Contracting with parties in the Middle East requires a combination of commercial insight and legal precision. In our practice, we advise Dutch exporters and investors in, among others, the United Arab Emirates and Saudi Arabia. Local civil law traditions, Sharia principles, and specific trade licenses together form a framework in which standard Dutch contracts often do not work. Timely legal preparation prevents roadblocks and costly disputes.
What is the legal problem?
The legal systems in the region combine civil law codes with Sharia principles, particularly regarding interest and certain guarantees. In addition, local requirements apply to agents, distributors, and shareholding. Free zones such as DIFC and ADGM offer their own common law-based systems. Anyone who ignores these nuances risks void clauses, forced local partnerships, and unenforceable judgments.
What does the law say?
The UAE has the Federal Civil Code (Federal Law 5 of 1985, revised) and the Commercial Companies Law (Federal Law 32 of 2021). DIFC and ADGM have their own English common law-based systems with their own courts. Saudi Arabia applies Sharia law supplemented by regulations and has had a Civil Transactions Law since 2023. The region is largely a signatory state to the New York Convention of 1958.
The Hague Convention on Choice of Forum 2005 does not apply in the region; state choice of forums is not automatically recognized. For agency agreements in the UAE, the Commercial Agencies Law (Federal Law 3 of 2022) applies, providing strong protection for registered local agents.
What risks do companies face?
Interest agreements can be enforced to a limited extent under Sharia law. Registered agents acquire protected rights, making termination expensive. Without a local license or free zone structure, you risk violating licensing requirements. Judgments by Dutch courts are often not enforceable in the region. Litigating before local courts is lengthy and unpredictable.
Practical example from our practice
We advised a Dutch exporter with a distribution contract with an Emirati partner and a choice-of-forum clause for the Dutch court. After termination, the partner demanded protected compensation under the UAE Commercial Agencies Law. The Dutch court rejected the claim. However, in Dubai, the Dutch judgment proved to be unenforceable. For contract renewal, we opted for DIAC arbitration with DIFC as the seat under Dutch law. This ensured worldwide enforceability under the New York Convention.
What can you do?
Investigate by country whether a local partner or free zone structure is necessary. Choose arbitration under DIAC, DIFC-LCIA, or ADGM for enforceable rulings. Avoid interest clauses that may conflict with Sharia; use commercial surcharges or late fees. Arrange termination carefully, paying attention to agency protection under Federal Law 3 of 2022. See also our article on Doing Business in the United Arab Emirates.