When a UAE company signs a contract under foreign law
A Dubai distributor is about to sign a supply and distribution agreement with a German manufacturer. The manufacturer's template says English law and the courts of England, and nobody on either side has questioned it, because English law is what international contracts usually say.
Whether you act for the distributor or the manufacturer, that clause decides less than it appears to. The parties can choose the law that governs their obligations. They can't switch off the UAE rules that apply regardless, and the clause says nothing about whether a judgment will be enforceable where the assets are. Those answers come from UAE law, and the 2025 Civil Transactions Law has changed some of them.
This piece sets out where a foreign governing law clause stops working for a contract with a UAE party, and what to settle before signature.
What the 2025 code changed
Federal Decree-Law No. 25 of 2025, the new Civil Transactions Law, replaced the 1985 Civil Code and applies from 1 June 2026. Anything you have that cites Federal Law No. 5 of 1985, including templates and internal notes, now cites a repealed code with different article numbers. Four changes matter for governing law clauses.
An express choice now has a statutory footing. Article 19 provides that contractual obligations, as to both form and substance, are governed by the law the parties expressly chose. The first limb covers an express choice only. Circumstances still count, but one step later: they can displace the default rules below where it appears the parties intended another law. A clause that names the law plainly keeps that argument out of the case.
The fallback rule moved towards UAE law. Where there is no express choice, the new code no longer looks to where the contract was concluded. It applies the law of the parties' common domicile and, failing that, the law of the place where the principal obligation is to be performed, unless the circumstances show the parties intended another law. For a distributor selling in the UAE, that will often mean UAE law. A missing or ambiguous clause is therefore no longer neutral for the foreign party.
The public order exception is broader again. Under Article 29, a UAE court won't apply a foreign rule that conflicts with UAE public order or morals. Article 29 itself doesn't name Islamic Sharia, but that changes little in practice: Article 3, which defines public order, lists the definitive rulings of Islamic Sharia first, alongside personal status rules for Muslims. The new code also removes the 2020 carve-out that kept personal status questions outside the exception. Public order is not a list you can check off. Courts decide case by case whether a particular foreign rule offends it, so for any provision that sits close to the line, treat the outcome as uncertain.
Proving the foreign law is still your job. Onshore courts treat foreign law as a question of fact for the party relying on it, and Article 30 applies UAE law where the foreign law can't be established or its meaning can't be determined. Courts have done exactly that, including in disputes governed by English law. Nothing in Article 19 changes that. A clause choosing English law is only as strong as the expert evidence you are prepared to put behind it.
Where the chosen law stops
A UAE court will usually respect the clause. The more useful question is which parts of the relationship it never reaches. Some UAE rules apply whatever the parties chose. They tend to sit in the areas below, and a single commercial deal can touch several of them.
Property in the UAE
Under Article 18, possession and ownership of real property are governed by the law of the place where the property sits, which for property in the UAE means UAE law. A clause choosing English law can govern the commercial bargain around a lease or a sale, but it won't decide who owns or holds the property.
Employment onshore
If the distribution deal moves staff, seconds employees or includes key-person obligations, look at who employs them and where. The UAE Labour Law, Federal Decree-Law No. 33 of 2021, applies to private-sector employment across the UAE outside the DIFC and ADGM. In practice, employment relationships there are governed by UAE law and heard by UAE courts whatever the contract says, and they can't be sent to arbitration. Statutory rights such as end-of-service gratuity and notice can't be contracted away through a foreign governing law clause.
The DIFC and ADGM each have their own employment law. The question there is which of those regimes applies, not whether the federal Labour Law does.
Commercial agency
This is the issue most likely to sit underneath our Dubai distributor scenario. Federal Law No. 3 of 2022 on Regulating Commercial Agencies, in force since June 2023, governs agencies registered with the Ministry of Economy. If the distributor is, or becomes, a registered agent for the manufacturer's products, the agency law shapes the relationship regardless of the English law clause.
The current law is friendlier to principals than its 1981 predecessor. Article 9 broadens the grounds on which a registered agency can end, including expiry of a fixed term. But the new termination rights reached existing agencies only after two years from commencement, and agencies that have had the same agent for more than ten years, or where the agent's investment exceeds AED 100 million, are protected for ten years. Article 11 lets an agent claim compensation for losses from non-renewal or termination, but it applies unless the parties agree otherwise, so the contract can address it directly. Disputes over registered agencies start before the Commercial Agencies Committee; the parties may agree to take the Committee's decisions to arbitration instead of the courts.
So the first diligence question is factual: is there a registration, or will there be one? The answer changes the analysis more than the governing law clause does.
Agreed damages
Liquidated damages show the gap between a foreign law clause and an onshore court clearly. Under the 1985 code, Article 390 let a court adjust agreed compensation to match the actual loss, in either direction. The new code replaces this with Article 340, which is more structured. A court can reduce agreed compensation where the debtor proves it is excessive, where the obligation was partly performed, or where the creditor's own fault contributed to the harm. The other direction is narrower. A creditor can recover more than the agreed sum only by proving the debtor committed fraud or gross fault, so for the party collecting damages the agreed figure works as a ceiling unless that proof is there. Any clause that tries to exclude Article 340 is void.
The practical point for drafting under foreign law: if enforcement may end up onshore, set the agreed sum as a genuine estimate of loss and record how it was calculated. A figure the court can see the reasoning for is harder to call excessive.
Liability for harmful acts
Article 257 of the new code voids any condition that exempts or reduces liability for a harmful act, while allowing the parties to increase it. Contractual caps still work for contractual liability, but a single aggregate cap expressed to cover "all liability however arising" is unlikely to hold as written in an onshore court. Draft caps by category of liability so that the contractual part survives if the rest falls away.
Onshore, DIFC or ADGM
The UAE isn't one legal system for this purpose. It has onshore civil law courts and two common law courts in its financial free zones, and which one hears a dispute changes how a foreign governing law clause plays out.
Onshore UAE courts, DIFC Courts and ADGM Courts compared |
Question | Onshore UAE courts | DIFC Courts | ADGM Courts |
|---|---|---|---|
Legal system | Civil law, codified | Common law, under the DIFC's own statutes modelled on English law | Common law, applying English common law directly |
Language | Arabic; foreign documents need translation | English | English |
Foreign governing law | Respected if expressly chosen, but must be proved as fact, subject to public order and mandatory rules | A familiar exercise for common law judges | A familiar exercise for common law judges |
How a case gets there | Default jurisdiction for onshore parties | A connection to the DIFC, or an opt-in clause | A connection to ADGM, or an opt-in clause |
Enforcing onshore | Directly | Through the mechanism with the Dubai Courts under the DIFC Courts Law | Through the ADGM memoranda with the Abu Dhabi Courts (2018) and the Dubai Courts (2025) |
The opt-in is the useful detail. Parties with no connection to either free zone can agree to litigate there, which gives a common law court and English-language proceedings without leaving the UAE, and a judgment that can be taken onshore for enforcement. For a contract governed by English law with a UAE counterparty, that combination removes the need to prove English law to a civil law court.
Arbitration
The UAE acceded to the New York Convention in 2006, so a UAE-seated award can be enforced in more than 170 Convention states, and a foreign award can be enforced here. This is why arbitration has long been the default for cross-border contracts with a UAE party. Two cautions for counsel: confirm that the person signing for the UAE company has authority to agree to arbitration, since authority is a common ground of challenge; and remember that some disputes, onshore employment among them, can't be arbitrated at all.
Foreign court judgments
A London or Frankfurt judgment can be enforced in the UAE, but it takes more steps than an award. Enforcement now sits in Articles 222 to 225 of the Civil Procedure Code, Federal Decree-Law No. 42 of 2022, which replaced the 2018 executive regulations still cited in older guidance. Without a treaty, the court looks for reciprocity, checks that the case was not one for the UAE courts' exclusive jurisdiction, and checks public order.
Since 2022 this route has become more workable. The Ministry of Justice wrote to the Dubai Courts in September 2022 confirming reciprocity with England, and the Dubai Court of Cassation enforced an English judgment on that basis in January 2024. In 2024 the Dubai Supreme Court also held that concurrent jurisdiction, where both the UAE and the foreign court could have heard the case, does not by itself prevent enforcement. Only exclusive UAE jurisdiction does. Guidance that says a foreign judgment fails whenever the UAE court also had jurisdiction is out of date.
Before signature
For counsel on either side of a contract with a UAE party under foreign law:
Name the governing law expressly, in its own clause. Under the new fallback rule, silence or ambiguity tends to lead to UAE law.
Map the relationship against the areas the clause can't reach: UAE property, onshore employees, a registered or registrable commercial agency.
For distribution deals, establish whether there is an agency registration, and deal with compensation on termination expressly while Article 11 allows it.
Set liquidated damages as a reasoned estimate of loss, and record the reasoning, so a reduction under Article 340 is harder to argue.
Split liability caps by category, so the contractual cap survives even though Article 257 voids limits on liability for harmful acts.
Choose the forum with enforcement in mind. If the assets that matter are onshore, a DIFC or ADGM opt-in or a New York Convention arbitration usually gives a more predictable route than a foreign court.
Check the signatory's authority for any arbitration clause.
If an onshore court might hear the case, budget for proving the foreign law with expert evidence.
None of this argues against English law, which is a common and sensible choice for UAE companies trading internationally. It argues for reading the contract under both systems at once: the law the parties chose, and the UAE rules that decide how far that choice reaches.
Reading both laws on the same case
This is the work Ketrone is built for. Each jurisdiction runs natively and they work together on the same case, so you can ask how a liability cap reads under English law and how an onshore court would treat it under Article 257, and see the sources for both side by side.
Related reading: UAE jurisdiction hub · Review a contract with AI in Word and keep every redline your own
Disclaimer: This article is general information on UAE law at the date of publication. It is not legal advice, and you should take advice on the facts of your own case.
Sources
Chambers: UAE Civil Transactions Law, key changes under Federal Decree-Law No. 25 of 2025
Squire Patton Boggs: Client update on the new civil law in the UAE
Conflict of Laws: The conflict-of-law rules in the UAE's new Civil Transactions Act
IBA Construction Law International, July 2026: Country updates, UAE
Mayer Brown: Examining the new UAE Civil Code, part 4, compensation and damages
Watson Farley & Williams: The new UAE commercial agency regime
Clyde & Co: Enforcement of foreign judgments under the new Civil Procedure Code
Conflict of Laws: Dubai Supreme Court admits reciprocity with the UK
Conflict of Laws: Foreign judgments and indirect jurisdiction in Dubai
White & Case: Key changes under UAE Federal Decree-Law No. 25 of 2025
UAE Legal Notes: Civil Transactions Law 2025, Book 1 (unofficial translation)