts in UAE are governed by several laws such as Federal Law No. 5 of 1985 on the UAE Civil Code, Federal Law No. 2 of 2015 on Commercial Company Law or Federal Law No. 18 of 1993, Commercial Transactions Law of the United Arab Emirates. The applicability of a particular law depends on the type of agreement, for example, any commercial contract will be governed by commercial transaction law; any contract entered into between the partners of the company shall be governed by the laws of the company and assimilated. Notwithstanding the foregoing laws, contracts may also be expressly governed by any specific laws enacted for specific types of contracts such as employment contracts governed by UAE labor laws.

Definition of Contracts Under Civil Code

In the case of this concept, Article 125 of the UAE Civil Code defines the contract as follows; the making of an offer by one of the contracting parties with the acknowledgment and acceptance of the other.

Elements of a Valid Contract

According to Article 129 of the Civil Code, the elements necessary for the constitution of a contract are: -

  1. The two parties to an agreement must agree on the essential elements of the contract;
  2. The reason and object of the agreement must be resolute, determinable, and permissive; and
  3. Non-contractual obligations must have a lawful purpose.

Requirement for Agreement

A contract can only be formed by agreement between the parties on the essential elements of the obligation and on any other legal conditions that the parties consider essential.

Where the parties agree on the basic elements of the obligation and any other legal conditions that the parties deem necessary, they leave certain details to be agreed upon at a later date and do not create conditions for the formation of a contract on the 'agreement on these matters, the contract is considered to be formed. In the event of discrepancies concerning these outstanding details, the judge adjudicate it according to the nature of the transaction and the provisions of the law.

Parties Bound by Contract

Under section 151, If ​​a person enters into a contract for his account, that person will be bound by the terms of that contract and to the exclusion of others.

Subcontractors

In the United Arab Emirates, in pursuance of Article 891 of the UAE Civil Code, "a subcontractor shall not have a claim concerning the employer for an amount due to him from the first contractor unless he has made an assignment to him against the employer."

Subcontracting has become an essential aspect of the construction industry in the UAE with more complex and specialized projects. It is up to one company to have the capacity to carry out the entire task. service is incomprehensible. In this case, one might consider the incompatibility of a situation where the main contractor of a project, being the sole contractor, would need to maintain and pay a huge workforce, with many abilities and expertise to work on such a project. , it is ultimately economically unsustainable.

The use of subcontractors has contributed to significant reductions in project costs in the industry, such use of subcontractors also has the advantage of sharing project risks between the contractor and the subcontractor. The UAE recognized the advantages and necessity of such subcontracting, the law allowed the main contractor to subcontract all the work. It is possible to sub-contract all works, except for construction contracts contain contradictory provisions; or when the selection of a contractor is due to his or her specific personal qualities.

In the context of a subcontract, which is ultimately a contract between the main contractor and the subcontractor, this means that the owner of the main contractor will be the third party to this subcontract and will therefore not be rights or obligations in connection with this subcontract.

Termination of a Contract

Under UAE law, a contract may be terminated in any of the following ways:

  • Subject to termination terms expressly agreed between the parties to the contract
  • By agreement between the parties, with condition that the value or object of the contract is liable to be returned and not significantly changed
  • By court order - This occurs when one party breaches its obligations under the contract and the other party want to terminate the contract
  • On a case-by-case basis, the contract may be terminated under the laws of the United Arab Emirates when a force majeure event makes it impossible to perform the contract

 

This article was contributed by Hetal Bansal, Law Student at Amity University Noida

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