How UAE Law Handles Supply Chain Contract Disputes

Global supply chains have never been more vulnerable to disruption. Port congestion, shipping route diversions, regulatory changes, and supplier insolvencies now threaten operations that once ran predictably. For businesses moving goods through the UAE's logistics infrastructure, understanding how contracts allocate these risks - and what happens when they fail - has become essential.

The UAE occpies a unique position in global trade. Situated at the crossroads of Asia, Europe, and Africa, the country serves as a critical logistics hub where goods are stored, processed, and redistributed across continents. This strategic position means that disruptions affecting any major trade corridor eventually impact UAE-based operations.

This guide examines how UAE law treats supply chain disruptions, what force majeure actually means under the Civil Code, and how businesses can structure contracts to survive the unexpected.

Why Supply Chain Disputes Are Increasing

The UAE handles approximately 14% of global re-export trade. Jebel Ali Port processes over 14 million TEUs annually. Dubai serves as a critical air cargo hub connecting Asia, Europe, and Africa. This centrality means disruptions anywhere in global logistics eventually affect businesses in the Emirates.

Dubai's logistics sector generated AED 52 billion in revenue during 2024, representing continued growth as the emirate solidifies its position connecting three continents. With this scale comes exposure - when global trade flows are disrupted, UAE-based businesses feel the impact immediately.

The legal framework governing these relationships has also evolved. The Commercial Transactions Law (Federal Decree-Law No. 50/2022) modernised commercial practice rules, while updates to arbitration and mediation frameworks have expanded dispute resolution options.

Key Risk Factors

Several factors have intensified supply chain risks:

• Shipping route disruptions - Vessels taking longer alternatives, adding weeks to transit times and significantly increasing freight costs
• Port congestion - Cascading delays at major terminals affecting downstream delivery schedules
• Sanctions regimes - Constant compliance monitoring required, particularly for goods transiting multiple jurisdictions
• Supplier failures - Defaults in one region cascading across connected supply chains

Typical Dispute Scenarios

These disruptions trigger contractual disputes across the supply chain:

• A manufacturer in Abu Dhabi cannot deliver finished goods because components from Asia arrive three weeks late
• A freight forwarder in Dubai faces claims from a client whose perishable cargo spoiled during extended transit
• A distributor defaults on payments because the goods they were reselling never arrived

Each scenario involves questions about who bears the loss, whether performance was truly impossible, and what remedies apply under UAE commercial law.

Force Majeure Under UAE Law

Force majeure is perhaps the most misunderstood concept in commercial contracts. Many businesses assume any significant disruption qualifies. UAE law takes a far narrower view.

The Legal Framework

Article 273 of the UAE Civil Code (Federal Law No. 5 of 1985) establishes the core principle:

• Where force majeure makes performance impossible, the corresponding obligation ceases
• The contract is automatically cancelled
• For partial or temporary impossibility, only the affected portion is extinguished
• The other party may cancel the entire contract after notifying the obligor

The critical word is "impossible" - not difficult, not expensive, not inconvenient. UAE courts interpret this requirement literally.

Three Requirements for Force Majeure

Courts have consistently held that force majeure events must meet three criteria:

1. Impossibility - Performance must be genuinely impossible, not merely more onerous or less profitable
2. Unforeseeability - The event must not have been foreseeable at the time the contract was formed
3. Unavoidability - The event must be unavoidable despite reasonable efforts

A shipping delay caused by known seasonal weather patterns would not qualify. Neither would a price increase that could have been hedged against or a supplier failure that could have been prevented through diversification.

How Courts Assess Force Majeure Claims

UAE courts evaluate force majeure claims case-by-case, examining specific circumstances rather than applying categorical rules.

Abu Dhabi Court of Cassation example: A contractor claimed force majeure based on lockdowns and trade suspensions, arguing that sourcing building materials from overseas had become impossible. The court rejected this argument because the contractor had continued performing portions of the work during the alleged impossibility period. If performance was truly impossible, no work could have been completed.

Dubai Court of Cassation approach: The court has clarified that force majeure must render performance impossible, not merely burdensome. Events making contracts less profitable or more expensive do not qualify. The court examines whether the event was genuinely outside the party's control and whether reasonable alternatives existed.

Investment dispute example: In another Court of Cassation decision, a party sought to dissolve a contract and recover payments based on force majeure affecting their investment. The court confirmed that where force majeure makes an obligation impossible, the corresponding obligation is extinguished and the contract rescinded - but emphasised that the party must prove actual impossibility, not mere inconvenience.

The burden of proof lies entirely with the party claiming force majeure. They must demonstrate:

• The event was genuinely unforeseeable
• It was beyond their control
• It rendered performance impossible (not just difficult)
• They took reasonable steps to mitigate its effects

Exceptional Circumstances: An Alternative

Where force majeure does not apply because performance remains possible (though difficult), Article 249 of the Civil Code may provide relief.

This provision allows courts to reduce an obligation to a reasonable level where:

• Exceptional events of a general nature occur
• The events could not have been foreseen
• Performance becomes onerous to the point of threatening "grave loss"

Unlike force majeure, this doctrine does not cancel the contract - it adjusts its terms. Courts have historically been reluctant to apply Article 249, though it has found greater use during major economic crises.

Important: Any contractual attempt to exclude Article 249 is void under UAE law.

Force Majeure vs Exceptional Circumstances

• Where force majeure makes performance impossible, the corresponding obligation ceases
• The contract is automatically cancelled
• For partial or temporary impossibility, only the affected portion is extinguished
• The other party may cancel the entire contract after notifying the obligor

The critical word is "impossible" - not difficult, not expensive, not inconvenient. UAE courts interpret this requirement literally.

Three Requirements for Force Majeure

Courts have consistently held that force majeure events must meet three criteria:

1. Impossibility - Performance must be genuinely impossible, not merely more onerous or less profitable
2. Unforeseeability - The event must not have been foreseeable at the time the contract was formed
3. Unavoidability - The event must be unavoidable despite reasonable efforts

A shipping delay caused by known seasonal weather patterns would not qualify. Neither would a price increase that could have been hedged against or a supplier failure that could have been prevented through diversification.

How Courts Assess Force Majeure Claims

UAE courts evaluate force majeure claims case-by-case, examining specific circumstances rather than applying categorical rules.

Abu Dhabi Court of Cassation example. A contractor claimed force majeure based on lockdowns and trade suspensions, arguing that sourcing building materials from overseas had become impossible. The court rejected this argument because the contractor had continued performing portions of the work during the alleged impossibility period. If performance was truly impossible, no work could have been completed.

Dubai Court of Cassation approach. The court has clarified that force majeure must render performance impossible, not merely burdensome. Events making contracts less profitable or more expensive do not qualify. The court examines whether the event was genuinely outside the party's control and whether reasonable alternatives existed.

Investment dispute example. In another Court of Cassation decision, a party sought to dissolve a contract and recover payments based on force majeure affecting their investment. The court confirmed that where force majeure makes an obligation impossible, the corresponding obligation is extinguished and the contract rescinded - but emphasised that the party must prove actual impossibility, not mere inconvenience.

The burden of proof lies entirely with the party claiming force majeure. They must demonstrate:

• The event was genuinely unforeseeable
• It was beyond their control
• It rendered performance impossible (not just difficult)
• They took reasonable steps to mitigate its effects

Exceptional Circumstances: An Alternative

Where force majeure does not apply because performance remains possible (though difficult), Article 249 of the Civil Code may provide relief.

This provision allows courts to reduce an obligation to a reasonable level where:

• Exceptional events of a general nature occur
• The events could not have been foreseen
• Performance becomes onerous to the point of threatening "grave loss"

Unlike force majeure, this doctrine does not cancel the contract - it adjusts its terms. Courts have historically been reluctant to apply Article 249, though it has found greater use during major economic crises.

Important: Any contractual attempt to exclude Article 249 is void under UAE law.

Force Majeure vs Exceptional Circumstances

Common Triggers for Supply Chain Disputes

Understanding what typically goes wrong helps businesses anticipate and address risks before they materialise into disputes.

Shipping Delays and Route Disruptions

Extended transit times create problems throughout supply chains:

• Goods arrive after contractual delivery windows close
• Perishables degrade during extended transit
• Manufacturers miss production deadlines because components arrive late
• Distributors lose sales because inventory does not reach shelves in time
• Letters of credit expire before documents can be presented
• Insurance coverage lapses during extended voyages

Contract language matters: A contract specifying delivery "within 30 days" creates different obligations than one promising delivery "approximately 30 days" or "as soon as reasonably practicable." Courts examine precise language to determine whether late delivery constitutes breach.

Causation questions: If a shipment was already running late before a major disruption occurred, the claimant cannot attribute the entire delay to that event. Tribunals require detailed shipping records and timelines to allocate responsibility. Vessel tracking data, port records, and contemporaneous communications become critical evidence.

Time of the essence: Some contracts treat time as "of the essence," meaning any delay - however brief - constitutes a material breach entitling termination. Others specify grace periods, require notice before termination, or limit remedies to liquidated damages. Where contracts are silent, UAE Civil Code default rules apply.

Route deviation: When vessels take longer routes to avoid disrupted areas, freight costs increase and transit times extend. Contracts should specify who bears incremental costs when circumstances require deviation from planned routing. Standard shipping terms often give carriers discretion to deviate, but commercial contracts between buyers and sellers may allocate this risk differently.

Practical tip: Build buffer time into contractual delivery windows where possible. A contract promising delivery "within 45 days" provides more protection against disruption claims than one promising delivery "within 30 days" for the same voyage that typically takes 25 days.

Port Congestion and Customs Holds

Goods can become trapped in ports for extended periods. Costs accumulate quickly:

• Demurrage charges
• Storage fees
• Opportunity cost of capital tied up in inventory
• Deterioration of time-sensitive goods
• Insurance premium implications for extended storage

Disputes centre on who bears these costs and whether delay justifies contract termination. A buyer expecting goods in January may refuse delivery in April, arguing the contract has been frustrated. The seller may counter that delay does not excuse payment obligations.

Demurrage and detention: These charges can escalate rapidly. Demurrage applies to delays at port or terminal; detention applies to equipment held beyond free time. Contracts should specify who bears these costs in various scenarios, including delays caused by third parties or regulatory holds.

Customs holds present particular challenges. Goods may be detained for:

• Random or targeted inspection
• Documentation review or discrepancies
• Suspected regulatory violations
• Origin verification
• Valuation disputes

Even when eventually released, the delay can breach delivery obligations. Contracts should address responsibility for customs compliance and allocate risk for holds resulting from documentation errors versus regulatory actions beyond either party's control.

Our regulatory compliance team regularly assists with customs disputes and administrative challenges affecting supply chain operations.

Sanctions and Trade Restrictions

International sanctions regimes create compliance obligations that can make contract performance illegal or commercially impractical.

A UAE company may find that:

• Goods it contracted to transport are suddenly subject to restrictions
• Payment cannot be processed because a party appears on a sanctions list
• Transit routes pass through restricted jurisdictions
• End-use certificates are required that were not anticipated
• Dual-use goods require export licences that may not be granted

Sanctions compliance is not optional - attempting to circumvent restrictions creates serious legal exposure under UAE law and potentially under the laws of other jurisdictions whose sanctions have extraterritorial effect.

Contract considerations: Sanctions clauses should address:

• Which sanctions regimes apply (UAE, UN, EU, US, others)
• Screening obligations and timing
• Consequences of a party being designated
• Allocation of risk for goods subject to new restrictions
• Termination rights if performance becomes illegal

However, sanctions do not automatically constitute force majeure. Courts examine whether restrictions were foreseeable and whether alternative performance routes existed. A party that fails to conduct adequate sanctions screening before entering a contract may not be able to claim force majeure when compliance issues arise.

Supplier and Subcontractor Failures

When a supplier fails to deliver, downstream effects cascade through the supply chain.

General rule: A party's obligation to perform is not excused merely because their supplier defaulted. The obligation runs to the counterparty, and sourcing difficulties are considered internal business problems. This principle applies even when the supplier failure was entirely unforeseeable.

Practical implications:

• Businesses cannot simply pass supplier force majeure claims to their customers
• Alternative sourcing obligations may be implied even if not expressly stated
• Failure to maintain backup suppliers may be considered a failure to mitigate
• The defaulting party remains liable for damages even if the root cause was supplier failure

However, sophisticated supply agreements often include provisions addressing supplier failures, such as:

• Extended cure periods when supplier failures occur
• Obligations to maintain alternative suppliers or safety stock
• Pass-through of supplier force majeure claims under defined conditions
• Price adjustment mechanisms when alternative sourcing is more expensive
• Information sharing requirements about supply chain risks

Back-to-back contracts: Where a business enters contracts with both suppliers and customers, careful drafting ensures that obligations align. A buyer who promises "delivery within 30 days" to a customer but whose supplier contract allows "delivery within 45 days" has created a gap that cannot be blamed on the supplier if delays occur.

Risk Allocation Clauses That Matter

Well-drafted contracts address supply chain risks before they materialise. Several clause types deserve particular attention.

Force Majeure Provisions

While UAE law provides a default framework, parties are free to define their own terms. Effective force majeure clauses should address:

Definition of qualifying events:

• Specific events (natural disasters, war, government action) provide certainty but may miss novel situations
• General catch-all language captures unforeseen events but creates interpretation disputes
• Best practice: combine both approaches

Notice requirements:

• How quickly must the affected party notify the other?
• What information must be provided?
• What happens if notice is late or incomplete?

Consequences:

• Suspension of obligations (with or without time limits)
• Price adjustment mechanisms
• Termination rights and triggers
• Allocation of costs during suspension

Mitigation obligations: Require the affected party to take reasonable steps to overcome or work around the impediment. This aligns with the duty of good faith under UAE law.

Limitation of Liability

Limitation clauses cap recoverable damages. UAE courts generally enforce them, but with exceptions:

• Limitations cannot exclude liability for gross negligence or willful misconduct
• They must be clearly drafted and brought to the other party's attention
• Courts may refuse to enforce unconscionable limitations

Common approaches:

• Caps as a multiple of contract value or fixed amount
• Exclusions of consequential or indirect damages
• Time limits on bringing claims
• Sub-limits for specific loss types (cargo damage vs delay vs documentation errors)

Direct vs consequential damages: Direct damages typically include replacement costs or price differences. Consequential damages include lost profits, business interruption, and third-party claims. Many contracts exclude consequential damages entirely.

Indemnification Provisions

Indemnities shift risk by requiring one party to compensate the other for specified losses, often including third-party claims. In logistics contracts, indemnities commonly address:

• Cargo damage - Loss or damage during handling, storage, or transit
• Customs penalties - Fines arising from documentation errors or compliance failures
• Intellectual property violations - Claims arising from counterfeit or infringing goods
• Personal injury - Claims from workers or third parties at facilities

Effective indemnification clauses specify:

• Scope of covered losses (direct damages, consequential damages, defence costs)
• Procedures for making claims and controlling defence of third-party actions
• Limitations on indemnification obligations (caps, exclusions, time limits)
• Relationship between indemnification and insurance coverage

Parties should coordinate indemnity obligations with insurance programmes to ensure gaps are covered and double recovery is prevented.

Insurance Requirements

Insurance serves as the ultimate risk transfer mechanism. Key types for logistics operations:

• Cargo insurance - Loss or damage during transit
• Liability insurance - Third-party claims
• Professional indemnity - Service provider errors
• Business interruption - Income loss during disruptions

Contract provisions should specify minimum coverage amounts, approved insurers, additional insured requirements, and evidence to be provided.

INCOTERMS Selection

INCOTERMS 2020, published by the International Chamber of Commerce, define how costs and risks transfer between buyers and sellers. Selecting the appropriate INCOTERM is one of the most consequential decisions in structuring a supply chain transaction.

Each INCOTERM specifies:

• When risk transfers from seller to buyer
• Who arranges and pays for transportation
• Who handles export and import formalities
• Who bears responsibility for insurance

Common selection mistakes:

• Using FOB for non-maritime shipments - FOB applies only to sea and inland waterway transport; use FCA for multimodal shipments
• Mismatched insurance expectations - CIF requires only minimum coverage; buyers expecting comprehensive protection may be disappointed
• Confusion about DDP obligations - Sellers often underestimate the complexity of import clearance in unfamiliar jurisdictions
• Not specifying the named place precisely - Vague delivery points create disputes about when obligations are satisfied

Changes in INCOTERMS 2020: The current version replaced DAT (Delivered at Terminal) with DPU (Delivered at Place Unloaded), expanding delivery options beyond traditional terminals. Insurance requirements for CIP now require higher coverage levels than CIF, reflecting different risk profiles for these terms.

INCOTERMS 2020: Risk Transfer Points

Important: INCOTERMS do not address force majeure, payment terms, or dispute resolution - these must be covered separately.

Where Contracts Typically Fail

Even carefully drafted contracts often contain gaps that become apparent only when disputes arise.

Vague Force Majeure Definitions

Clauses stating force majeure includes "any event beyond the reasonable control of the parties" invite litigation. What constitutes "reasonable control"? Does a foreseeable event qualify if its timing was uncertain?

Better practice: Specify categories of events and include objective criteria for determining whether a specific situation qualifies.

Example of problematic language: "Force majeure includes but is not limited to acts of God, war, terrorism, strikes, government action, or any other cause beyond the parties' control."

Improved approach: Define each category specifically, address what notice must be given, specify the consequences (suspension vs termination), and include obligations to mitigate and resume performance when possible.

Missing Escalation Procedures

Contracts often specify dispute resolution through arbitration or litigation but provide no mechanism for addressing problems before they become formal disputes.

Effective escalation procedures establish tiers:

1. Operational personnel first
2. Management involvement
3. Mediation or expert determination
4. Formal dispute resolution

Time limits at each stage prevent indefinite delay while allowing genuine resolution attempts.

Inadequate Termination Rights

Key questions termination provisions should address:

• Can either party terminate for convenience (without cause)?
• What events trigger termination for cause?
• What notice is required?
• What happens to partially performed obligations?
• How are costs and liabilities allocated post-termination?
• Is termination the exclusive remedy, or can the terminating party also claim damages?

Conflicting Choice of Law

Supply chain contracts often involve parties in multiple jurisdictions. Poorly drafted clauses can result in parallel proceedings or uncertainty about applicable rules.

Best practice:

• Select a single governing law appropriate for the transaction
• Specify a clear dispute resolution mechanism with defined seat or venue
• Ensure the chosen forum has jurisdiction over all parties

Practical Steps for Businesses

Proactive contract management reduces dispute risk and improves outcomes when disputes arise.

Contract Review Priorities

Businesses should regularly review supply chain contracts with attention to:

• Force majeure and hardship provisions for clarity and completeness
• Termination rights and procedures
• Liability limitations and indemnities
• Insurance requirements (current and adequate?)
• Dispute resolution clauses (enforceable and practical?)

Practical review process:

1. Identify all contracts affected by supply chain disruptions - not just logistics agreements, but sales contracts, purchase orders, and distribution agreements
2. Create a matrix mapping risk allocation across related contracts to identify gaps
3. Prioritise review based on contract value, strategic importance, and risk exposure
4. Engage stakeholders beyond legal - operations, procurement, and finance understand practical implications

Documentation Requirements

In disputes, contemporaneous documentation often proves decisive.

For force majeure claims, document:

• The external event itself (official announcements, news reports, government communications)
• Specific impact on operations - how did the event affect your ability to perform?
• Causal connection between event and inability to perform
• All steps taken to overcome or mitigate the impediment
• Communications with counterparties about the situation
• Timeline showing when the event began, when performance became impossible, and when normal operations resumed

Without thorough documentation, force majeure defences often fail regardless of the actual circumstances.

For delay claims, maintain:

• Detailed timeline records - departure, contracted delivery, actual delivery
• Contemporaneous shipping logs and GPS tracking
• Communications with carriers documenting each delay cause
• Port records showing arrival, berthing, and discharge times
• Customs documentation showing submission and clearance dates
• Evidence of attempts to expedite or find alternatives

For damage calculations:

• Invoices, purchase orders, payment records
• Cost analyses in presentable formats
• Supporting documentation for expert evidence on quantum
• Market price evidence for goods that could not be delivered or had to be sold at distressed prices
• Records of additional costs incurred (storage, alternative shipping, expedited replacement orders)
• Evidence of lost profits including historical sales data and customer communications

Document retention: Implement policies ensuring relevant records are preserved for the applicable limitation period plus a reasonable buffer. Digital records should be backed up and accessible. Physical documents should be stored securely. Parties who cannot produce relevant documentation often find themselves at a significant disadvantage regardless of the underlying merits of their position.

Early Legal Involvement

Legal counsel should be involved before disputes crystallise. Early involvement allows:

• Assessment of contract terms before positions harden
• Preservation of evidence that might otherwise be lost
• Strategic communication that protects legal positions
• Exploration of settlement options while relationships remain intact

Waiting until formal proceedings seem inevitable often forecloses options that earlier involvement might have preserved.

Dispute Resolution Options

When supply chain disputes cannot be resolved commercially, several formal resolution mechanisms are available in the UAE.

UAE Courts

The UAE court system comprises federal courts and local courts in each emirate. Dubai, Abu Dhabi, and other emirates maintain their own hierarchies, with the Federal Supreme Court as the highest appellate authority.

Key characteristics:

• Proceedings conducted in Arabic (translations required for other languages)
• Document-focused rather than extensive oral testimony
• Civil law system influenced by Egyptian and French traditions
• Expert witnesses play significant roles in complex commercial matters

Procedural requirements: UAE courts enforce procedural rules strictly. Claims must be filed within applicable limitation periods. Service of process, submission deadlines, and appeal filing requirements must be meticulously observed. Missing a procedural deadline can be fatal to a claim regardless of its merits.

Evidence rules: Documentary evidence carries significant weight. Witness testimony is taken but generally considered less reliable than contemporaneous documents. For commercial disputes, contracts, correspondence, and business records form the evidentiary foundation. Parties should maintain organised documentation from the outset of any commercial relationship.

Expert determination: Courts regularly appoint experts to assess technical issues, calculate damages, or provide opinions on industry practice. Parties can challenge expert appointments and submit their own expert evidence, but court-appointed experts often prove influential in outcomes.

Timeline: Commercial disputes may take two to three years through Court of First Instance, Court of Appeal, and Court of Cassation.

Limitation periods: Generally five years for commercial matters under the Commercial Transactions Law, though contracts may provide shorter periods.

Enforcement: Judgment enforcement within the UAE is generally straightforward through the execution court. Enforcement abroad depends on applicable treaties and reciprocity arrangements with the relevant jurisdiction.

DIAC Arbitration

The Dubai International Arbitration Centre (DIAC) is the region's largest alternative dispute resolution institution. Following significant reforms in 2021-2022, DIAC operates with modernised rules aligned with international best practices.

Why businesses choose DIAC:

• Flexible procedures tailored to the dispute
• Arbitrators selected with relevant industry expertise
• Proceedings in parties' chosen language
• Default seat in the Dubai International Financial Centre (DIFC)
• Confidentiality protections stronger than court proceedings
• Awards enforceable in 160+ countries under the New York Convention

2022 DIAC Rules innovations:

• Emergency arbitrator - Urgent interim relief available before tribunal constitution, with appointment within one day of application
• Expedited procedures - Streamlined process for smaller disputes with reduced timelines and costs
• Consolidation - Multiple related disputes can be heard together, reducing duplication
• Joinder - Additional parties can be added to existing proceedings
• Electronic filing - Digital submission of documents and electronic signatures on awards
• Virtual hearings - Greater flexibility for remote participation by parties, counsel, and witnesses

Cost considerations: DIAC fees are calculated based on the amount in dispute. The Centre publishes a fee calculator allowing parties to estimate costs. Arbitrator fees are additional and depend on tribunal composition and case complexity. While arbitration can be expensive, it is often faster than court proceedings and allows greater control over the process.

Awards are enforceable under the UAE Arbitration Law (Federal Law No. 6 of 2018) and internationally under the New York Convention.

Other Arbitration Options

Parties are not limited to UAE-based arbitration institutions. International arbitrations seated in the UAE can be administered by:

• ICC (International Chamber of Commerce) - Global recognition, extensive procedural framework, higher administrative fees
• LCIA (London Court of International Arbitration) - Streamlined procedures, strong reputation, expedited formation options
• SCCA (Saudi Center for Commercial Arbitration) - Regional expertise, growing caseload, useful for Saudi-connected disputes
• Ad hoc arbitration - No institutional administration, maximum flexibility, requires experienced parties and counsel

The choice depends on the parties' preferences, the nature of the dispute, enforcement considerations, and cost sensitivity. For disputes involving UAE parties or assets, DIAC often offers advantages in terms of local expertise and enforcement efficiency. For disputes with significant international elements, ICC or LCIA may provide greater familiarity for counterparties from other regions.

The UAE Arbitration Law (Federal Law No. 6 of 2018) provides the framework for arbitrations seated in the UAE outside the DIFC and ADGM. This law broadly aligns with the UNCITRAL Model Law, providing internationally recognised procedural standards that support enforcement globally.

Dispute Resolution Comparison

DIFC Courts

The Dubai International Financial Centre operates its own common law courts with jurisdiction over matters connected to the DIFC or where parties have agreed to DIFC jurisdiction.

Advantages:

• Proceedings conducted in English
• Common law procedures familiar to international businesses
• Sophisticated commercial jurisprudence
• Reciprocal enforcement arrangements with numerous jurisdictions

Mediation

Mediation offers a non-binding process where a neutral facilitator helps parties reach negotiated resolution. Unlike arbitration or litigation, the mediator does not impose a decision.

Federal Law No. 6 of 2021 on Mediation establishes the framework for commercial mediation in the UAE.

Mediation works best when:

• Parties have ongoing commercial relationships worth preserving
• Business solutions may be more valuable than legal remedies
• Confidentiality is important
• Parties want faster, less costly resolution
• The dispute involves relationship issues that legal processes cannot address
• Both parties have genuine interest in settlement

The process:

1. Each party submits a position statement to the mediator
2. Joint sessions allow direct communication between decision-makers
3. Private sessions (caucuses) explore settlement options confidentially
4. Mediator helps identify common interests and develop solutions
5. If successful, parties sign a settlement agreement

Enforcement: Settlement agreements can be enforced through UAE courts or recorded as arbitration consent awards benefiting from New York Convention enforcement. This gives mediated settlements similar enforceability to arbitration awards while preserving the collaborative nature of the resolution.

Med-arb provisions - attempting mediation before arbitration - are increasingly common in commercial contracts. These clauses create structured resolution opportunities while preserving access to binding determination if settlement proves impossible. Well-drafted med-arb clauses specify timeframes for the mediation phase and procedures for transitioning to arbitration.

Cost advantage: A successful mediation typically costs a fraction of arbitration or litigation. Even unsuccessful mediations often narrow the issues, clarify positions, and facilitate later settlement. Many disputes that seem intractable before mediation resolve once decision-makers communicate directly with a skilled facilitator.

Key Takeaways

Managing supply chain contract disputes in the UAE requires understanding both the legal framework and practical commercial realities:

On force majeure:

• UAE law requires genuine impossibility, not mere difficulty or increased cost
• Events must be unforeseeable at contract formation and unavoidable despite reasonable efforts
• The burden of proof lies entirely on the party claiming force majeure
• Courts interpret these requirements strictly - prepare for rigorous scrutiny

On contract drafting:

• Specific force majeure definitions reduce interpretation disputes
• Notice requirements must be clearly stated and followed precisely
• INCOTERMS selection has significant consequences - choose deliberately
• Escalation procedures prevent minor issues from becoming formal disputes
• Limitation clauses are generally enforceable but cannot exclude gross negligence

On dispute resolution:

• Early legal involvement preserves options that delay forecloses
• Documentation is critical - maintain organised records from the outset
• DIAC arbitration offers flexibility, expertise, and international enforceability
• Mediation can preserve commercial relationships while resolving disputes
• UAE court proceedings require Arabic and take 2-3 years through all levels

How Kayrouz & Associates Can Help

Our Maritime & Logistics team advises clients across the supply chain on contract structuring, risk management, and dispute resolution. With over 20 years of experience in UAE commercial law, we bring practical understanding of how supply chain relationships work and what happens when they break down.

Contract services:

• Drafting and negotiating logistics contracts, freight forwarding agreements, and supply chain documentation
• Risk assessments identifying gaps in force majeure provisions, liability allocation, and dispute resolution mechanisms
• Developing robust standard terms suited to UAE and regional operations
• Reviewing and updating existing agreements to address current supply chain risks
• INCOTERMS selection and implementation guidance

Dispute resolution:

• Representing clients in DIAC proceedings, UAE court litigation, and international arbitrations
• Construction delays affecting supply chains
• Customs disputes and regulatory matters through our regulatory compliance practice
• Cargo damage and loss claims
• Cross-border enforcement of judgments and awards
• Mediation and settlement negotiations

Industry sectors: We serve freight forwarders, shipping lines, warehouse operators, manufacturers, distributors, and trading companies. Our corporate and commercial lawyers work with in-house legal teams to build legal frameworks that support efficient operations while managing risk.

Contact us to discuss how we can support your supply chain operations.