The introduction of Federal Decree-Law No. 25 of 2025, effective 1 June 2026, on Civil Transactions Law, marks a significant milestone in the evolution of the United Arab Emirates’ legal framework. This legislation repeals and replaces the Civil Code of 1985 (as amended), notably brining, amongst other major changes, a significant development in contract law, through the recognition of pre‑contractual liability as an integral aspect of contractual dealings.
Under the previous legal framework, pre‑contractual liability arose in limited and exceptional circumstances, while The principle of good faith was primarily confined to the performance of concluded contracts. As a result, negotiations were generally regarded as a non‑binding and legally neutral stage, allowing parties significant flexibility to withdraw from such negotiations. While this approach supported commercial freedom, it also created uncertainty and exposed parties to risk where reliance had developed during the negotiation process.
The new Civil Code departs from this position by introducing a structured regime governing pre‑contractual conduct, primarily through Articles 121 and 122. Article 121 establishes that negotiations, including their initiation, continuation, and termination, must be conducted in accordance with good faith principles. This represents a fundamental shift, as it extends legal scrutiny to the negotiation phase, recognizing that liability may arise not only from contractual obligations, but also from the manner in which parties engage prior to contract formation.
Importantly, the law preserves the principle of freedom of contract, expressly confirming that negotiations do not, in themselves, create an obligation to conclude an agreement. However, this freedom is not absolute. Liability may arise where a party engages in bad faith conduct, including a deliberate failure to provide material statements affecting the validity of the contract. The scope of recoverable damages is deliberately limited. Compensation extends only to actual losses incurred, Claims for speculative or expectation loss, are expressly excluded. This reflects a measured approach, balancing the need to deter abusive conduct while avoiding disproportionate liability.
A further significant development is introduced by Article 122, which imposes a mandatory duty of disclosure, where the information is material to the other party’s decision-making, particularly where there is an imbalance of knowledge or a relationship of trust. Complementing this, Article 123 further reinforces the protection of confidential information exchanged during negotiations, providing that any unauthorized use or disclosure may give rise to liability. Together, these provisions promote fairness and integrity in pre‑contractual dealings.
In practical terms, the implications are substantial. Negotiations must now be approached with greater discipline, transparency, and legal oversight. Informal or opportunistic conduct may expose parties to liability, even in the absence of a concluded contract. The new regime therefore redefines negotiations as a stage of legal accountability, fundamentally reshaping the risk profile for businesses operating in the UAE.