It is easy to sign a business agreement, but editing the contract becomes difficult after signing. Thus, it is important to review a contract before signing in order to avoid future troubles. The best form of protection a business can take is a careful reading of the contract before signing, and the contract is signed all too often under pressure with only a quick scan past the commercial terms. A contract review in the UAE is not just about the price and the deliverables, but also the clauses that determine the consequences if the contract goes wrong, and certain things that are UAE specific regarding the nature of the contract and the UAE legal practices.
It is not about forcing every manager to be a lawyer, but about making it a habit to look for the important points every time and for a peculiar clause or a misleading term being obvious before signing. Many of the checks that follow take only a few minutes, and can save well over that.
Why the Review Matters
A contract review is not an indication of mistrust, it is an opportunity to make sure that the contract is what was agreed and is protecting the business if the relationship turns sour. Onshore UAE contracts are governed by the UAE Civil Transactions Law (the Civil Code) and for commercial transactions, the Commercial Transactions Law, while contracts under DIFC and ADGM law abide under the common law rules in DIFC and ADGM. The following review relates to most business agreements, regardless of which law applies, but are given local references where appropriate.
Reviewing with one question in mind for each clause is helpful, such as considering the chances of it failing to work. The same word can sound like a simple and innocent word in the context of cooperation, but yet sound entirely different when it comes to wanting to leave the company, withholding payment, or demanding damages. A thorough review is done to ensure protection when needed.
Before Reading the Clauses
Before starting with the wording, make sure the basics are right. Many contract problems have nothing to do with the clause or the wrong wording, they are simply the result of signing contracts with the wrong “party”, with the wrong person, or a contract that is incomplete.
Þ Confirm the parties. Verify the complete legal names, licence numbers and ensure that the company you are contracting with is the company actually entering into the contract.
Þ Check signing authority. Ensure that the person signing for the other party has authority to sign it, either on the trade licence or by board resolution or power of attorney. An unauthorized contract might not be binding on the company.
Þ Check the annexes. Ensure that all schedules and annexes referred in the contract are attached, completed and there are no blanks or “yet to be confirmed” clauses.
The Commercial Terms
These are the terms that most people do read, but it is worth noting that the written terms match exactly what was discussed in terms of the scope and the written figures. Commercial terms are often loosely transcribed and may be negotiated verbally, which can be costly if there is a little mistake in the number or delivery date.
Þ Scope and deliverables. These should ensure that they are as per agreement and detailed enough to be enforceable.
Þ Price and payment. Check figures, denomination of the currency, payment conditions and the presence of VAT.
Þ Failure to pay on time and default. The cost of late payments and/or default should be transparent and agreed upon.
The Protective Clauses
Allocation of risk is through these clauses. They have little significance when things are going well, but when they are not, they are the terms that will decide who pays for what. Accepting liability or termination clauses without understanding might not cause any problems at the time of signing but can pose conflicts later.
Þ Term and termination. See how the contract ends, what notice must be given and what notice the other party will need to give, and whether they can terminate with ease or the company cannot get out of it when it needs to.
Þ Liability and indemnities. It is important to know the maximum exposure and what the cap is and what the indemnity is being entered for. It is better to be cautious of misleading indemnities.
Þ Liquidated damages. Examine for violation of any agreed amounts in case of a breach. UAE law allows for a court to recalculate the agreed compensation after taking into account the actual loss, and thus, the agreed amount might not be the final compensation.
Þ Warranties and representations. Record on each side what they are saying about themselves and about the topic.
Þ Confidentiality and data protection Check that sensitive information and personal data are properly protected and handled in line with the applicable data protection law.[1]
Þ Intellectual property. Ensure that ownership of the work created is confirmed and that there is any rights retained that is needed.
Þ Force majeure. Verify that the events and consequences make sense and are applied to both sides.
The Clauses That Decide Disputes
Where a disagreement or breach is ultimately being litigated, it is these provisions that shape the outcome, since they determine the governing law, the forum, the seat of proceedings for dispute resolution and the language in which the dispute is to be heard. That choice is important in the United Arab Emirates, where a party may find themselves before the onshore courts or in one of the two common law free zone courts, or in arbitration, without knowing the jurisdiction. However, even with the vital role that these provisions play during dispute, these clauses are often adopted without negotiation, and thus their significance is overlooked until a dispute makes it unavoidable.
Þ Governing law. State the law and that it is the one anticipated. There are material differences between onshore UAE law, DIFC law and ADGM law.
Þ Dispute resolution & jurisdiction. Who: who is to engage in a dispute, Court or arbitration: the manner, place, and language of a dispute.
Þ Language. If the contract has an Arabic version, check which language prevails if the two conflict, since onshore courts operate in Arabic.
Þ It is important to not skip the standard clauses in the agreement. An entire agreement clause can deny any promise that was not written into the contract. A variation clause usually means changes are only binding if made in writing and signed. A notice clause is important as it sets out the provisions for a formal communications between the parties. Thees clauses are often overlooked, but these clauses helps in deciding matters when a dispute occurs.
Final Practical Checks
Lastly, it is important to do a few checks mechanically, which can help in finding any unwanted or misleading provisions which was not detected previously. Though it consumes time, it helps in identifying clauses which might be difficult to remove after signing. For example, a contract containing a reference to a time frame that was never enclosed or a term that is not defined. Thus, it is important to:
Þ Read the whole document. Not only the parts that change, but also cross references and defined terms can change meaning.
Þ Check consistency. All terms should be clearly defined and numbers, dates and names correct throughout.
Þ Consider formalities. Certain documents in the UAE require notarisation or attestation to be valid and/or enforceable, so determine if this agreement is one of those documents. [2]
Common Review Mistakes
Þ Signing under time pressure. Rushed contracts account for most of the ones that later cause trouble, and giving less time for review usually creates complications during the time of a dispute or breach.
Þ Reviewing only the commercials. Usually, attention is given on price and deliverables clause, while the clauses that addresses the resolution and remedies during a dispute are given lesser scrutiny in comparison.
Þ Assuming that the governing law is of the local country: Not all contracts conducted in the UAE are regulated by the UAE onshore law. Others have a free zone law or a foreign law, and the law to be applied must not be assumed but confirmed before taking a stance with regard to it.
Þ Signing without proper authority: An agreement signed by someone who does not have the authority to sign the agreement may not be binding because he or she did not have the power to sign on behalf of the company, and a party could end up with an agreement that is meaningless in practice.
Þ Overlooking the Arabic version. In the case of a conflict between the English and Arabic versions of the contract, the Arabic version will often take precedence in UAE, so it is best not to overlook it.
When a Problem is Found
The only benefit from discovering a problem in a contract is if it is addressed. The choices are typically either to ask for the clause to be modified or eliminated, or to put a protective proviso in place, or to assume the risk on an “open eyes” basis, or to simply walk away. The key is that there is a conscious choice. One that was spotted and yet signed anyway, is quite different from one that was not spotted and signed anyway, and also it is easier to negotiate a change before it is signed rather than after.
When to Involve a Lawyer
Not all agreements need a review of a lawyer. A standard, low cost contract, with a standard term usually can be read inhouse with care, using this checklist as a guide. Legal input is worth its price if the value is great, the time is long, the risk of liability and/or indemnity exposure is substantial, the legal framework is not well understood, or the opponent has prepared a document that is quite favorable. The test is straightforward: the more at stake the bigger the contract is, the more valuable a review of it before signing the contract will be. This brief check by a lawyer at the time is almost always less expensive than the dispute.
The Law the Review Assumes
It is likewise crucial to keep in mind the law that the contract will be interpreted against. Instead, onshore the laws of that day, now the Civil Transactions Law, DIFC or ADGM governed commercial transactions are interpreted in accordance with the common law rules. This means that the following clauses are not to be accepted as written: agreed damages that are less than actual damages are allowed to be reduced, an exclusion of liability for fraud or serious fault is not accepted, interest rates that exceed the recognized limits may be reduced[3].
Particular attention should be paid to signing authority as it is common and consequential. Make sure that the person signing the contract has the power to sign it from the trade licence or under a board resolution or under a notarised power of attorney, if the person signing is not empowered to sign the contract, then it is not binding on the counterparty.[4] For those that are regularly reviewing, the important habit to be developed is to keep the same short list of things to review every time: Parties, authority, annexes, then the risk clauses, before signing, so that if something unusual appears, it can still be changed. All of require the same factors to be considered routinely and an unusual factor to be noticed before an agreement is reached. If a review does find a problem, it will usually recommend that the clause is amended or deleted, or that the risk is taken ‘with eyes opened’ or it will simply be decided not to take the risk and that is a conscious decision. If a deal is more valuable or unusual, or if a deal is a bad contract, it is cheap insurance to have a quick opinion from a lawyer on the governing law as opposed to having to unravel a bad contract down the road.
Signing With Confidence
Disciplined UAE contract review consists of three steps: Ensure it is the correct and appropriately authorised contractual counterparty, Make sure that the commercial terms are appropriate, Read the protective and dispute resolution clauses as if there is a problem. The above checklist is a good way to go about this without needing to be a lawyer for each and every routine agreement.
A legal review prior to signing is a minor fee for high dollar or unusual contracts or when the law, liability, or dispute resolution clause is important or in case it is a one sided term. The review should be incorporated into a process, rather than being a tedious task, it should be a subtle driver for good outcomes: the party that knows the contract best will likely agree to the better terms and reduce the extent of the unpleasant shocks.
