Compensation for Breach of Contract in the UAE 2026: Legal Requirements, Procedures and How to Claim Damages
Compensation for breach of contract in the UAE is one of the most important remedies that may arise in civil and commercial disputes. Such disputes may involve commercial agreements, service contracts, supply agreements, construction contracts, agreements between business partners, or other contractual relationships.
Understanding Compensation for Breach of Contract in the UAE is crucial for anyone involved in a contractual dispute.
When one party undertakes to perform certain work, make a payment, deliver goods, provide a service, or fulfil another obligation within an agreed period, but subsequently fails to perform, delays performance, or performs the obligation defectively, a dispute may arise concerning contractual liability and the appropriate legal remedy.
Parties should be aware of their rights regarding Compensation for Breach of Contract in the UAE to ensure proper claims are made.
However, a breach of contract does not automatically entitle the affected party to a specific amount of compensation. A claim generally requires careful examination of the contract, the obligation allegedly breached, the nature of the breach, notice or formal demand where required, the alleged damage, the evidence supporting that damage, and the causal connection between the breach and the loss.
When pursuing Compensation for Breach of Contract in the UAE, it is essential to document all relevant communications.
The UAE contractual framework underwent a significant development with the enactment of Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law, which came into force on 1 June 2026 and repealed Federal Law No. 5 of 1985.
This law directly impacts claims for Compensation for Breach of Contract in the UAE and should be understood by all parties.
Official UAE Civil Transactions Law – UAE Legislation
Accordingly, contractual disputes arising under the current legal framework should not be assessed automatically by relying on article numbers quoted in older legal publications, as the new legislation has renumbered and updated a number of provisions relating to contracts and compensation.
Legal professionals can provide guidance specific to Compensation for Breach of Contract in the UAE under the new framework.
Azza Ibrahim Hassan Al Mulla Advocates & Legal Consultants
Compensation for Breach of Contract in the UAE
1. What Constitutes a Breach of Contract Under UAE Law?
Seeking Compensation for Breach of Contract in the UAE requires careful evaluation of the circumstances surrounding the breach.
In general terms, a breach of contract in the UAE occurs when a contracting party fails to perform a contractual obligation in the manner required by the contract and applicable law.
Understanding what constitutes Compensation for Breach of Contract in the UAE is vital for all parties involved.
A contractual breach may take different forms, including:
- complete non-performance;
- delayed performance;
- defective performance;
- partial performance; or
- refusal to perform an obligation when it becomes due.
The legal consequences depend on the contractual terms, the nature of the obligation, the circumstances of the breach, the damage sustained, and the remedy sought.
Practical examples may include:
- a company refusing to provide a service it contracted to perform;
- failure to pay an amount when it becomes contractually due;
- delayed delivery of goods or works;
- performance that does not comply with agreed specifications;
- a contractor failing to perform the agreed works;
- termination of a contract in circumstances where the legality of termination is disputed; or
- failure to satisfy a contractual financial or commercial obligation.
It is important to distinguish an ordinary commercial disagreement from a legally actionable breach. In a contractual dispute, the court may need to consider the terms of the contract, the actual obligations undertaken by the parties, and the evidence demonstrating performance or non-performance.
Azza Ibrahim Hassan Al Mulla Advocates & Legal Consultants
Compensation for Breach of Contract in the UAE
2. Which Law Governs Compensation for Breach of Contract in the UAE in 2026?
The principal current legislation governing civil transactions is Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law.
The legislation expressly repealed Federal Law No. 5 of 1985 and came into force on 1 June 2026.
UAE Civil Transactions Law – Official UAE Legislation Platform
Several provisions of the new legislation are particularly relevant to contractual disputes.
Article 221 – Performance of Contracts in Good Faith
Article 221 addresses the performance of a contract according to its terms and in a manner consistent with the requirements of good faith.
The contractual relationship may extend beyond the express wording of the agreement to matters arising from the law, custom, and nature of the transaction.
Article 234 – Non-Performance in Bilateral Contracts
Article 234 addresses circumstances in which one party to a bilateral contract fails to perform an obligation when due and the potential remedies that may arise, including performance or termination in accordance with the applicable legal requirements, together with compensation where a proper legal basis exists.
Article 337 – Notice Before Compensation
As a general rule, Article 337 provides that compensation becomes due after the debtor has been formally placed in default, unless the law or the agreement provides otherwise.
Article 339 – Judicial Assessment of Compensation
Where compensation has not been determined by law or by agreement, Article 339 provides for the court to assess compensation by reference to the damage proven to have actually occurred.
Article 340 – Agreed Compensation
Article 340 regulates compensation agreed in advance by the contracting parties and addresses circumstances in which the court may reduce the agreed amount, as well as circumstances in which a creditor may seek an amount exceeding the agreed compensation where fraud or gross fault is established.
These provisions demonstrate why every UAE breach of contract compensation claim should be considered in light of both the contract itself and the legislation applicable to the particular relationship.
3. When Can Compensation for Breach of Contract Be Claimed in the UAE?
A party seeking compensation for breach of contract in the UAE should not assume that establishing non-performance alone will necessarily result in an award of damages.
For a successful claim of Compensation for Breach of Contract in the UAE, all elements of the claim must be substantiated.
The essential elements of the claim must be identified and supported by evidence.
Existence of a Contractual Relationship
The first issue is establishing the contract or agreement giving rise to the obligation.
The relevant contractual relationship may not necessarily be limited to the principal signed document. Depending on the circumstances, schedules, amendments, purchase orders, correspondence and subsequent approvals may also be relevant to determining the parties’ actual obligations.
Existence of a Specific Contractual Obligation
The obligation allegedly breached must then be identified.
Was the other party required to make a payment? Deliver goods? Provide a service? Complete works by a particular date?
The answer will affect the legal analysis.
In such cases, Compensation for Breach of Contract in the UAE hinges on the specifics of the contract involved.
Establishing the Breach
The claimant must then establish that the relevant obligation was not performed, was performed late, or was performed defectively, depending on the nature of the claim.
Proven Damage
The existence of a breach does not mean that every amount claimed by the affected party will automatically be awarded.
Article 339 of the new Civil Transactions Law addresses judicial assessment of compensation where compensation has not otherwise been determined by law or agreement. The Arabic source article describes this as compensation corresponding to damage proven to have actually occurred.
Causal Connection Between the Breach and the Damage
Another important consideration is the connection between the alleged contractual breach and the loss for which compensation is sought.
A clear causal link is necessary for successful Compensation for Breach of Contract in the UAE claims.
For this reason, preparing a contractual damages claim normally requires more than simply presenting the contract. The evidence should establish the obligation, the breach, the damage and the connection between them.
4. Types of Breach of Contract That May Give Rise to a Compensation Claim
Different types of breaches can impact the outcome of Compensation for Breach of Contract in the UAE.
A contractual breach may arise in several different forms.
Complete Non-Performance
This occurs when a contracting party does not perform the obligation at all.
For example, a company may enter into an agreement with a supplier for the delivery of specified products, but the supplier subsequently fails to deliver them.
Delay in Performance
An obligation may ultimately be performed but only after the agreed contractual deadline.
In such circumstances, it is important to examine the significance of the completion or delivery date, any contractual grace period, extension-of-time provisions, required notices, and whether the contract contains an agreed damages provision for delay.
Defective Performance
A party may perform the obligation, but the performance may not comply with the agreed specifications or contractual requirements.
This issue frequently arises in construction, supply and service contracts.
Defective performance can lead to claims for Compensation for Breach of Contract in the UAE.
Partial Performance
A party may perform part of the contractual obligation but fail to complete the remainder.
The extent of performance may be relevant when determining the appropriate legal remedy and assessing any compensation.
Accordingly, there is no universal rule that every contractual breach automatically results in termination of the contract or a fixed amount of compensation.
5. Can the Injured Party Seek Performance, Termination or Compensation?
This is one of the most important questions for anyone researching legal remedies for breach of contract in the UAE.
Not every contractual dispute is solely about recovering money.
Depending on the circumstances, the legal objective may be:
Performance of the obligation where performance remains possible and is still required;
Termination of the contract where the applicable contractual and legal requirements for termination are satisfied; or
Compensation for damage caused by the contractual breach.
In appropriate circumstances, compensation may accompany another remedy where the relevant legal requirements are established.
The current legal framework recognises the binding nature of a valid contract. A contractual relationship cannot simply be terminated or altered unilaterally because one party no longer wishes to continue unless there is an applicable contractual or legal basis.
Article 234 addresses non-performance of obligations in bilateral contracts and the potential availability of performance or termination subject to the relevant legal conditions. The Arabic source article identifies these remedies expressly.
Before commencing proceedings, it is therefore important to determine precisely what remedy the claimant seeks, rather than combining potentially inconsistent claims without first analysing their legal basis.
Clarifying the remedy sought in Compensation for Breach of Contract in the UAE is essential for legal proceedings.
6. How Is Compensation for Breach of Contract Calculated in the UAE?
The amount of compensation for breach of contract is not established simply by inserting an estimated figure into a statement of claim.
Understanding how Compensation for Breach of Contract in the UAE is quantified can significantly impact the claim.
According to the source article, Article 339 of the new Civil Transactions Law provides that where compensation has not been determined by law or contract, the court assesses it by reference to the damage proven to have actually occurred.
The amount claimed should therefore be supported by evidence.
Depending on the nature of the dispute, relevant evidence may include:
- invoices;
- account statements;
- bank transfers;
- replacement or repair costs;
- project records;
- correspondence;
- technical reports;
- accounting reports; and
- other documentation demonstrating the alleged loss.
One practical mistake is to claim a substantial amount without preparing a clear calculation explaining how the claimed compensation was quantified.
A clearly identified loss supported by documentary evidence allows the claim to be assessed on a more precise legal and evidential basis.
7. What Are Liquidated Damages or Agreed Compensation Under UAE Law?
Specific guidelines govern Compensation for Breach of Contract in the UAE which must be adhered to.
The parties may agree in advance upon an amount, or a method for calculating compensation, if a specified contractual breach occurs.
This is generally referred to as agreed compensation and is often described in commercial contracts as a liquidated damages clause or contractual penalty provision.
Article 340 of the new Civil Transactions Law regulates this issue.
According to the Arabic source article, the provision allows contracting parties to determine compensation in advance in the contract or through a subsequent agreement, while preserving judicial oversight in the circumstances prescribed by law.
The same provision is described as permitting the court to reduce the agreed compensation where the debtor establishes that the agreed amount is excessive or that the principal obligation has been partially performed.
The source article also states that reduction may arise where the creditor contributed through its own fault to the occurrence or increase of the damage.
Conversely, it describes Article 340 as allowing a creditor to seek compensation exceeding the agreed amount where fraud or gross fault by the debtor is established.
Article 340 outlines essential aspects of Compensation for Breach of Contract in the UAE that parties should know.
Therefore, the mere inclusion of a specified amount in a liquidated damages clause does not mean that the provision should be considered in isolation from the statutory requirements governing agreed compensation.
8. Is a Legal Notice Required Before Claiming Compensation?
This can be a particularly important issue in contractual disputes.
Legal notice requirements may affect claims for Compensation for Breach of Contract in the UAE.
According to the source article, Article 337 of the current Civil Transactions Law establishes, as a general rule, that compensation becomes due after the debtor has been placed in default, unless the law or the agreement provides otherwise.
Article 338 addresses circumstances in which such notice may not be required, including certain situations where performance has become impossible or ineffective due to the debtor’s conduct, or where the debtor has stated in writing that it does not intend to perform the obligation.
A standard form notice should therefore not be used indiscriminately for every contractual dispute.
The contract should first be reviewed because it may prescribe:
- the method of serving notice;
- the contractual address;
- an approved email address;
- a cure period;
- termination requirements; or
- a dispute escalation procedure.
Evidence that the notice was properly sent and received may become important in subsequent proceedings.
9. Can a Party Suspend Performance if the Other Party Breaches the Contract?
In contracts involving reciprocal obligations, a question may arise as to whether one party can withhold its own performance when the other party fails to perform a due obligation.
Parties should assess their rights concerning Compensation for Breach of Contract in the UAE before suspending performance.
The source article refers to Article 222 of the new law in connection with reciprocal obligations and notes that it may be relevant to certain service, supply and construction contracts and to contracts involving staged payments.
This issue should, however, be approached carefully.
The mere existence of a disagreement does not necessarily mean that it is legally safe to stop payment or suspend contractual performance unilaterally.
If the suspension is not justified under the contract or applicable law, the party alleging breach may itself subsequently face an allegation of non-performance.
Before suspending performance, the payment provisions, breach provisions, suspension rights, notice requirements and termination provisions should therefore be carefully reviewed.
10. What Documents Are Required to Prove a Breach of Contract?
Documentary evidence is particularly important in contractual disputes.
Depending on the case, the documents that should be reviewed may include:
- the original contract and all schedules;
- subsequent amendments;
- purchase orders;
- invoices;
- payment receipts and bank transfers;
- delivery or completion documents;
- emails and other correspondence;
- delay notices;
- legal notices;
- technical expert reports where required;
- accounting documents;
- evidence of the damage and its value;
- previous settlement agreements; and
- documents demonstrating that the claimant performed its own obligations.
The contract should also be examined for clauses dealing with governing law, jurisdiction, arbitration, force majeure, limitation of liability, agreed damages and dispute resolution.
Documentation is critical for proving claims related to Compensation for Breach of Contract in the UAE.
The original Arabic article provides this detailed evidentiary checklist and specifically emphasises the importance of organising documents chronologically.
A chronological file can help establish when the obligation arose, when the alleged breach occurred, what notices were given and when the alleged losses subsequently arose.
11. Compensation for Breach of Commercial Contracts in the UAE
Where a dispute arises from a commercial transaction, the Civil Transactions Law may not be the only legislation that requires consideration.
Depending on the nature of the transaction, Federal Decree-Law No. 50 of 2022 Promulgating the Commercial Transactions Law may also be relevant. Judicial proceedings are additionally subject to the applicable civil procedure legislation.
Commercial disputes involving compensation may arise from:
- supply agreements;
- service contracts;
- commercial agreements;
- certain disputes between companies;
- delayed performance of commercial obligations; and
- other disputes concerning contractual performance.
Resolving disputes over Compensation for Breach of Contract in the UAE often involves careful negotiation.
For more information about our commercial and corporate legal services:
Commercial and Corporate Cases – Azza Ibrahim Hassan Al Mulla Advocates & Legal Consultants
You may also see:
Company Lawyer UAE – Our Second Website
12. Can Arbitration Be Required Instead of Court Proceedings?
Parties should consider Compensation for Breach of Contract in the UAE when discussing their legal rights.
Before filing a court claim for breach of contract, the dispute resolution clause should be reviewed carefully.
A contract may contain an arbitration agreement specifying how and where disputes must be resolved.
A valid arbitration agreement can materially affect the appropriate forum and procedure. It can therefore be a serious mistake to disregard an arbitration clause and commence proceedings without first assessing its effect.
It is also important to distinguish contracts governed by the UAE federal legal system from circumstances involving the DIFC, ADGM, or another relevant legal regime, because different rules may apply.
For more information:
Commercial Arbitration in the UAE
13. What Happens After a Compensation Judgment Is Issued?
Obtaining a judgment awarding compensation is not necessarily the end of the matter.
If the judgment debtor does not voluntarily comply with the judgment, the matter may proceed to the enforcement stage in accordance with the applicable procedures.
For this reason, evaluating a contractual claim should not focus solely on the prospects of obtaining a judgment. The practical issues surrounding enforcement and recovery should also be considered.
For further information:
Enforcement of Judgments in the UAE
You may also request an initial review through:
Immediate Legal Consultation – Main Website
14. Mistakes That May Weaken a Breach of Contract Compensation Claim
One common mistake is relying on the contract alone without adequately proving the resulting damage.
Other potential problems include:
- claiming an estimated amount without supporting documents;
- failing to comply with the contractual notice mechanism;
- overlooking an arbitration clause;
- suspending contractual performance without proper legal analysis;
- signing a settlement containing a waiver of claims without understanding its effect; or
- relying on outdated statutory provisions without first identifying the law applicable to the dispute.
Particular care should be taken when relying on article numbers from the former Civil Transactions Law in a current claim.
The source article notes, for example, that the current legislation places the good-faith performance provisions in Article 221 and the agreed compensation provisions in Article 340.
Parties should also exercise caution before sending correspondence that could unintentionally amount to an admission of non-performance, waiver or other statement capable of affecting their legal position.
15. Frequently Asked Questions About Compensation for Breach of Contract in the UAE
Does Every Breach of Contract Result in Compensation?
Every case involving Compensation for Breach of Contract in the UAE must be evaluated on its individual merits.
Not necessarily. The contractual obligation, nature of the breach, proven damage, notice requirements where applicable, and the connection between the breach and the loss should all be considered.
How Does the Court Determine the Amount of Compensation?
According to the source article, where compensation is not determined by law or agreement, Article 339 provides for the court to assess compensation by reference to the damage proven to have actually occurred.
Is a Liquidated Damages Clause Fully Binding on the Court?
An agreed compensation clause is important, but Article 340 provides for judicial intervention in the circumstances prescribed by law. The source article states that the agreed amount may be reduced in specified circumstances and that a higher amount may be sought where fraud or gross fault is established.
Can I Claim Both Termination and Compensation?
Termination and compensation may be available in certain circumstances, depending on the contractual terms, the nature of the breach, notice requirements and applicable legal provisions.
Must I Send a Legal Notice Before Claiming Damages?
Article 337 addresses formal default notice in connection with compensation as a general rule, subject to any applicable statutory or contractual exception. Article 338 addresses circumstances in which such notice is not required.
Can I Stop Making Payments Because the Other Party Breached the Contract?
This should not be assumed automatically. Reciprocal obligations may be relevant, but the legality of suspending performance should be assessed against the contract, the obligations that have fallen due, and the particular facts.
Do I Need an Expert Report to Prove My Loss?
Expert reports can provide valuable insights into Compensation for Breach of Contract in the UAE.
Not in every case. However, technical, accounting and construction disputes may require expert evidence or specialised documentation to establish the nature of the breach and quantify the alleged damage.
What if the Contract Contains an Arbitration Clause?
The arbitration agreement should be evaluated before selecting the forum or commencing proceedings because the dispute resolution provision may affect which body has jurisdiction to determine the dispute.
Breach of Contract and Compensation Lawyers in the UAE
Legal professionals specializing in Compensation for Breach of Contract in the UAE can assist individuals navigating these complex matters.
At Azza Ibrahim Hassan Al Mulla Advocates & Legal Consultants L.L.C., contracts, supporting documents and correspondence relating to a dispute can be reviewed to identify the contractual obligations, the alleged breach, the potential legal basis of the claim and the damage that would need to be established.
Matters that may require legal review include compensation for breach of contract in the UAE, termination of contracts, non-performance of contractual obligations, delayed performance, liquidated damages and agreed compensation, service and supply agreements, construction disputes, commercial disputes, recovery of financial claims and enforcement of judgments.
Book an appointment with Consultant Dr. Ibrahim Hassan Al-Mulla, Director of our office, to review your file and consider the necessary legal steps. To contact us, please call or contact us via WhatsApp on 00971501961291.
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Email: Khalid.said@dralmulla.com
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Disclaimer: The information in this article is provided for general legal awareness only and does not constitute individual legal advice. Legal procedures, available remedies and potential outcomes vary according to the facts, documents, parties and jurisdiction involved in each case.
Compensation for Breach of Contract in the UAE
Compensation for Breach of Contract in the UAE 2026: Legal Guide
Compensation for Breach of Contract in the UAE 2026: Legal Requirements, Procedures and How to Claim Damages
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Learn when compensation for breach of contract may be claimed in the UAE in 2026, including damages, legal notice, liquidated damages, contract termination and evidence required.
Compensation for Breach of Contract in the UAE 2026 – Dr. Ibrahim Hassan Al-Mulla
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