FIDIC

Contractual Obligations and Rights: A Guide to UAE Contract Law

Every contract creates binding rights and obligations for the parties involved. Understand how contracts are formed, what good faith means in practice, and what happens when obligations are not met under UAE law and FIDIC contracts.

10 min read · Updated 25/04/2026

In this article

1. Understanding Contractual Obligations
2. The Four Elements of Contract Formation
3. Good Faith: An Implied Obligation in All Contracts
4. Express Duty of Good Faith in Commercial Contracts
5. Express Terms: Performance, Scope and Standards
6. Breach of Contract: Consequences and Remedies
7. UAE Legal Framework for Contract Enforcement
8. Contract Administration: Preventing Disputes Before They Arise

Key takeaway

Contracts are legally binding agreements that create enforceable rights and obligations. These arise from four elements: offer, acceptance, consideration, and intent to create legal relations. Good faith — both implied and sometimes express — underpins all contractual relationships. Breach of these obligations creates liability for damages. Under UAE law and FIDIC contracts, parties can pursue remedies through courts or arbitration if obligations are not met.

1. Understanding Contractual Obligations

Contractual obligations are the legal responsibilities of each party involved in a contractual agreement. In a contract, both parties exchange an item or service of value, but certain expectations must be met for the exchange to be properly completed. These expectations are defined by the terms of the contract.

A contract is an agreement between parties that is binding in law. The rights and obligations created by a contract can be enforced through the courts. If one party fails to fulfill their contractual obligations, the non-breaching party may pursue legal remedies. The courts may compel performance of the defaulting party’s obligations or award damages to compensate the non-breaching party for the breach.

In the UAE, contracts are governed by the Federal Civil Transactions Law (Federal Law No. 5 of 1985), which establishes the legal framework for contractual relationships, rights, and remedies. For construction contracts, FIDIC standard forms (Red, Yellow, Silver, and Gold Books) define detailed obligations for the contractor, employer, engineer, and other parties.

Failure to meet contractual expectations by either party constitutes a breach of contract, which may result in damages awarded to the non-breaching party. Therefore, one’s contractual obligations must be given great consideration. Clear understanding of what each party must do, by when, and to what standard is essential to preventing disputes and ensuring successful contract delivery.

2. The Four Elements of Contract Formation

For a contract to be legally formed, four basic elements must be present: offer, acceptance, consideration, and intention to create legal relations. These elements provide the foundation for the enforceability of contracts and establish the rights and obligations of the parties involved. Generally, much negotiation takes place between the parties before an agreement becomes binding and a contract is formed. It is important to recognize the precise moment when a contract is formed, as this is when the parties assume contractual obligations and the associated risks and liabilities if the contract terms are breached.

Once a contract is formed, it becomes a legally binding agreement. This means the rights and obligations outlined in the contract can be enforced through legal means. During the negotiation phase before a contract is formed, parties may propose, modify, and counteroffer terms until a consensus is reached. Identifying the precise moment of contract formation is critical, as it marks when the parties assume contractual obligations and associated risks.

3. Good Faith: An Implied Obligation in All Contracts

In the realm of contract law, the principle of acting in good faith encompasses a fundamental expectation that all parties involved will conduct themselves honestly, fairly, and with integrity. This implied covenant of good faith and fair dealing serves as a general presumption, ensuring that the parties do not undermine or deprive each other of the intended benefits outlined in the contract.

When entering into a contract, there is an inherent understanding that the parties will act honestly and honorably, with a genuine intention to fulfill their respective obligations. This obligation requires more than simply adhering to the explicit terms and conditions of the contract; it extends to the broader duty to act in a manner that upholds the spirit and purpose of the agreement.

Acting in good faith entails several key responsibilities:

• Transparency and openness: The parties should provide accurate and complete information, avoiding any deliberate misrepresentation or concealment of relevant facts. They should communicate promptly and effectively, sharing pertinent updates or changes that may impact the contract’s performance or outcomes.
• Cooperation and collaboration: The parties should strive to find mutually acceptable solutions when conflicts or disputes arise, rather than using tactics that undermine the other party’s interests or unfairly advantage themselves.
• Refraining from hindering performance: Parties must avoid actions that hinder or frustrate the other party’s ability to benefit from the contract. This includes avoiding intentional interference, sabotage, or undermining of the contractual relationship.
• Not exploiting loopholes: Parties should not exploit ambiguities or loopholes in the contract to gain unfair advantage or to deprive the other party of the intended benefits.

By upholding good faith, the parties demonstrate their commitment to the underlying principles of fairness, honesty, and trust that form the foundation of contractual relationships. When disputes arise, courts and legal authorities may interpret the parties’ actions through the lens of good faith, evaluating whether they have fulfilled their obligations in a manner consistent with the reasonable expectations and intentions of the contract.

The specific requirements and application of good faith may vary across different jurisdictions. Legal systems have nuanced interpretations and standards for determining whether a party has acted in good faith. Nevertheless, the overarching objective remains consistent: to create an environment of trust and fairness in contractual dealings, ensuring all parties can reasonably expect to receive the benefits and protections they are entitled to under the agreement.

4. Express Duty of Good Faith in Commercial Contracts

While an implied duty of good faith exists in all contracts, many commercial contracts specifically include an express duty of good faith that explicitly requires a party to perform particular obligations or exercise specified discretions while acting in good faith. It is less common, but also possible, to impose an express duty to perform the entire contract in good faith. Any express term will be interpreted carefully, in the context of the entire contract and the commercial relationship between the parties.

When a contract includes an express duty of good faith, the language and intent of this provision will be carefully examined and interpreted within the context of the entire contract and the underlying commercial relationship between the parties. Courts and legal authorities will consider the specific wording used, the surrounding circumstances, and the parties’ reasonable expectations. The inclusion of an express duty of good faith acknowledges that the parties have contemplated the need for a higher standard of conduct beyond what is implied by law. It serves to clarify and reinforce the parties’ intention to promote trust, fairness, and cooperation in their dealings.

When a particular obligation or discretion is required to be performed in good faith, it means the party must exercise that obligation or discretion honestly, fairly, and with a sincere intention to fulfill the objectives and purposes of the contract. This duty ensures that the party does not use their position to exploit or harm the other party, and that they act in a manner consistent with the reasonable expectations of the contract.

Imposing a broader duty to perform the entire contract in good faith goes beyond specific obligations or discretions. It establishes a higher standard of conduct that applies to the overall performance and enforcement of the contract. This duty requires the parties to act honestly, fairly, and in a manner that upholds the spirit and purpose of the entire agreement. It prohibits any intentional acts or omissions that would undermine or frustrate the other party’s right to receive the benefits and protections set forth in the contract.

In FIDIC contracts, the engineer’s duty to act impartially and fairly in certifying work and certifying payments is a key good faith obligation. The engineer must exercise their discretion honestly and consistently with the contract’s purpose, not arbitrarily or capriciously.

For parties to clearly define the scope and extent of any express duty of good faith in their contracts, it is essential. This helps prevent ambiguity or misunderstanding and ensures both parties have a shared understanding of their obligations and expectations. By explicitly incorporating a duty of good faith, the parties create an environment of trust and cooperation that promotes fair and equitable contractual relationships.

5. Express Terms: Performance, Scope and Standards

Express terms are terms that have been specifically mentioned and agreed by both parties at the time the contract is made. They can be either oral or in writing. Express terms form the backbone of the contractual agreement, defining what each party must do, by when, and to what standard.

In the context of discussing a product or service with a customer, the responsible party assumes the obligation of providing and agreeing upon certain information, forming express terms that define the scope of the agreement. For services, these express terms typically include:

• The timing or schedule of when the service will be performed
• The agreed-upon price for the complete service
• The quality standards or specifications to be met
• Any specific deliverables or milestones

By communicating this information to the customer, the service provider creates a contractual obligation to deliver the service within the specified timeframe, for the agreed-upon price, and to the stated standard. Similarly, when discussing a product, the express terms typically encompass factors such as the price of the product, its specifications, and its availability. By explicitly stating the price, specifications, and confirming availability, the seller assumes the responsibility of providing the product to the customer at the agreed-upon price and within the specified timeframe.

In construction contracts, express terms define the scope of works, quality standards, completion dates, payment mechanisms, and the procedures for certifying work and issuing certificates. Under a FIDIC Red Book contract, express terms include the contractor’s obligation to execute the works in accordance with the specifications, to the engineer’s satisfaction, and to program. They also define the engineer’s obligation to certify progress, authorize payments, and administer the contract fairly.

Express terms are distinct from implied terms, which arise by operation of law or from the conduct of the parties. Express terms take precedence when they conflict with implied terms, as they represent the parties’ explicit agreement.

6. Breach of Contract: Consequences and Remedies

When a party fails to fulfill an express term in a contract, it constitutes a breach of that term. Express terms are specific provisions that are explicitly stated and agreed upon by the parties involved. Breach occurs when a party does not perform its obligations as required by the contract.

For example:

• A service provider fails to deliver the service within the agreed-upon timeframe or demands a higher price than initially discussed
• A seller fails to provide the product at the agreed-upon price or within the specified availability period
• A contractor fails to execute works to the required quality standard or does not meet the agreed completion date
• An employer fails to make payment in accordance with the contract terms or to issue necessary approvals

When a breach of an express term occurs, the non-breaching party may be entitled to various remedies:

• Damages: Compensation for losses suffered due to the breach. Damages may be general (foreseeable losses), special (specific losses proven by the non-breaching party), or liquidated (pre-agreed amounts specified in the contract).
• Specific performance: A court order compelling the breaching party to fulfill their obligations as originally agreed. This remedy is less common in commercial contracts but may be available for unique or irreplaceable obligations.
• Termination: In cases of material breach, the non-breaching party may be entitled to terminate the contract and seek damages for the breach.
• Suspension of performance: Under certain circumstances, the non-breaching party may suspend their own performance obligations until the breaching party performs or remedies the breach.

The specific remedies available will depend on the governing laws, the terms of the contract, and the circumstances of the breach. Under UAE law, remedies are provided by the Federal Civil Transactions Law. Under FIDIC contracts, specific remedies and procedures are defined — for example, the contractor’s right to claim an extension of time and cost relief if the employer breaches its obligations to provide site access or issue approvals.

It is important for both parties to a contract to clearly communicate and agree upon the express terms that define their rights and obligations. By doing so, they establish a foundation of certainty, reducing the risk of disputes arising from misunderstandings or unmet expectations.

7. UAE Legal Framework for Contract Enforcement

In the UAE, contracts are governed primarily by the Federal Civil Transactions Law (Federal Law No. 5 of 1985), which establishes the legal framework for contractual relationships, formation, rights, and remedies. This law is one of the most central laws that regulates all business agreements and contracts in the UAE.

The Federal Civil Transactions Law addresses:

• The formation and validity of contracts
• The obligations and rights of contracting parties
• Causes of invalidity (fraud, duress, misrepresentation)
• Performance and non-performance of obligations
• Remedies for breach, including damages and termination
• Specific types of contracts (sale, hire, partnership, etc.)

For construction contracts, the Federal Civil Transactions Law applies alongside the specific terms of the FIDIC standard form or other bespoke contract. The courts have authority to interpret contract terms, assess breaches, and award remedies. In disputes involving construction contracts, the UAE Federal Courts and specialized Commercial Courts have jurisdiction.

Additionally, many construction contracts in the UAE include arbitration clauses that provide for resolution of disputes through arbitration rather than court proceedings. The UAE Federal Arbitration Law (Federal Law No. 6 of 2018) governs arbitration in the UAE and provides for the enforcement of arbitration agreements and awards. The DIAC (Dubai International Arbitration Centre) and ADCCAC (Abu Dhabi Chamber of Commerce and Industry Arbitration Centre) are established arbitration venues in the Emirates.

When a contract breach occurs, the non-breaching party may pursue remedies through either court litigation or arbitration, depending on the contract terms and applicable law. The UAE judiciary and arbitration system are committed to upholding the rule of law, protecting contractual rights, and ensuring fair enforcement of contractual obligations.

8. Contract Administration: Preventing Disputes Before They Arise

Understanding contractual obligations and the legal framework that governs them is essential to preventing disputes from arising in the first place. Effective contract administration involves several key practices:

Clear drafting and agreement: Ensure all express terms are clearly stated, unambiguous, and agreed by both parties. Avoid reliance on oral agreements or informal understandings. Document all modifications or variations in writing.

Documented communication: Maintain contemporaneous records of all communications, decisions, and changes. Written records provide evidence if a dispute arises and help establish the parties’ intentions and understanding.

Regular performance monitoring: Track progress against the contract’s express terms, milestones, and quality standards. Identify any deviations early and address them promptly rather than allowing them to accumulate.

Proactive issue management: When issues arise, address them collaboratively and transparently. Most contract disputes can be resolved through open communication and good faith negotiation before they escalate to formal dispute resolution.

Notice and procedural compliance: Many contracts require notices to be given within specific timeframes for claims to be valid. Ensure all notice requirements are observed. Under FIDIC contracts, for example, the contractor must give notice of delays or variations within defined periods or lose the right to claim.

Expert involvement where needed: If performance disputes arise involving technical assessment or quantum calculation, engage experts early to assess the issues and support resolution discussions.

Dispute resolution procedures: Understand and follow the contract’s dispute resolution procedures. Most construction contracts provide for a stepped approach: negotiation, expert determination or adjudication, then arbitration or litigation if resolution is not reached.

By understanding contractual obligations, acting in good faith, maintaining clear communication, and following contract procedures, parties can significantly reduce the risk of disputes and associated costs. When disputes do arise, early expert intervention and structured negotiation often lead to faster resolution than formal litigation or arbitration.

Clarity on contractual obligations prevents disputes and protects your interests.

Whether you are drafting a contract, administering one, or facing a dispute over performance obligations, expert guidance on UAE law, FIDIC contracts, and contractual rights and remedies is essential. We help contractors, employers, developers, and consultants understand their obligations, comply with contract procedures, and resolve disputes fairly and efficiently.

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