Contractual negotiations represent one of the most significant—and arguably the most critical—stages preceding the conclusion of a contract. During this phase, the parties define their principal rights and obligations and lay the foundation for their contractual relationship. It may therefore be described as the contract preparation stage. Proper preparation is essential to ensure that the agreement serves the interests of all parties and incorporates the necessary terms and conditions that help prevent future disputes.

Recognizing the legal importance of pre-contractual negotiations, the UAE legislator introduced specific provisions in the new Civil Transactions Law. Article (121) of Federal Decree-Law No. (25) of 2025 provides that:

“The initiation, conduct, and termination of pre-contractual negotiations shall be carried out in accordance with the requirements of good faith.”

Good faith in negotiations means that the negotiating parties conduct themselves with honesty, integrity, and mutual trust throughout the negotiation process, avoiding any form of deception, fraud, or bad-faith conduct that could undermine confidence between them. In this regard, the distinguished French jurist Georges Ripert famously observed:

“Legal rules cannot exist without the support of moral principles. The principle of good faith is one of the most fundamental ethical and legal principles through which the legislator incorporates moral values into the legal system.”

The UAE legislator further clarifies that engaging in negotiations does not, in itself, create any legal obligation on either party to conclude the contemplated contract.

However, a party who negotiates or terminates negotiations in bad faith may incur civil liability and be required to compensate the other party for the actual damage suffered. Such compensation is limited to the actual loss sustained and does not extend to the anticipated benefits of the contract that was never concluded or to lost opportunities to realize those expected benefits, unless the parties have expressly agreed otherwise.

Importantly, the law identifies one example of bad faith as the deliberate failure to disclose material information that could affect the validity of the contract.

Furthermore, Article (122) of the Civil Transactions Law establishes a duty of disclosure. A party who possesses information that is decisive to the other party’s consent must disclose such information whenever it is reasonable to assume that the other party is unaware of it or has placed trust in the negotiating or contracting party. Information is considered material and decisive where it bears a direct and essential relationship to the substance of the contract or to the characteristics or capacity of the contracting parties.

Accordingly, the disclosure of material and decisive information constitutes a legal obligation imposed upon both parties during the negotiation and contracting process.

These provisions clearly demonstrate the UAE legislator’s commitment to providing effective legal protection throughout the pre-contractual negotiation stage. By imposing duties of good faith and disclosure, the law seeks to safeguard the legitimate interests of contracting parties, preserve their rights, and ensure that contracts are formed on the basis of genuine mutual consent, transparency, and mutual trust.

Dr. Ghassan Salim Arnous
Legal Consultant
Zayed Al Shamsi Advocates & Legal Consultants