Good Faith Obligations under the 2025 UAE Civil Code

Historically, that duty applied only once a contract had been concluded and did not extend to the negotiation stage. However, following the implementation of Federal Decree-Law No. 25 of 2025 issuing the Civil Transactions Law (the “2025 UAE Civil Code”), the scope of the obligation has been materially expanded. Good faith is now required from the outset of negotiations and continues throughout the entirety of the contractual relationship.

Parties must therefore exercise greater care from the very outset of business discussions to comply with this expanded set of duties. Good faith obligations now arise during negotiations, including in the disclosure of material information prior to contract formation. Non-compliance carries significant legal risk, with pre-contractual conduct likely to be subject to close judicial scrutiny and capable of giving rise to liability where the required standards are not met.

1985 Civil Code – Article 246

The principle of good faith under the 1985 UAE Civil Code was set out in Article 246(1), which required that “the contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith”. Article 246(2) further provided that “the contract shall not be restricted to an obligation upon the contracting party to do that which is expressly contained in it, but shall also embrace that which is appurtenant to it by virtue of the law, custom, and the nature of the transaction”.

While liability could arise during negotiations through claims such as misrepresentation or fraud, there was no standalone obligation to negotiate in good faith. Although parties’ obligations extended beyond the express terms of the contract, through duties implied by law, custom, and the nature of the transaction, negotiations themselves were not subject to any express statutory provision.

2025 Civil Code – Articles 121–123

The 2025 UAE Civil Code fundamentally changes this position. Articles 121 to 123 introduce new provisions governing good faith, expanding both the scope and timing of the parties’ obligations and expressly bringing negotiations within its remit.

Article 121 – Good faith in negotiations

Article 121 provides that:

• pre-contractual negotiations must be conducted, and terminated, in accordance with the requirements of good faith;
• entering into negotiations does not create an obligation to conclude the contract; and
• a party who negotiates or terminates negotiations in bad faith may be liable to compensate the other party for actual losses suffered.

Bad faith is expressly defined to include the deliberate failure to disclose material information affecting the validity of the contract.
This represents a significant shift. The duty of good faith now applies at every stage of the contractual process, including negotiations, and can give rise to liability even where no contract is ultimately concluded.

Article 122 – Disclosure obligations

Article 122 introduces mandatory disclosure obligations, requiring parties to inform their counterparties of information that is of decisive importance to consent, where the other party is reasonably unaware of it or has placed reliance on them.

This obligation:

• applies to both parties;
• cannot be excluded or limited by agreement; and
• places the burden on the alleging party to show non-disclosure, with the counterparty then required to prove that disclosure was made.

A breach may entitle the affected party to seek annulment of the contract, in addition to other remedies.

Article 123 – Confidentiality

Article 123 addresses confidentiality, providing that any person who uses or discloses, without permission, confidential information obtained during negotiations or in connection with a contract will be liable under the general rules.

This provision recognises that the expanded good faith regime increases the flow of information during negotiations, while ensuring that misuse of that information gives rise to an independent cause of action.

In practice, parties sharing confidential information are likely to place increased reliance on non-disclosure agreements and other risk management tools to establish appropriate safeguards, while still discharging their obligations under Article 121. Achieving this balance will require a bespoke, risk-managed approach, particularly in circumstances where damages may not constitute an adequate remedy.

Conclusion

The expansion of the good faith obligation under the 2025 UAE Civil Code has significant implications for business negotiations in the UAE. Parties are now required to discharge their duties from the earliest stages of discussions; not only once a contract is signed, but from the point at which negotiations commence.
The duty of good faith establishes a standard of honest and fair dealing that applies throughout both the negotiation process and the subsequent performance of the contract. These developments underline the importance of transparency, diligence and careful risk management across the entire lifecycle of commercial relationships.