When a UAE Contract Becomes Economically Unbalanced: Hardship Under the New Civil Transactions Law
The new UAE Civil Transactions Law addresses exceptional circumstances that make contractual performance seriously onerous without making it impossible.
A commercial contract does not need to become impossible to perform before serious legal consequences arise. An exceptional market event, substantial cost movement or wider disruption may leave one party capable of performing, but only at a level of loss far beyond what could reasonably have been anticipated when the agreement was made.
Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law came into force on 1 June 2026 and repealed Federal Law No. 5 of 1985. Article 224 deals specifically with exceptional circumstances that make contractual performance onerous while performance itself remains possible.
The provision is important for long-term commercial arrangements, but it is not a general route out of an unprofitable contract. Its statutory threshold is considerably higher, and it must be distinguished from force majeure.
Article 4 of the new law also provides an important temporal rule. The law applies from its effective date and, unless otherwise provided, does not apply to facts and transactions preceding it. Contracts and disputes involving events before 1 June 2026 therefore require separate analysis, particularly where performance or the relevant events span the commencement date.
Hardship Is Not the Same as Impossibility
Article 224 applies where exceptional and general circumstances that could not have been foreseen at the time of contracting make an obligation so onerous that the debtor is threatened with serious loss.
Where that threshold is met, the court may consider the circumstances, balance the interests of both parties and either reduce the onerous obligation to a reasonable level or rescind the contract.
That is different from Article 236, which addresses force majeure. Force majeure is concerned with impossibility of performance. The new law deals separately with total impossibility, partial impossibility and, in continuing contracts, temporary impossibility.
This distinction is commercially important. Higher costs, reduced margins, delay or operational difficulty do not automatically amount to force majeure. The legal analysis must examine whether performance remains possible, why the burden has increased and whether the circumstances meet the more specific requirements of Article 224.
Article 224 Cannot Simply Be Contracted Away
One of the most important features of Article 224 is its mandatory character. The provision expressly states that an agreement contrary to it is void.
This does not make contractual risk allocation irrelevant. Parties remain free to agree pricing mechanisms, escalation provisions, variation procedures, notice requirements and other commercial protections. Those provisions may be highly relevant when determining whether a particular risk was genuinely unforeseeable or had already been contemplated and allocated between the parties.
The best lawyers in Dubai advising on substantial commercial contracts should therefore distinguish between ordinary contractual risk and the exceptional statutory hardship regime. A broad risk-allocation clause should not automatically be treated as removing the court’s authority where Article 224 is otherwise engaged.
Construction Contracts Require a Separate Analysis
Construction and engineering arrangements require additional attention because the new law contains a specific provision for muqawala contracts.
Article 829 preserves the general rule that a contractor who has agreed a lump-sum price based on a specified design cannot demand an increase merely because the cost of materials, labour or other expenses has risen.
Article 829(3), however, addresses circumstances of a different order. Where general and exceptional events that could not have been foreseen at the time of contracting disrupt the contractual equilibrium and undermine the financial basis on which the muqawala contract was assessed, the court may intervene to restore that balance.
The available relief can include extending the period for performance, increasing or reducing remuneration, or rescinding the contract.
There is also an important distinction from Article 224. Article 829(3) does not state that an agreement contrary to it is void. It is therefore not expressed as a mandatory provision in the same terms as Article 224. The contract should be examined carefully to determine whether the parties have preserved, modified or excluded the statutory rebalancing mechanism.
For top lawyers in Dubai advising employers, contractors and developers, the analysis should therefore consider Article 829 together with the agreement’s price, variation, notice, delay and risk-allocation provisions.
A Hardship Claim Depends on Evidence
Article 224 does not protect a party simply because a transaction has become less profitable.
The party relying on hardship must establish the exceptional circumstances, their general nature, why they could not reasonably have been foreseen when the contract was concluded and how they made performance onerous enough to threaten serious loss.
The connection between the event and the financial burden is therefore critical. Pricing assumptions, tender documents, procurement records, supplier quotations, correspondence and contemporary evidence of cost movements may all become relevant.
For good lawyers in Dubai, those evidential questions should be considered while the commercial problem is developing rather than only after formal proceedings begin. A legal argument based on hardship is materially stronger when the commercial effect of the relevant event can be demonstrated through reliable records.
Contract Management Still Comes First
The statutory hardship regime should not be treated as a substitute for careful drafting and disciplined contract administration.
Long-term agreements can address foreseeable volatility through price-review provisions, indexation where appropriate, variation mechanisms, notice procedures and termination rights. Those mechanisms remain particularly important where the parties already know that labour, materials, currencies, transport or supply conditions may fluctuate.
Article 224 becomes relevant when the circumstances move beyond ordinary contractual difficulty and satisfy the statutory threshold. The same event should also be examined against any force majeure, change-in-law, price-adjustment or termination rights already contained in the agreement.
Dr Sunil Ambalavelil advises on corporate and commercial transactions, strategic commercial agreements and cross-border matters. His professional recognition includes the Best Indian Lawyer in Dubai title at the Kempegowda Utsava & Business Award 2024.
For international businesses, experienced legal analysis is important because the commercial response will depend on the legal character of the problem. The appropriate course may involve continued performance, negotiation, contractual relief, Article 224 hardship, Article 236 force majeure or, in an appropriate case, judicial intervention.
Conclusion
The new Civil Transactions Law gives UAE courts an important role where exceptional and unforeseeable circumstances make contractual performance seriously onerous without making it impossible.
That protection should not be confused with a general right to rewrite an unfavourable agreement. Article 224 sets a high threshold, while Article 829 introduces a separate mechanism for qualifying muqawala contracts that must be considered alongside the parties’ contractual risk allocation.
Businesses should continue to allocate foreseeable risks carefully, preserve evidence as circumstances change and obtain advice before a commercial disruption develops into a formal dispute.
Has an unexpected event materially affected the economic basis of your UAE commercial contract?
The legal response may depend on whether the issue involves ordinary commercial risk, Article 224 hardship, Article 236 force majeure, a specific contractual remedy or a combination of these issues.
Speak with Dr Sunil Ambalavelil about your UAE commercial contract or cross-border dispute.
FAQs
1. What is contractual hardship under the new UAE Civil Transactions Law?
Article 224 applies where exceptional and general circumstances that could not have been foreseen at the time of contracting make performance onerous enough to threaten the debtor with serious loss. The court may, after balancing the interests of both parties, reduce the onerous obligation to a reasonable level or rescind the contract.
2. Is hardship the same as force majeure under UAE law?
No. Hardship applies where performance remains possible but has become exceptionally onerous. Force majeure under Article 236 concerns impossibility of performance and also addresses partial impossibility and temporary impossibility in continuing contracts.
3. Can parties exclude Article 224 from their contract?
No. Article 224 expressly states that an agreement contrary to the provision is void. Contractual risk-allocation clauses remain relevant, but they cannot remove the statutory rule where its legal requirements are satisfied.
4. Can Indian lawyers in UAE advise on hardship disputes?
Yes, where they have the appropriate professional standing and authority for the work concerned. Indian lawyers in UAE with relevant commercial and cross-border experience may also work as part of a wider legal team where a transaction involves Indian parties or connected legal issues.
5. When might Indian lawyers in Abu Dhabi become involved?
Indian lawyers in Abu Dhabi may be involved where they are appropriately authorised and the transaction, project or dispute has an Abu Dhabi and Indian cross-border element. The appropriate adviser should ultimately be selected according to the governing law, forum and subject matter involved.
6. Is there one Dubai best lawyer for every commercial contract dispute?
No. There is no single Dubai best lawyer for every contractual matter. A construction hardship claim, shareholder dispute, financing disagreement and international commercial dispute can require materially different experience and sector knowledge.
