Exclusion Clauses in the UAE
The Importance of Contracts and Exclusion Clauses
Contracts are vital documents at all levels of society. Whether in business or everyday life, contracts are formed all the time from the most straightforward dealings between individuals to the most complex business deals. There may be occasions wherein one of these is formed orally only, though this primarily occurs between ordinary individuals.
Now in the case of more substantial contracts, negotiations can be a lengthy and intense process, with all parties involved looking to place themselves in the optimal positions. These negotiations are vitally important to them as they may stand for the duration of the deal and so clauses will be in place for every foreseeable eventuality.
There can be many types of clauses possible within a contract including the power of scale clauses, acceleration clauses, integration clauses and more. One of the most vital and prevalent forms is the exclusion clause.
Exclusion clauses, or exemption clauses as they are also known, exist to exempt a specific party from specific responsibilities should particular criteria be met. There are a few different forms of this clause which have different consequences, and they are as follows:
- True exclusion – This clause considers a potential breach of the contract that may occur, and excludes the party that may be negatively impacted by liability;
- Limitation – Limits the amount that can be claimed by a party for a breach of contract. This limitation is regardless of the loss;
- Time Limitation – Places a time limit in which a claim is required to come forward. Should this time limit be elapsed, the request will then be void.
Of course, exclusion clauses must be agreed upon by both parties as they can potentially lead to highly beneficial exemptions for a party. Often the decided upon exclusions favor one part more than the other, likely the party writing the contract, and so the matter can be one of high complexity and generally requires both parties to be willing and fully informed. Following are the UAE regulations regarding Exclusion clauses.
UAE Civil Code
The UAE Civil Code governs all issues concerned with contracts within the UAE. It is a substantial piece of legislation, though exemption or exclusion clauses receive little explicit mention within it. Generally, though, the one area which widely uses exclusion clauses is in insurance. Federal Law Number 6 of 2007 (amended by Federal Law Number 3 of 2018) is the insurance law of the UAE, and Article 28 (2) states that any exemptions stated in an insurance policy require writing in bold and a different color to the rest of the text. The entity obtaining the insurance must also acknowledge the clause for it to take effect.
Should these conditions be met in an insurance contract, then Article 1028 of the Civil Code must be taken into account. This Article is under Chapter 3 of the Code, which concerns contracts of insurance. Here are mentioned the five conditions that will result in elements of the agreement being void:
- The situation providing for the forfeiture of the right to insurance on account of a breach of the laws unless such violation constitutes a deliberate felony or misdemeanor;
- The condition providing for the forfeiture of the insured’s right due to his delay in notifying the authorities that have to be informed, or in producing documents, if it appears that the delay was for an acceptable excuse;
- Any printed condition relating to cases involving nullity of the contract, or forfeiture of the insured’s right not shown in a precise manner;
- The arbitration condition included in the printed general terms of the policy and not as an exclusive agreement distinct from there;
- Any arbitrary state, the breach thereof appears that it has no bearing on the occurrence against the insurance of the event.
Should all of the conditions of the insurance regulations be met and avoidance of the voiding conditions stated within the Civil Code occur, then any exclusion clauses will hold weight.
The Dubai Court of Cassation dealt with a case (27, 2009) on this very matter, and within it, they confirmed therein that the condition of having the exemption stand out was a requirement, and this was to avoid ‘confusion or obscurity.’ The policy must also contain a statement referring to it, and as long as this occurs, requirements for a signature on the specific clause of the contract won't be needed. Instead, the overall name for the policy will be sufficient.
However, beyond insurance, there is little explicitly mentioned for any other sectors. Therefore, to understand the general principles, areas of the Civil Code that are not expressly related to exclusion clauses must be looked to get something of an idea of what to expect.
In general, within the UAE, almost any contract clauses are permitted unless expressly prohibited by the law; this is so long as all the involved parties agree to the provisions. As such, if the parties agree to an exclusion clause, it will likely stand up in court. There would probably be a limit to this though as if the advantage provided to one party is too significant, and perhaps there was an element of coercion in the signing of the contract, the court may restrict them.
The Civil Code specifies what is considered to be a void or valid contract. A valid contract as defined in Article 209 states:
- A deal is valid if legal in its essence and characterization, issued by a qualified person, having an object that can be governed by the contract and a current, correct and licit cause, validly specified and not subject to avoid the condition.
As seen here, there is nothing specifically against exclusion clauses. Article 210 mentions the elements of a contract that would cause it to become void. These are:
- A void contract is the illicit one, whether by origin or description; this may be because of a defect in one of its constitutive elements, its object, purpose or the form imposed by law for its valid formation. This contract shall not affect, and ratification cannot occur;
- Every interested party is entitled to invoke the invalidity, and the judge to decide it ex officio;
- Hearing an action in nullity may not occur after the lapse of fifteen years as of the conclusion of the contract, but every interested person may, at any time, raise a plea in avoidance of the deal.
Similar to the valid contract point, there is nothing here that outright restricts or disallows for exemption clauses.
A specified area in which the clauses and conditionality are stated to be allowed in Article 219. In this section, it provides that contracts that are liable to be canceled may have conditions that shall exist for the duration of the agreement.
The Current State of Exclusion Clauses in the UAE
There is no legislation specifically in place that covers these types of clauses, and even the mention is relatively minimal. The UAE Civil Code covers all areas of contracts and is an in-depth item of regulation. However, as previously mentioned, it is stated within the law that almost any clauses within a contract are acceptable, so long as both parties are willing and in the appropriate legal capacity to sign the contract.
In time, regulations on this may become more solidified specific. For the time being though, so long as the exclusion clauses used do not violate any laws they are acceptable.
In this way, the law allows for great freedom between the parties and has helped to build the many business deals and contracts within the UAE. It could, however, make any potential court cases more complicated and difficult than they need to be.