UAE Procurement Disputes: Defective Goods, Late Delivery And Legal Remedies

Every UAE trading company, manufacturer, distributor, and retailer faces supplier disputes regularly. The shipment arrives short. The product fails quality testing. The supplier refuses to honour the purchase order. The buyer rejects the goods and stops payment. These are not exceptional events. They are recurring commercial frictions, and the businesses that manage them efficiently treat dispute response as an operational discipline rather than a one-off legal problem. The legal framework is settled, but most disputes are won or lost in the first 72 hours after the issue is identified — long before the question of litigation arises.

• Commercial sale transactions between merchants are governed by Federal Decree-Law No. 50 of 2022 (the Commercial Transactions Law), which entered into force on 2 January 2023. Article 110 sets out the buyer's position when delivered goods are different in quantity or type, or defective: rescission is granted only where the defect renders the goods unsuitable for their intended purpose or difficult to market. In other cases, the court orders price reduction or completion rather than termination.
• The new Civil Transactions Law (Federal Decree-Law No. 25 of 2025) takes effect on 1 June 2026 and substantially expands buyer remedies. Articles 493-495 extend the latent defect limitation period from six months to one full year from delivery. Buyers can now retain the goods and claim a proportional price reduction, rather than being forced to choose between full rescission and full acceptance.
• Sales by sample or model are governed by specific rules: where the sale is concluded by reference to a sample, the goods delivered must match that sample. Non-conformity entitles the buyer to accept or reject. The contractual specification of goods (precise vs general description) determines the burden of proof in any subsequent dispute.
• Limitation periods are unforgiving. Commercial debt claims between merchants are time-barred after five years from the date the obligation fell due under the Commercial Transactions Law. Latent defect claims must be brought within one year from delivery (under the 2026 Civil Transactions Law) unless extended by contractual warranty. Cheque claims expire after three years.
• Where a buyer refuses to take delivery of conforming goods, the seller may apply to court for permission to sell the goods under judicial supervision after notice. The proceeds are deposited with the court pending resolution of the dispute. For perishable goods, the court may authorise immediate sale without notice.

Who this applies to

This article is for UAE trading companies, manufacturers, distributors, retailers, and B2B service providers involved in the purchase or sale of goods. It covers operational disputes between buyers and suppliers in commercial transactions where delivery, quality, quantity, or payment becomes contested.

It does not cover construction supply chains (governed by FIDIC and construction-specific frameworks), logistics-as-service contracts (carrier liability), or commercial agency relationships (governed by Federal Law No. 3 of 2022). For force majeure and broader contractual risk allocation in supply chains, see our article on how UAE law handles supply chain contract disputes.

The five disputes that recur in UAE procurement

Most supplier and procurement disputes fall into one of five categories. The legal framework, the available remedies, and the practical dispute management approach differ for each.

1. Quantity disputes: short or excess delivery

The supplier delivers fewer units than ordered, more units than ordered, or units of a different specification. Under Article 110 of the Commercial Transactions Law, the buyer cannot rescind the contract for a quantity or type discrepancy unless the difference renders the goods unsuitable for their intended purpose or unmarketable. The court will normally order a price adjustment (reduction for short delivery, additional payment for excess) rather than termination.

The practical question is whether the discrepancy is material enough to refuse the entire shipment. A short delivery of 50 units in a 1,000-unit order is typically resolved by an invoice credit. A short delivery of 500 units in a 1,000-unit order, where the buyer needed the full quantity to fulfil downstream contracts, is grounds for rejection.

The buyer must document the discrepancy at the point of delivery. Signed delivery notes annotated with the actual quantity received, photographs of the shipment, and inspection reports are the evidence base for any subsequent claim. A buyer who signs the delivery note without annotation and raises the quantity issue weeks later faces an evidentiary uphill battle.

2. Quality disputes: defective or non-conforming goods

The goods arrive but fail to meet the specifications, are defective, or do not conform to the sample provided at the time of contract. The remedy depends on whether the defect is patent (visible on inspection) or latent (discoverable only through use or testing).

For patent defects, the buyer must reject the goods at delivery or shortly thereafter. Acceptance of goods that are visibly defective is treated as a waiver of the right to reject. The buyer who unloads the shipment, signs the delivery note, and pays the supplier has accepted the goods and lost the strongest remedy.

For latent defects, the new Civil Transactions Law (effective 1 June 2026) provides a one-year limitation period from the date of delivery. Articles 493-495 define a latent defect as one that existed before delivery and could not reasonably be discovered without expertise or testing. The buyer's remedies have been expanded: the buyer may retain the goods and claim a proportional price reduction, demand replacement, or seek rescission where the defect substantially impairs the value of the goods.

This is a significant improvement over the previous six-month window, particularly for industrial equipment, complex machinery, and bespoke goods where defects often surface only after extended use.

3. Late delivery: missed deadlines and timing disputes

The supplier delivers after the contractual deadline. The buyer's exposure depends on whether the delivery date was a "condition" of the contract (the essence of the bargain) or an "innominate term" (where the consequences of breach depend on the seriousness of the delay).

UAE courts adopt a similar approach to the English innominate term doctrine in commercial sales. Where the goods are perishable, time-sensitive, or required for downstream contracts with their own deadlines, late delivery may constitute a fundamental breach justifying rejection. Where the delay is minor and does not deprive the buyer of the substantial benefit of the contract, the remedy is damages rather than termination.

Buyers should ensure their contracts state expressly that "time is of the essence" for delivery dates where punctual delivery is critical. Suppliers should resist this drafting where they cannot guarantee timing and should negotiate for grace periods, force majeure provisions, and capped liability for delay.

4. Payment disputes: refusal to pay, set-off, and price challenges

The buyer accepts the goods but disputes the invoice. Common scenarios include: the buyer claims the goods are defective and applies a set-off against the price; the buyer disputes the unit price and tenders partial payment; the buyer accepts the goods but delays payment for cash flow reasons.

Under the Commercial Transactions Law, where the buyer fails to pay on the agreed date, the seller may serve notice and resell the goods if they are still in the seller's possession or control. If the resale price is lower than the contract price, the seller may claim the difference from the buyer. Where the goods have a known market price, the seller may claim the difference between the contract price and the market price on the date payment was due.

For payment disputes where the goods have already been delivered and the seller has no possession of them, the recovery route is the payment order or full litigation. For details on the enforcement routes, see our article on recovering unpaid trade debts in the UAE.

5. Refusal to perform: cancelled purchase orders and abandoned contracts

The supplier refuses to ship after accepting the purchase order, or the buyer cancels the order before delivery. The party in breach is exposed to damages calculated on the basis of the difference between the contract price and the market price at the time of breach, plus any consequential losses (storage, alternative sourcing, lost downstream sales) that were foreseeable at the time of contracting.

The non-breaching party has a duty to mitigate. A buyer whose supplier refuses to ship cannot wait three months and then claim the full market price increase. The buyer must take reasonable steps to source the goods elsewhere within a reasonable time, and the damages are calculated against the cost of cover (the substitute purchase) rather than the eventual market price.

Where the contract is supported by a bank guarantee or letter of credit, the non-breaching party may have additional remedies. For details on calling on bank guarantees in commercial contracts, see our practical guide to bank guarantees in UAE commercial contracts.

The first 72 hours: what to do when a dispute arises

The actions taken in the first three days after an issue is identified determine the outcome of most procurement disputes. The legal framework is symmetrical for buyer and seller, but the practical playbook is the same.

Step one: document the issue immediately

Before any communication with the counterparty, the affected party must capture the evidence. For the buyer in a defective goods dispute: photographs of the goods on arrival, the delivery note signed and annotated with the discrepancy, the original purchase order and specifications, the supplier's invoice, the inspection report, and any test results. For the seller in a payment dispute: the proof of delivery, the signed delivery note, the invoice, the contract terms, and any communications confirming acceptance.

Evidence captured contemporaneously is significantly more credible than evidence reconstructed weeks later. UAE courts and arbitral tribunals give substantial weight to delivery notes, inspection reports, and dated photographs. They give very little weight to assertions made after the fact.

Step two: serve a written notice

A written notice protects the legal position. For the buyer rejecting goods, the notice must identify the specific defects, specify the rejection (full or partial), and demand a remedy (replacement, refund, or repair) within a stated period. For the seller demanding payment, the notice must specify the outstanding amount, the due date, and the consequences of continued non-payment.

The notice should be served through a notary public where possible, and in any event by a method that creates proof of delivery (registered post, courier with tracking, email with read receipt). Verbal complaints have no legal effect. WhatsApp messages are admissible as evidence but should be supplemented with formal written notice.

The notice also serves a commercial function. A counterparty that receives a formal legal notice often engages more seriously than one that receives an informal complaint. The shift from "we have a problem" to "we have served notice" changes the negotiating dynamic.

Step three: preserve the goods and the evidence trail

In a defective goods dispute, the buyer must not dispose of, sell, or use the goods (beyond what is necessary for inspection and testing). Disposing of the goods undermines the buyer's claim and may amount to acceptance under the Commercial Transactions Law.

Where the goods are perishable or storage is impractical, the buyer should apply to court or to a notary for permission to dispose of the goods, or notify the seller that the goods will be disposed of after a stated period. This preserves the buyer's position while addressing the practical problem.

For sellers in possession of goods that the buyer has refused to accept, the Commercial Transactions Law allows an application to court for permission to sell under judicial supervision. The seller cannot simply resell the goods in a private transaction without following this procedure, or the buyer may later challenge the resale price as below market value.

Step four: assess the strength of the legal position before escalating

Not every dispute is worth litigating. Before escalating to court or arbitration, the affected party should assess: the quality of the documentation, the limitation period, the counterparty's ability to pay any judgment, the cost of litigation versus the amount in dispute, and whether the contract provides for a specific dispute resolution mechanism (arbitration clause, jurisdiction clause, mediation requirement).

For disputes below AED 100,000, the cost of full litigation often approaches the disputed amount. Settlement is usually the better commercial outcome, even where the legal merits favour the affected party. For disputes above AED 500,000, the cost-benefit shifts and litigation becomes economically rational.

Legal framework comparison: old vs new Civil Transactions Law

Dispute resolution routes

Negotiation and amicable settlement

Most procurement disputes settle through direct negotiation between the parties, often with the involvement of legal advisers on both sides. A formal demand letter, followed by structured negotiation, resolves the majority of commercial disputes within 30 to 60 days. The cost is low, the relationship can be preserved, and the outcome is enforceable as a settlement agreement.

Settlement agreements should be documented in writing, signed by authorised representatives, and where possible registered through a notary public to give them additional enforceability. Verbal settlements unravel.

Mandatory mediation in Dubai

For disputes within the jurisdiction and value thresholds of Dubai's Centre for Amicable Settlement of Disputes (under Dubai Law No. 18 of 2021, as amended by Law No. 9 of 2025), mediation must be attempted before court proceedings can commence. Accredited mediators conduct sessions and facilitate settlement. Court-approved settlements are enforceable as judgments.

Matters outside the Centre's scope (high-value disputes, certain commercial categories) proceed directly to court without the mediation requirement.

Court litigation

Where settlement fails, the parties may file in the relevant civil or commercial court. For payment disputes supported by clear documentation, the payment order procedure under Federal Decree-Law No. 42 of 2022 produces an enforceable order within three business days. For contested defect, quality, or quantity disputes, full litigation is required, typically involving expert reports and multiple hearings.

Arbitration

Where the contract contains an arbitration clause, the dispute is referred to the named arbitral institution. The Dubai International Arbitration Centre (DIAC) and the Abu Dhabi-based ArbitrateAD (formerly the ADCCAC) are the principal UAE institutions. International suppliers and buyers often prefer ICC or LCIA arbitration with a UAE seat.

Arbitration is typically faster than court litigation for complex commercial disputes, allows the parties to select arbitrators with sector expertise, and produces awards that are enforceable internationally under the New York Convention. The cost is significantly higher than court litigation, and arbitration is generally not commercially rational for disputes below AED 1 million.

DIFC and ADGM courts

Where the contract contains a jurisdiction clause opting into the DIFC or ADGM courts, the common law procedural framework applies (English-language proceedings, structured disclosure, witness statements). DIFC and ADGM judgments are enforceable within their own jurisdictions and, through conversion procedures, in mainland Dubai.

Contract drafting: provisions that prevent disputes

Most procurement disputes are caused by ambiguous contracts. The disputes that escalate are usually the ones where the contract failed to address a specific scenario, leaving the parties to argue over what was implied. Strong contractual drafting eliminates the most common dispute triggers.

Specifications and tolerances. The contract should specify the goods with sufficient precision to allow objective conformity testing. Where the specification refers to a sample, the sample should be sealed, dated, and held by both parties or by a third party. Tolerances (acceptable deviations in dimensions, quantity, weight, purity) should be stated explicitly.

Inspection rights. The buyer should have a defined right to inspect the goods at the supplier's premises before shipment, on arrival, or both. The contract should state the consequences of failed inspection (rejection, rework, price reduction) and the time within which the buyer must complete inspection after delivery.

Delivery terms and INCOTERMS. The contract should adopt a standard INCOTERMS designation (FCA, CPT, CIP, DAP, DDP, etc.) and state expressly when risk passes from seller to buyer. INCOTERMS govern the allocation of risk during transit but do not address quality or quantity disputes after delivery.

Payment terms and security. Payment milestones should be tied to identifiable events (purchase order acceptance, shipment, delivery, acceptance). For high-value transactions, payment should be secured by a letter of credit, bank guarantee, or escrow arrangement. Post-dated cheques remain common in UAE practice but expose the parties to the risks covered in our article on cheque risk management.

Limitation of liability. The contract should cap the supplier's liability for defects, delays, and consequential losses. UAE courts will generally enforce reasonable limitation clauses between merchants, though they may strike down clauses that purport to exclude liability for gross negligence or wilful misconduct.

Dispute resolution mechanism. The contract should specify the governing law, the dispute resolution forum (court or arbitration), the arbitral institution and seat (if arbitration), the language of proceedings, and any pre-litigation requirements (negotiation, mediation, expert determination). A clear dispute resolution clause prevents preliminary arguments about forum and procedure that can take months to resolve.

Force majeure. The contract should define what events constitute force majeure, the procedure for invoking it, and the consequences (suspension, termination, allocation of costs). For broader analysis of force majeure in supply contracts, see our article on supply chain contract disputes.

Common mistakes that weaken procurement dispute positions

Signing the delivery note without inspection. The single most common error. A signed delivery note without annotation is treated as acceptance of the quantity and visible condition of the goods. Once accepted, the buyer's remedies for patent defects evaporate. The fix is to inspect at the point of delivery, annotate the delivery note with any discrepancies or visible damage, and refuse to sign a clean delivery note where the goods are not as ordered.

Continuing to use the disputed goods. A buyer who claims the goods are defective but continues to use them in production undermines the claim. Use is treated as acceptance under the Commercial Transactions Law. The fix is to segregate the disputed goods, document their condition, and escalate the dispute through formal channels before any further use.

Verbal complaints to the supplier's salesperson. Salespeople are not authorised to settle legal claims. A buyer who raises a defect issue verbally with the salesperson, accepts a verbal promise of replacement, and waits weeks for the replacement to arrive has not preserved any legal remedy. The fix is to follow up every verbal communication with written confirmation, and to escalate to the supplier's management or legal team if the issue is not resolved within a defined period.

Set-off without notice. A buyer who unilaterally deducts a disputed amount from the next invoice creates a counterclaim for the unpaid balance. The supplier sues for the deducted amount, and the buyer is forced to defend the set-off without having properly preserved the underlying claim. The fix is to notify the supplier in writing that a set-off is being applied, identify the specific invoice and the basis for the set-off, and document the calculation.

Waiting until the limitation period is approaching. Latent defect claims must be brought within one year of delivery (under the 2026 Civil Transactions Law). Commercial debt claims expire after five years. Buyers who discover defects six months after delivery and then spend another six months negotiating with the supplier may find themselves time-barred when they finally decide to sue. The fix is to file proceedings (or obtain a written acknowledgment that resets the limitation period) before the deadline approaches, regardless of how the negotiations are progressing.

Failing to consider the counterparty's solvency. A successful judgment against an insolvent supplier or buyer is worth nothing. Before escalating to litigation, the affected party should assess whether the counterparty has the assets to pay any judgment. Trade credit checks, references, and informal due diligence can prevent the waste of pursuing a hollow defendant.

How should UAE businesses approach procurement disputes in 2026

The 2026 legal framework strengthens buyer protections substantially. The new Civil Transactions Law extends the latent defect limitation period from six months to one year and gives buyers the option to retain goods and claim a price reduction rather than being forced into binary rejection or acceptance. Sellers face a more demanding compliance environment for product conformity, sample matching, and pre-contractual disclosure.

The businesses that manage procurement disputes well treat them as a recurring operational matter, not a sequence of one-off legal problems. They have standard contract terms that address the common dispute triggers. They have documented inspection and acceptance procedures. They preserve evidence routinely. They escalate disputes through formal written channels rather than informal phone calls. They engage legal advisers early, before positions harden, rather than after.

For UAE trading companies, manufacturers, and distributors managing supplier and buyer disputes, our commercial disputes team advises on contract drafting, dispute escalation, settlement negotiation, and litigation across all UAE jurisdictions.

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