Breach of Contract in UAE: Legal Actions & Compensation

Contracts are essential for any legal agreement, setting clear responsibilities for both sides. But what happens if one party doesn’t follow through? This is called a breach of contract, which can lead to legal and financial problems. Whether it’s a business contract or a personal agreement, it’s important to know your rights and options to protect yourself.

Contracts are more than just paperwork. They’re part of everyday deals, like buying real estate, signing employment contracts, making business agreements, or setting up leases. They make sure everyone knows what to expect and help things run smoothly.

Key Takeaways:

• A breach of contract can involve failure to deliver, pay, or meet agreed-upon terms.
• Remedies include legal compensation, termination of the contract, or specific performance.
• To file a compensation claim, you’ll need solid evidence and a clear understanding of UAE contract laws.

In the UAE, contracts are governed by Federal Law No. 5 of 1985 (UAE Civil Code), which provides clear guidelines for resolving disputes and seeking compensation. This law applies to everything from business contracts to personal agreements.

Types of Breaches

1. Material Breach

A material breach is a major violation that impacts the heart of the contract. For instance, if a vendor doesn’t deliver goods on time, it could throw off a company’s entire operation.

2. Minor Breach

Also known as a partial breach, this happens when a party fulfills most of their obligations but misses some smaller requirements. The non-breaching party can still seek compensation, but the contract will likely remain in effect.

3. Anticipatory Breach

An anticipatory breach occurs when one party makes it clear they will not fulfill their contractual obligations before the performance is due. In this case, the non-breaching party can immediately seek remedies.

4. Actual Breach

This occurs when a party outright fails to meet their contract obligations by the specified deadline. Immediate legal action can be pursued to recover damages.

When Does Contractual Liability Arise Under UAE Law?

According to Article 124 of the UAE Civil Code, contracts are a key way personal obligations are created between parties. If one side doesn’t meet these obligations—whether fully or partially—they can be held accountable through contractual liability. This liability arises under the following conditions:

1. Default by the Party: One party fails to meet its obligations or delays fulfilling the duties agreed upon in the contract.
2. Damage to the Other Party: The failure or delay in performance causes harm or financial loss to the other party.
3. Causal Link (Causation): There must be a direct connection between the failure to perform and the damage suffered, justifying the compensation provided.

Common Causes of Breach of Contract

Some of the most frequent causes of breach include:

• Failure to Deliver Services or Goods: Often occurs when one party cannot meet the agreed delivery or completion dates.
• Non-Payment: When one party fails to make the required payments on time, it leads to a breach of business contracts.
• Violation of Contract Terms: This includes breaches related to confidentiality agreements, exclusivity clauses, or other specific terms outlined in the contract.

Filing a Breach of Contract Case in the UAE

In the UAE, contract disputes are resolved through civil courts under the jurisdiction of UAE Civil Law. If you experience a breach, you can file a lawsuit and seek remedies through a legal process that includes:

1. Filing a Compensation Claim: This starts with submitting a formal complaint, providing the contract and relevant evidence.
2. Court Proceedings: After filing, the case will be heard in court, where both parties can present their arguments.
3. Judgment: The court will assess the claim, determine if a breach occurred, and order the appropriate remedy.

Timeframe for Filing

Typically, a breach of contract claim must be filed within 10 years under UAE law. However, certain business contracts may have shorter deadlines, so it’s essential to act swiftly.

How to Prove a Breach of Contract

To succeed in a breach of contract case, you must provide clear evidence of the breach. Essential documentation includes:

• The original contract.
• Proof of non-performance, such as missing payments or unfulfilled deliveries.
• Witness statements or emails documenting communication between the parties.
• Financial records or invoices showing losses incurred due to the breach.

Proving an Agreement Exists

To prove that a legal agreement exists, there are three essential components:

1. Proposal: One party must present a clear proposal to enter into the contract.
2. Acceptance: The other party must accept the proposal, either verbally or in writing.
3. Exchange: Both parties must provide something of value, known as consideration. This can be goods, services, or even agreeing not to do something. The size of the value doesn’t matter, as long as both sides are giving or receiving something in return.

Legal Remedies for Breach of Contract

When a breach of contract occurs, whether in a business context or personal, UAE law provides various remedies to resolve the issue and compensate the affected party. These remedies can help recover losses caused by the breach and ensure fairness. Here’s a breakdown of the most common legal options:

1. Compensation Claims

One of the primary remedies for a breach is filing a compensation claim to recover any financial losses directly caused by the breach. This may include:

• Compensatory Damages: Aimed at putting the non-breaching party in the position they would have been in if the breach hadn’t occurred. This can cover lost profits, extra expenses, or costs directly related to the breach.
• Incidental or Consequential Damages: These are additional damages that occur as a natural consequence of the breach. They cover costs like delays, missed opportunities, or any further financial harm that was foreseeable.
• Liquidated Damages: Pre-agreed damages that are specified in the contract itself. These are often used in business agreements to avoid lengthy disputes about the amount of compensation.
• Punitive Damages: Also called exemplary damages, these are awarded at the court’s discretion and are meant to punish particularly bad behavior by the breaching party, serving as a deterrent for future misconduct.

2. Specific Performance

In cases where monetary compensation isn’t sufficient, the court may order specific performance, which requires the breaching party to carry out their original obligations under the contract. This remedy is particularly useful in breach of business contracts involving unique goods or real estate, where finding an alternative isn’t practical.

3. Termination of Contract

For severe breaches, the non-breaching party can request contract termination. This releases both parties from their obligations and allows the injured party to pursue a compensation claim for losses resulting from the breach of contract.

Preventing Breaches of Contract

Preventing a breach of contract is better than curing it. Here’s how you can protect yourself:

• Draft Clear Contracts: 

Ensure the contract is specific, including deadlines, performance measures, and penalties for non-performance.

• Incorporate Dispute Resolution Clauses: 

Mediation or arbitration clauses can help resolve disputes before they reach court.

• Update Contracts Regularly: 

Contracts should be revisited and updated as business conditions evolve.

What is Substantial Performance in a Breach of Contract?

Substantial performance means that if a party completes the most important parts of the contract, they’re generally seen as having met their obligations, even if some smaller details weren’t fulfilled. This often happens when one party claims a breach of contract because some terms weren’t fulfilled.  However, if the key parts of the agreement were satisfied, the other party can still file a compensation claim for the breach.

Grounds for Rejecting a Defective Contract

Article 238 of the UAE Civil Code allows a party to reject the contract if a defect is present. The requirements for this include:

1. The contract must be pre-existing and valid.
2. The defect must affect the subject matter (the main element on which the contract is based).
3. The affected party must have been unaware of the defect at the time the contract was agreed upon.
4. The breaching party must not have been granted exemption from liability for the defect under the contract.

FAQs About Breach of Contract

1. What can I claim in a breach of contract case? 

You can claim damages for lost profits, extra costs incurred, and in some cases, legal fees.

2. Can I seek compensation if my business partner breaches our agreement? 

Yes, if a breach of business contract occurs, you can file a compensation claim for any financial losses or operational disruption.

3. How long do I have to file a breach of contract case? 

In the UAE, the statutory limitation is typically 10 years, though certain types of contracts may have shorter deadlines.

4. What if the breach is minor? 

For minor breaches, you can still seek compensation but may not be able to terminate the contract.

Whether you’re pursuing legal compensation or specific performance, the UAE legal system offers several options to help resolve disputes and protect your contractual rights.

It’s important to have an experienced lawyer guide you through a breach of contract case. They enforce the agreement, protect your interests, and offer personalized advice to get the best result. From negotiating settlements to representing you in court, their expertise can make all the difference in securing the right remedy and minimizing further risks.

For any inquiries or more information, feel free to reach out via email at legal@emirates.law or give us a call at +971 4 578 6050.