The Impact of the 2025 UAE Civil Code on Corporate and Commercial Transactions

Old Civil Code – Interpretation Framework

Under the Old Civil Code, specifically Article 257-266, contractual interpretation was primarily governed by the principle of identifying the common intention of the parties, even where this required looking beyond the express wording of the contract. In practice, this meant that courts were not confined to the text alone; they were empowered to examine a range of external factors, including surrounding circumstances, customary practice, and commercial usage, equitable considerations, and implied intentions derived from the parties’ conduct or the broader transactional context.

From a transactional perspective, this approach created a flexible but uncertain interpretive environment. While it was designed to promote fairness and achieve outcomes aligned with the parties’ true intentions, it often diluted the certainty that transactional lawyers seek to achieve through detailed drafting. Carefully negotiated provisions, such as pricing mechanisms, indemnities, limitations of liability, and completion adjustments, could be reinterpreted or qualified by reference to context or custom. As a result, the literal wording of the contract was not always determinative, and contractual certainty (as well as party autonomy) could be undermined by a degree of judicial discretion.

This was especially significant in complex transactions, where parties rely heavily on precise drafting to allocate risk and define post-closing rights and obligations. The possibility that a court might depart from the express language of the agreement introduced interpretive risk, which could affect both deal structuring and dispute outcomes. In this environment, legal advisors often had to anticipate not only how a clause was drafted, but also how it might later be interpreted in light of external factors.

New Civil Code – Article 119 and 120

A shift toward textual interpretation
The New Civil Code introduces a more structured and restrictive approach to contractual interpretation under Articles 119 and 120. These provisions place greater emphasis on the express wording of the contract, reflecting a move towards a more text-focused methodology. Where contractual language is clear and unambiguous, courts are now expected to apply the plain meaning of the text to refrain from seeking alternative or implied intentions. The interpretive exercise is therefore more firmly anchored in the objective meaning of the written agreement rather than a reconstruction of the parties’ subjective intent.
For commercial and corporate transactions, this shift has immediate practical consequences. Parties can expect that negotiated provisions (particularly those addressing risk allocation, purchase price mechanics, indemnity regimes, and termination rights) will be enforced more strictly in accordance with their wording. This increases the value of precision in drafting and reduces the likelihood that courts will depart from the agreed contractual frameworks in pursuit of a perceived equitable outcome.

Reduced reliance on external factors
Under the new regime, recourse to external considerations – such as custom or equity – is significantly curtailed. These factors will only become relevant where the contractual wording is ambiguous or gives rise to genuine uncertainty. Even in those cases, they operate as secondary interpretive tools rather than primary ones, guiding the court only where the text does not provide a clear answer.
In practical terms, this means that parties to commercial agreements, including M&A transactions, should no longer assume that a court will “fill in the gaps” or correct imprecision by reference to industry practice or broader notions of fairness. For example, where a clause is poorly drafted or silent on a key issue, such as the scope of an indemnity, the court is less likely to supplement or reinterpret the agreement based on external considerations. Instead, the outcome may turn strictly on the language used.

Implications for drafting and structuring
This interpretive framework materially increases the importance of clear, precise, and internally consistent drafting. Parties should proceed on the basis that their agreement will be interpreted largely as written, with limited judicial intervention. Defined terms must therefore be carefully aligned with their operative provisions, and contractual structures should reflect a coherent hierarchy to avoid internal inconsistencies. Equally, the drafting must accurately capture the underlying commercial intent, as there will be less scope for that intent to be reconstructed through interpretation if it is not properly expressed.
From a transactional perspective, this has particular significance for heavily negotiated provisions. Purchase agreements, shareholder agreements and financing documents frequently rely on complex clauses. Under the New Civil Code, any ambiguity or inconsistency within those clauses is more likely to have direct legal consequences, rather than being resolved through contextual interpretation. This increases both the importance of thorough legal due diligence during drafting and the need for rigorous internal review before execution.

Reduced scope for corrective interpretation
A further consequence of the new approach is the reduced likelihood that courts will intervene to address drafting deficiencies or unintended consequences. Ambiguities may operate against the drafting party, especially in negotiated agreements where both parties had the opportunity to define the terms. Similarly, provisions that are incomplete or unclear are less likely to be supplemented by implication, and reliance on general principles such as fairness or commercial custom is less likely to succeed as a corrective mechanism.
For transactional lawyers, this represents a shift in responsibility. The burden of ensuring clarity, completeness and coherence now rests more squarely on the parties themselves. In a commercial context, this reinforces the need for disciplined drafting practices and careful allocation of drafting risk, including consideration of who prepares the first draft and how ambiguities may later be interpreted.

Greater certainty in commercial transactions
At the same time, the New Civil Code enhances legal predictability in commercial and M&A transactions. By prioritising the plain meaning of contractual language, it increases the likelihood that negotiated provisions will be enforced as drafted, provided they are clear. This is particularly important for clauses dealing with risk allocation, limitation of liability, indemnities, and termination rights, which are central to the economic balance of most transactions.
The result is a more predictable legal environment in which parties can structure their agreements with greater confidence. This supports the use of more sophisticated drafting techniques and complex contractual frameworks, as parties can rely more heavily on the enforceability of the written terms.

Conclusion

The New Civil Code marks a significant evolution in the law of contractual interpretation. By prioritising the plain meaning of contractual language and limiting recourse to external interpretive tools, it introduces a higher degree of certainty into commercial dealings. For M&A and broader transactions, this translates into more predictable frameworks in which contractual provisions are more likely to be enforced as drafted.At the same time, the reforms place increased responsibility on parties and their advisors to ensure that contractual documentation accurately and comprehensively reflects their agreed intentions. Clear, precise drafting, internal consistency and careful structuring are no longer simply desirable; they are essential to managing interpretive risk. In this context, disciplined drafting and rigorous review function as critical safeguards in high-value commercial transactions, enabling parties to fully benefit from the greater certainty offered by the new regime.