Guest Articles

Governing law clauses are no longer a formality

It has long been standard drafting practice to insert a governing law clause into a cross-border contract and treat the matter as settled. Under the new law, that assumption needs to be revisited. Article 19 sets out the framework by which UAE courts will determine which law governs a contractual relationship with a foreign element, and it preserves party autonomy only within defined limits. Where a contract has a genuine connection to the UAE, whether through the place of performance, the location of the subject matter, or the domicile of a contracting party, the selection of a foreign governing law will not automatically displace UAE mandatory provisions on matters the legislature has treated as a matter of public policy.

In practice, this means a governing law clause naming English law, or the law of a counterparty's home jurisdiction, will still be respected as to the general conduct of the contract. It will not necessarily be respected as to every consequence that follows. For businesses accustomed to treating the governing law clause as the final word on which legal system controls a dispute, that gap is where exposure now sits.

Pre-contractual conduct now carries its own liability

The second change is less visible in a signed contract but arguably more consequential in a negotiation. The new law expands the duty of good faith to the negotiation period itself, before any contract exists. Parties who enter negotiations, allow a counterparty to incur costs or forgo other opportunities in reliance on the negotiation, and then withdraw without proper cause, may face liability for the reliance losses caused, independent of whether a binding contract was ever concluded.

Author: Ammara Kazmi, Managing Partner, AKAZIM Advocates & Legal Consultants

This has a direct bearing on how cross-border deals are run. Term sheets, letters of intent and memoranda of understanding that were previously treated as commercially, but not legally, binding now sit inside a framework where the conduct around them can generate exposure. Disclosure obligations during negotiation have also been formalised. A party that withholds information material to the other side's decision to contract, where that information was reasonably expected to be shared, may find the resulting agreement open to challenge even where the written terms are, on their face, unremarkable.

What this means for businesses operating across borders

Three practical shifts follow from these two changes, and both apply with particular force to joint ventures, cross-border acquisitions and long-term supply or distribution agreements involving a UAE counterparty or UAE-situated assets.

First, governing law clauses need to be reviewed alongside a mapping of which elements of the transaction connect to the UAE, rather than drafted as a standalone boilerplate provision. Second, the negotiation phase of a deal, not just its signing, should be documented with the same discipline as the contract itself. What was said, what was withheld, and why, is now capable of mattering in a dispute. Third, due diligence and disclosure schedules on the UAE side of any cross-border transaction should be revisited to reflect the higher pre-contractual disclosure standard, rather than relying on disclosure practices calibrated to the pre-2026 position.

The New Civil Transactions Law is, in its broad structure, a modernisation exercise. Its detail, however, rewards the businesses that read it before their next negotiation rather than after their next dispute.