Pre-Contractual Negotiations Under the New UAE Civil Transactions Law: An Analytical Reading of Negotiation Obligations and Liability Limits

Introduction

The issuance of Federal Decree-Law No. 25 of 2025 concerning the UAE Civil Transactions Law represents a significant legislative development in regulating contractual relationships and strengthening legal certainty in commercial and civil transactions. One of the most notable reforms introduced by the new law is the explicit regulation of the pre-contractual negotiation stage, a phase that previously lacked comprehensive and independent legislative treatment under the former Civil Transactions Law of 1985.

By codifying the legal framework governing negotiations before contract formation, the UAE legislator has aligned the legal system with modern international contractual standards. This development enhances transparency, promotes fair dealing, and reduces disputes arising from failed negotiations.

The Legal Significance of Pre-Contractual Negotiations

A New Legislative Approach

The new UAE Civil Transactions Law dedicates specific provisions, particularly Articles 121 to 123, to regulate negotiations prior to contract formation. These provisions recognize that legal obligations may arise even before a contract is formally concluded.

This approach reflects the growing importance of pre-contractual conduct in modern business transactions, where parties often invest significant resources, disclose sensitive information, and make strategic decisions based on ongoing negotiations.

Good Faith as a Mandatory Principle in Negotiations

Conducting and Terminating Negotiations in Good Faith

One of the most important principles introduced by the law is the requirement that negotiations must be conducted and terminated in good faith.

The principle of good faith serves as a legal safeguard against abusive negotiation practices. It prevents parties from engaging in deceptive conduct, creating false expectations, or entering negotiations without a genuine intention to conclude an agreement.

Under the new legal framework, parties are expected to act honestly, transparently, and fairly throughout the negotiation process. Failure to comply with this obligation may result in legal liability, even if no final contract is signed.

Practical Implications for Businesses

Companies and investors must ensure that their representatives engage in negotiations responsibly and avoid actions that may be interpreted as bad-faith conduct. Internal policies and negotiation protocols should be reviewed to align with the new legal requirements.

Liability for Unjustified Withdrawal from Negotiations

Bad Faith Withdrawal

The new law addresses a common issue in commercial dealings: the sudden and unjustified withdrawal from advanced negotiations.

A negotiating party may incur liability where it is proven that the withdrawal occurred in bad faith. This provides legal protection for parties who have reasonably relied on the continuation of negotiations and have incurred costs as a result.

Limitation of Compensation

To prevent excessive claims, the legislator clearly limits compensation to actual damages suffered by the injured party.

Importantly, the law excludes compensation for expected profits or anticipated contractual benefits that would have been gained if the contract had been concluded.

This distinction reflects a balanced approach that protects legitimate interests without transforming negotiations into a guarantee of contract formation.

The Duty of Disclosure

Protecting Genuine Consent

Valid contractual consent requires access to essential information. For this reason, the new law imposes a positive obligation on negotiating parties to disclose material information.

Material information refers to facts and circumstances that are decisive in influencing the other party’s decision to enter into the contract.

Failure to disclose such information may affect the validity of consent and may expose the non-disclosing party to legal consequences.

Importance for Commercial Transactions

The disclosure obligation is particularly relevant in mergers and acquisitions, healthcare agreements, real estate transactions, and complex commercial contracts where information asymmetry can significantly impact decision-making.

Protection of Confidential Information

Legal Protection of Trade Secrets and Sensitive Data

Negotiations frequently involve the exchange of confidential business information, financial records, technical know-how, and trade secrets.

Recognizing the importance of protecting such information, the new law establishes clear legal liability for unauthorized disclosure or misuse of confidential information obtained during negotiations.

Continuing Obligation

The obligation to maintain confidentiality survives regardless of whether the negotiations ultimately result in a concluded contract.

This ensures that parties can engage in negotiations with greater confidence while safeguarding valuable commercial assets.

The Elimination of the “Mere Promise” Rule

Legislative Reform

As part of the comprehensive restructuring of contract law provisions, the new UAE Civil Transactions Law removes the former Article 133 of the 1985 law.

The deleted provision had recognized certain circumstances where contractual effects could arise based on a mere promise when the parties intended such a result.

Legal Impact

The removal of this provision enhances legal clarity and reduces ambiguity regarding when contractual obligations are created. It reinforces the principle that binding obligations should arise through clearly defined legal mechanisms rather than uncertain interpretations of promises.

Conclusion

The explicit regulation of pre-contractual negotiations under the UAE Civil Transactions Law 2025 represents a major advancement in the UAE’s legal framework. By imposing obligations related to good faith, disclosure, confidentiality, and responsible negotiation conduct, the legislator has strengthened legal certainty and reduced the risks associated with failed negotiations.

Businesses, investors, and legal professionals should carefully review their negotiation practices, letters of intent, memoranda of understanding, and confidentiality arrangements to ensure compliance with the new legal requirements. Adopting proactive legal strategies during the negotiation phase can significantly reduce liability exposure and enhance transactional security.