TRW & Co · Commercial contracts
Limitation of Liability, Indemnities and Warranties Under UAE Law
Limitation of liability UAE clauses are generally enforceable for contractual claims, but mandatory civil-law rules set the boundaries. Courts can review agreed compensation, fraud and gross fault reopen caps, and some duties cannot be excluded at all. This guide explains caps, exclusions, indemnities and warranties under the new Civil Transactions Law and how to draft clauses that survive.
Key pointUnder the 2026 code a court can award more than an agreed cap where the creditor proves fraud or gross fault, and any clause that tries to remove that power is void, so carving those claims out expressly costs nothing and protects the rest of the clause.
At a glance
Caps generally enforceable
Parties may limit or exclude contractual liability under onshore UAE law, but compensation is based on proven loss and agreed amounts are subject to court review.
New code since June 2026
Federal Decree-Law No. 25 of 2025 replaced the 1985 Civil Transactions Law from 1 June 2026, without general retroactive effect on earlier contracts.
Fraud and gross fault
A court may reduce exaggerated agreed compensation and may award more than the agreed amount if fraud or gross fault is proven; contrary agreements are void.
Non-excludable duties
Pre-contract disclosure duties, the court’s hardship power and decennial liability for structural defects cannot be excluded or limited by agreement.
Indemnities read civilly
Indemnities are treated as contractual compensation obligations, so they generally require proof of actual loss and should state whether they sit inside the cap.
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Limitation of liability UAE: the short answer
Under onshore UAE law, parties can generally limit or exclude contractual liability, including by agreeing a cap or excluding certain heads of loss. The limitation of liability UAE picture differs from English law in three ways: some liabilities cannot be excluded at all, courts can review agreed compensation, and indemnities and warranties are read through civil-law concepts rather than common-law ones.
The new Civil Transactions Law, in force since 1 June 2026, keeps those foundations but makes several controls explicit. A court can reduce agreed compensation that is exaggerated, or award more where the debtor committed fraud or gross fault, and agreements removing that power are void. The duty of pre-contract disclosure and the court’s hardship power cannot be contracted out of either.
For most commercial contracts, a well-drafted cap is still worth having. The skill lies in knowing which claims sit outside it and drafting so that the clause survives judicial review.
The legal framework
Onshore contracts are governed by the Civil Transactions Law, Federal Decree-Law No. 25 of 2025, which replaced the 1985 code with effect from June 2026 and does not apply retroactively unless it says so. Commercial contracts between traders are also subject to the Commercial Transactions Law, with the civil code filling gaps.
Three features shape any limitation of liability UAE analysis, and each one affects how a cap is drafted. First, compensation is based on actual, proven loss, including loss of profit only where it was a reasonably certain consequence of the breach. Second, liability for a harmful act, the civil-law equivalent of tort, has traditionally been treated as a matter of public policy that cannot be excluded by agreement. Third, agreed compensation is subject to the court’s statutory review.
Our guide to contract law in the UAE and the new Civil Transactions Law explains the broader changes, including the new good-faith duties in negotiations.
Agreed compensation and court review
The new code allows parties to fix compensation in advance, in the contract or a later agreement. A liability cap is often analysed in the same way, because it fixes the maximum compensation for a breach.
The court may reduce agreed compensation if the debtor shows it is exaggerated, if the principal obligation was partly performed, or if the creditor contributed to or aggravated the loss. It may award more than the agreed amount only where the creditor proves fraud or gross fault by the debtor. Any agreement contrary to these rules is void. Compared with the 1985 code, which simply allowed courts to adjust agreed compensation to actual loss, the new text sets out the grounds more precisely.
What cannot be excluded or capped
Before relying on any cap, map the claims that are likely to sit outside it. The table summarises the main categories for onshore contracts.
| Liability | Position under onshore law | Drafting response |
|---|---|---|
| Fraud and gross fault | Court may award more than agreed compensation where proven | Carve fraud and wilful misconduct out of the cap expressly |
| Harmful acts (tort) | Traditionally, agreements exempting liability for a harmful act are void | Do not expect a cap to cover personal injury or third-party property damage |
| Pre-contract disclosure | The duty to disclose decisive information cannot be limited or excluded | Rely on accurate disclosure and warranties rather than non-reliance wording |
| Hardship power | Court’s power to reduce an onerous obligation or rescind cannot be excluded | Use price adjustment and renegotiation mechanisms instead |
| Decennial liability | Engineers and contractors bear mandatory liability for structural collapse and serious defects for ten years | Allocate through insurance and back-to-back subcontracts, not caps |
| Unfair standard-form terms | Court may amend or relieve the adhering party from arbitrary terms; exclusion of that power is void | Negotiate key terms individually and record the negotiation |
The harmful-act point deserves care. The 1985 code expressly voided agreements exempting liability for a harmful act, and UAE courts and commentators have consistently treated tortious liability as outside the reach of contractual caps. Parties should assume that remains the position under the new code unless and until courts say otherwise, and draft accordingly.
A liability cap that expressly preserves claims for fraud, wilful misconduct and gross negligence is more likely to survive review than one that purports to cap everything. Over-reaching clauses invite a court to look harder at the whole provision.
Indemnities and warranties under UAE law
Indemnities
The civil code has no free-standing doctrine of indemnity in the common-law sense. An indemnity in a UAE-law contract is generally treated as a contractual obligation to compensate for specified losses, and the general rules on compensation apply: the loss must be proved, it must be caused by the relevant event, and the court can review agreed amounts.
That has consequences. An indemnity for “any and all losses” may be read down to actual, proven loss. Indemnities for third-party claims work best when they set out a clear procedure: notice, conduct of the claim, mitigation and settlement approval. They should also say expressly whether indemnity claims count towards the cap.
Warranties
UAE law does not draw the English distinction between warranties and conditions. A warranty is a contractual statement that, if untrue, gives rise to liability for proven loss. In sale contracts, the code also implies obligations about latent defects, and the new code has extended the time available for latent-defect claims and broadened buyer remedies.
In share and asset purchases, warranties interact with the new pre-contract disclosure duty. A seller cannot contract out of the duty to disclose decisive information, so disclosure letters and warranty limitations need to be drafted with that in mind. Our mergers and acquisitions team covers transaction-specific protections, including warranty insurance.
Drafting a limitation of liability UAE clause
The following sequence produces a clause that is commercially clear and more likely to withstand judicial review.
- Choose law and forum first. Decide whether onshore UAE law, DIFC law, ADGM-applied English law or a foreign law governs, and where disputes will be decided. The answer changes what a cap can do.
- Set a cap that reflects real exposure. Link the cap to contract value, fees paid or insurance cover, and explain the basis in the contract. A cap that is clearly proportionate is harder to attack as unfair.
- Define excluded loss in plain words. Avoid relying on “consequential loss” as a label. List the heads of loss excluded, such as lost profits, lost revenue or loss of data, and say whether they are excluded in all cases.
- List the carve-outs. Preserve liability for fraud, wilful misconduct, gross negligence, death and personal injury, and any other mandatory categories, plus agreed commercial carve-outs such as confidentiality or IP.
- Align indemnities and the cap. State expressly whether indemnities sit inside or outside the cap, and set out the claims procedure.
- Coordinate with liquidated damages. If the contract has delay or performance damages, say whether they count towards the overall cap and are the exclusive remedy for that breach.
- Check insurance. Make sure cover matches the cap and carve-outs, and that insurers will respond to contractual liabilities.
Caps in standard terms and consumer contracts
Where a limitation of liability UAE clause sits in standard terms that the other party could not negotiate, the new code’s rules on adhesion contracts become relevant. A court may amend arbitrary terms or relieve the adhering party from them, and an agreement excluding that power is void. Ambiguity in standard terms is also more likely to be read against the party that drafted them.
For business-to-consumer contracts, federal consumer protection law and, for financial services, Central Bank conduct rules add further limits on unfair terms. A supplier that relies on a broad exclusion against consumers takes a real risk that the clause will be disregarded. Our page on commercial terms and conditions explains how to structure standard terms.
The practical answer is to negotiate the key liability terms individually with significant counterparties and to keep evidence of that negotiation, such as marked-up drafts and correspondence. That record shows the limitation of liability UAE clause was a bargained allocation of risk rather than an imposed term.
Illustrative scenario: a software outage
This scenario is illustrative only and does not describe a real client or case.
A UAE retailer licenses a cloud platform from a technology supplier under a UAE-law contract with Dubai Courts jurisdiction. The contract caps the supplier’s liability at twelve months’ fees and excludes lost profits. A prolonged outage during a sales season causes the retailer to lose orders.
The retailer argues that the outage resulted from the supplier’s gross negligence, because a known vulnerability had been left unpatched for months. If proven, that would allow the court to look beyond the agreed limit. The supplier relies on the cap and points to the retailer’s failure to use the contracted backup service, which it says aggravated the loss and justifies a reduction.
Both arguments track the structure of the new code. The outcome turns on evidence: patch logs, incident reports and the retailer’s own mitigation. The lesson is that a cap is not self-executing; it is one input into a court’s assessment of proven loss and conduct. Our SaaS and technology contracts page covers service-level design.
Risks and common mistakes
Copying an English-law clause unchanged
Clauses drafted for English law rely on case-law meanings of terms such as “consequential loss”, “indirect loss” and “wilful default”. Onshore UAE courts do not apply that case law, and the Arabic translation may change the meaning. The result can be a clause that excludes less, or more, than intended. Rewrite the clause in plain, defined terms, and review the Arabic version. See our guide to Arabic and English contracts in the UAE.
Assuming a cap covers tort claims
Where a breach also causes personal injury or damage to third-party property, the claimant may frame the case in tort. Agreements exempting liability for harmful acts have long been treated as void in the UAE, so a contractual cap may not help. Manage that exposure through insurance, safety obligations and back-to-back allocation with subcontractors rather than through the cap alone.
Setting liquidated damages too high
Delay or service-credit regimes are attractive because they avoid proving loss. But the court can reduce agreed compensation that the debtor shows is exaggerated, or where the obligation was partly performed. Set rates by reference to a genuine estimate of loss, record the basis in the negotiation file, and avoid stacking several remedies for the same breach.
Ignoring the disclosure duty
The new code requires parties to disclose information of decisive importance during negotiations, and that duty cannot be excluded. Non-reliance and entire-agreement clauses therefore give less protection than many templates assume. A party that withheld decisive information may face annulment or damages despite the cap. Build disclosure processes into negotiations, particularly in acquisitions and long-term supply deals.
Forgetting the limitation period
Caps and exclusions sit alongside time limits for bringing claims. Contractual notice periods and statutory limitation periods differ, and the new code changed some periods with transitional rules. Check both before assuming a claim is barred or preserved. Our guide to limitation periods in the UAE explains the rules.
DIFC, ADGM and foreign governing law
In the DIFC, contracts are governed by the DIFC’s own contract legislation, and disputes go to the DIFC Courts. In ADGM, English common law applies directly, and the ADGM Courts hear disputes. In both centres, caps and exclusions are assessed under common-law principles and relevant statutory controls, so the onshore rules on agreed compensation do not apply in the same way.
Parties can also choose a foreign governing law and arbitration, for example at the Dubai International Arbitration Centre. That can give more predictable treatment of caps and indemnities. But mandatory onshore rules may still matter where the contract involves UAE real estate, construction, consumers or public policy, and when an award or judgment is enforced onshore. Our guide to governing law and jurisdiction clauses covers the choices.
Cross-border angle
International groups often run a global template with English-law liability terms. For UAE-law contracts, adapt that template rather than translating it. Points that commonly need adjustment include the definition of excluded loss, the interaction between indemnities and the cap, and how liquidated damages are described.
Groups headquartered in the UK, India, Singapore or China should also check whether a parent guarantee is needed and how its liability relates to the subsidiary’s cap. Guarantees are governed by their own rules in the civil code, so the guarantee wording needs the same review as the main contract. Our commercial contracts team adapts group templates for the UAE.
Checklist
- Confirm governing law and forum, and whether the new Civil Transactions Law applies to the contract.
- Set a proportionate cap and record its commercial basis.
- Define excluded heads of loss in plain words in both languages.
- Carve out fraud, wilful misconduct, gross negligence and mandatory liabilities.
- Align indemnities, liquidated damages and insurance with the cap.
- Review every limitation of liability UAE clause in legacy templates against the 2026 code.
TRW & Co drafts and negotiates liability provisions for commercial, technology, construction and transactional contracts. Where litigation is needed, we work alongside locally licensed advocates. Contact our Dubai team to review your templates, or browse the official texts on the UAE Legislation portal.
Frequently asked questions
01Are limitation of liability clauses enforceable in the UAE?
Generally yes, for contractual liability under onshore UAE law. Courts respect caps and exclusions agreed between commercial parties, but within mandatory limits. Compensation is based on proven loss, agreed compensation can be reduced if exaggerated, and a court may award more where fraud or gross fault is proven. Some duties, such as pre-contract disclosure, the hardship power and decennial liability, cannot be excluded. Tort-type liability for harmful acts is also traditionally outside the reach of caps.
02Can I exclude consequential loss under UAE law?
You can exclude specified heads of loss, but “consequential loss” has no settled meaning in UAE law and English case law on the term does not bind onshore courts. Its Arabic translation may also change its scope. It is safer to list the losses excluded, such as loss of profit, revenue, business opportunity or data, and to state whether the exclusion applies in all cases, including where the loss is direct.
03Will a UAE court reduce liquidated damages?
It can. Under the new Civil Transactions Law a court may reduce agreed compensation if the debtor proves it is exaggerated, if the principal obligation was partly performed, or if the creditor contributed to or aggravated the loss. It may award more only if the creditor proves fraud or gross fault. Parties cannot contract out of these powers. Setting rates by reference to a genuine estimate of loss helps them survive review.
04Do indemnities work the same way as in English law?
Not exactly. UAE civil law has no separate doctrine of indemnity, so an indemnity is usually treated as a contractual promise to compensate for specified losses. The claimant will generally need to prove actual loss and causation, and agreed amounts may be reviewed. Draft indemnities with clear triggers, procedures for third-party claims and a statement of whether they count towards the overall cap.
05Does the new Civil Transactions Law affect existing contracts?
The new code took effect on 1 June 2026 and does not apply retroactively unless it provides otherwise, so the validity of contracts concluded earlier is generally assessed under the 1985 code. Some rules, such as transitional provisions on limitation periods, apply to running periods. Parties renewing or amending older contracts should review liability clauses against the new code, because amendments may bring the new rules into play.
06Are liability caps treated differently in the DIFC and ADGM?
Yes. In the DIFC, contracts are governed by the DIFC’s own contract law, and in ADGM English common law applies directly. Caps and exclusions are assessed under common-law principles and applicable statutory controls, not the onshore rules on agreed compensation. However, if a judgment or award is enforced onshore, or the contract involves onshore mandatory regimes, the onshore position may still become relevant.
Sources and official materials
- Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law — Compensation, agreed damages and mandatory rules from June 2026
- Federal Decree-Law No. 42 of 2022 Promulgating the Civil Procedure Code — Procedure for contract claims before onshore courts
- UAE Legislation portal — Official federal legislation in Arabic and English
- DIFC Courts — Common-law courts for DIFC contracts
- ADGM Courts — Common-law courts applying English law in ADGM
- Dubai International Arbitration Centre — Arbitration of commercial contract disputes
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
