July 11 2011
Obligations and liabilities under UAE law arise out of contracts, unilateral acts, acts causing harm (torts), acts conferring benefits and the law itself. Many individuals and corporations frequently use and rely on limitation of liability clauses in all types of contracts in the United Arab Emirates and other jurisdictions without any consideration of the actual validity or enforceability of such clauses.
Contractual liability in the United Arab Emirates may arise only where valid contracts (including oral contracts) exist between the liable party and the party that has sustained the damages. In addition, the liable party must have violated one or more of its obligations under the contract and as a result of this violation, there must be a harm caused to the other party.
Contractual liability can therefore be established only if the following principles are met and cannot exist in the absence of any of these principles:
The freedom of contract principle dictates that parties have the freedom to form contracts as they see fit, without government restriction, as they are the best judges of their own interest. The only stipulation is that any contract must not be illegal, immoral or violate the rules of public order. Based on this principle, contracting parties may agree to extend or limit their liabilities under any contract in several forms. This includes fixing the amount of compensation payable by the defaulting party in advance by making reference to the same either in the contract or in a subsequent agreement, before the damage is caused.
However, there are a few exemptions or limitations to the 'freedom of contract' rule on which many contracting parties attempt to rely, with a view to limiting their liabilities under all types of contract. These include the following:
Limitation of liability clauses will always remain subject to UAE law - the nature of some contracts makes them subject to specific regulations and they are therefore exempted from the general rules relating to the limitation of liability.
Although these clauses might be extremely important in certain contracts, the parties to a contract should seek proper advice on the validity or enforceability of these clauses in particular, and on the contracts in general, before using or relying on such clauses. In addition, the invalidity of such clauses could affect the validity of the entire contract if the clause violates the local laws or the rules of the public order and if the contract was entirely dependent on this clause.
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