Navigating Fraud and Misrepresentation Claims in UAE Commercial Contracts: a 2025 Legal Guide

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The Unseen Risks in Commercial Dealings

In the dynamic and rapidly evolving commercial landscape of the United Arab Emirates, business transactions are often complex, high-value, and built on a foundation of trust and good faith. However, where large sums and intricate agreements are involved, the risk of deceit, non-disclosure, or outright fraud remains a persistent threat. For businesses operating in Dubai, Abu Dhabi, and across the Emirates, understanding the precise legal mechanisms for addressing fraud and misrepresentation claims in commercial contracts is not merely a matter of legal compliance—it is a critical component of risk management and dispute resolution strategy.

This comprehensive guide, updated for the 2025 legal environment, delves into the distinct legal framework governing these claims in the UAE. We will explore the stringent requirements for proving misrepresentation under the Civil Code, the high threshold for contract rescission, and the serious implications of the UAE’s robust anti-commercial fraud legislation.

Related Services: Explore our Commercial Lawyer Ras Al Khaimah and Construction Contracts Abu Dhabi services for practical legal support in this area.

The Foundational Legal Framework: UAE Civil Code

The primary source of law governing contractual relations and civil claims in the UAE is the Federal Law No. 5 of 1985 concerning the Civil Transactions Law (the Civil Code). Unlike common law jurisdictions, which often distinguish between fraudulent, negligent, and innocent misrepresentation, the UAE Civil Code adopts a specific and narrow definition, focusing almost exclusively on intentional deceit.

Misrepresentation (Deceit) under Articles 185-192

The concept of misrepresentation in the UAE is encapsulated by the term Tadlis (deceit). Articles 185 through 192 of the Civil Code set out the conditions, effects, and remedies related to deceit in contract formation.

Article 185: Deception by Word or Act

Article 185 establishes the core principle of actionable misrepresentation:

“Misrepresentation is when one of the two contracting parties deceives the other by fraudulent means by word or act which leads the other to consent to what he would not otherwise have consented to.”

This definition makes it clear that a claim of misrepresentation requires two essential elements: 1. Fraudulent Means: There must be a deliberate, intentional act or statement designed to mislead. This is a high bar, requiring proof of intent to deceive. 2. Causation: The fraudulent means must have been the direct cause that led the deceived party to enter into the contract. In other words, the contract would not have been concluded but for the misrepresentation.

Article 186: Deliberate Silence (Concealment)

The law also addresses misrepresentation through omission, specifically deliberate silence:

“Deliberate silence concerning a fact or set of circumstances shall be deemed to be a misrepresentation if it is proved that the person misled thereby would not have made the contract had he been aware of that fact or set of circumstances.”

This provision is vital in commercial contracts, where one party may possess material information that, if disclosed, would fundamentally alter the other party’s decision. The silence must be deliberate and concern a material fact that was essential to the other party’s consent.

The Critical Distinction: Intent is Key

A crucial point for any business involved in a contractual dispute in the UAE is that the law does not recognize negligent misrepresentation. If a party makes a false statement without the intention to deceive, or if the deception was merely careless, it will generally not be sufficient to establish a claim for misrepresentation under the Civil Code. This places a significant burden of proof on the claimant to demonstrate the fraudulent intent of the misrepresenting party.

The High Threshold for Contract Rescission: Misrepresentation and Gross Unfairness

The remedy most commonly sought in cases of misrepresentation is the rescission or cancellation of the contract. However, the UAE Civil Code sets a uniquely high threshold for this remedy, requiring the presence of a second, cumulative element: Gross Unfairness (Lésion).

Article 187: The Cumulative Requirement

Article 187 of the Civil Code states:

“If one of the contracting parties makes a misrepresentation to the other and it transpires that the contract was concluded with gross unfairness (lésion), the person so misled may cancel the contract.”

This article is interpreted by the UAE Courts of Cassation to mean that both misrepresentation and gross unfairness must exist cumulatively and conjunctively to justify the termination of the agreement.

Defining Gross Unfairness (Lésion)

Lésion refers to a significant and exorbitant imbalance between the value of the subject matter of the contract and the price paid for it. It is not enough that the deceived party simply paid a little more than the market rate; the unfairness must be gross. This requirement significantly limits the circumstances in which a contract can be cancelled solely on the grounds of misrepresentation.

Remedies: Rescission vs. Damages

It is essential to understand the distinction between the available remedies:

Remedy	Basis under UAE Law	Conditions for Granting
Rescission (Cancellation)	Civil Code, Article 187	Proof of intentional misrepresentation AND Gross Unfairness (Lésion).
Damages (Compensation)	General principles of tortious liability (Civil Code, Article 292)	Misrepresentation alone is not grounds for compensation, as it is not considered a breach of contract. Damages must be sought through a separate claim for tortious liability, requiring proof of fault, damage, and a causal link.

This legal structure means that a party who has been misled but cannot prove Lésion may not be able to cancel the contract. Instead, they would have to pursue a more complex claim for damages based on the general principles of tortious liability, which is a separate cause of action from the contractual claim.

If your business is facing a complex commercial dispute involving misrepresentation, securing expert legal counsel is paramount. Our team at Nour Attorneys & Legal Consultants specializes in navigating the intricacies of the UAE Civil Code to protect your contractual rights. Nour Attorneys Commercial Litigation Services

The Importance of Timely Action

The right to cancel a contract due to misrepresentation is not indefinite. Article 192 of the Civil Code provides that the right to cancel will lapse if the victim, after becoming aware of the misrepresentation, takes any action that implies consent or continued performance of the contract. This includes dealing with the subject matter of the contract, consuming it, or failing to act within a reasonable timeframe.

Businesses must act swiftly and decisively upon discovering evidence of deceit. Delay can be interpreted as ratification of the contract, extinguishing the right to seek rescission.

The Role of the Commercial Transactions Law (Federal Decree-Law No. 50/2022)

While the Civil Code provides the general framework, commercial contracts are also governed by the Federal Decree-Law No. 50 of 2022 concerning the Commercial Transactions Law (CTL). The CTL emphasizes the principle of good faith in commercial dealings, which can indirectly support a claim of misrepresentation or fraud.

Article 1 of the CTL stipulates that commercial transactions are governed by the provisions of the CTL, the Civil Code, and the customs of trade. The CTL's focus on commercial customs and the high standard of conduct expected between merchants means that a failure to disclose material information, even if not meeting the high bar of Tadlis under the Civil Code, may be viewed more critically in a commercial context.

However, it is important to note that the CTL does not override the specific requirements of the Civil Code for Tadlis and Lésion to achieve contract rescission. Instead, it provides a broader context of expected commercial conduct, which can be used to strengthen the argument that an act of deceit was intentional and contrary to the principles of good faith.

Beyond Civil Claims: Commercial Fraud and Criminal Liability

While the Civil Code addresses misrepresentation as a defect in consent, a more serious and distinct category of wrongdoing—fraud—is addressed under the UAE Penal Code and specialized commercial legislation. Fraud, in this context, involves a higher degree of criminal intent and can result in both civil and criminal penalties.

The New Landscape: Federal Decree-Law No. 42 of 2023 on Combating Commercial Fraud

The UAE has significantly bolstered its legal framework against commercial misconduct with the introduction of Federal Decree-Law No. 42 of 2023 on Combating Commercial Fraud. While this law primarily targets activities such as counterfeiting, adulteration, and the trade of corrupt products, its broader implications for commercial contracts are profound.

The law aims to create an integrated legislative environment that protects consumers and the commercial reputation of the UAE. For commercial entities, engaging in any activity defined as commercial fraud can lead to severe penalties, including fines and imprisonment, in addition to the civil remedies available to the victim.

Concurrent Civil and Criminal Proceedings

A unique feature of the UAE legal system is the ability for victims of fraud to pursue both civil and criminal claims concurrently.

• Criminal Case: Focuses on proving the criminal elements of fraud (e.g., fraudulent acquisition of assets, forgery, or deceit under the Penal Code). A successful criminal conviction can provide strong evidence for a subsequent or parallel civil claim.
• Civil Case: Focuses on the financial recovery, seeking damages, or the rescission of the contract.

In many cases, the criminal court can issue a temporary award of damages to the victim pending the resolution of the civil claim, providing a faster route to partial financial redress.

The intersection of civil and criminal law in fraud cases requires a nuanced and aggressive legal strategy. Our criminal defense and commercial litigation experts at Nour Attorneys are adept at managing these dual-track proceedings to maximize recovery and secure justice for our clients. Nour Attorneys Criminal Defense Services

Strategic Litigation and Seeking Redress in the UAE Courts

Successfully pursuing a claim for fraud or misrepresentation in a commercial contract requires meticulous preparation and a deep understanding of the procedural and substantive law.

The Burden of Proof: Proving Intentional Deceit

Given the high legal threshold, the success of a misrepresentation claim hinges on the quality and nature of the evidence presented to prove intentional deceit. This is rarely straightforward and requires a forensic approach to evidence gathering.

Key Evidence Types to Establish Intent:

Evidence Type	Purpose in Litigation
Internal Communications	Emails, memos, or meeting minutes showing the misrepresenting party knew the statement was false or deliberately withheld information.
Expert Reports	Valuation reports to establish the Gross Unfairness (Lésion) element, or technical reports to prove the defect in the subject matter was known.
Witness Testimony	Statements from former employees or third parties who can attest to the misrepresenting party's knowledge or intent to deceive.
Contemporaneous Documents	Drafts of contracts, financial projections, or marketing materials that contradict the final representations made to the claimant.

A claimant must be prepared to present compelling evidence on several fronts:

1. Proof of Intent: The most challenging element is proving the intentional nature of the deception or the fraudulent means employed. This often requires forensic investigation into communications, financial records, and internal documents.
2. Materiality and Causation: Demonstrating that the misrepresentation concerned a material fact and that it was the direct cause of the claimant entering the contract.
3. Quantification of Loss (for Damages): If damages are sought, the claimant must precisely quantify the financial loss suffered as a direct result of the fraudulent act.
4. Proof of Lésion (for Rescission): If contract cancellation is the goal, expert valuation evidence is often required to prove the existence of gross unfairness.

Practical Steps for Businesses Upon Discovery

Upon suspecting fraud or misrepresentation, a business must take immediate, calculated steps to preserve its legal position:

1. Cease Performance: Immediately stop any further performance of the contract to avoid any action that could be interpreted as ratification under Article 192.
2. Secure Evidence: Preserve all relevant documents, communications, and digital records. The chain of custody for electronic evidence is crucial in UAE courts.
3. Seek Expert Legal Counsel: Engage a law firm with deep experience in UAE commercial litigation. A specialist can advise on whether to pursue a civil claim for rescission/damages, a criminal complaint, or both.
4. Issue Formal Notice: Send a formal legal notice to the counterparty, clearly stating the grounds for the claim (misrepresentation/fraud) and reserving all rights, including the right to rescind the contract.

The Role of Arbitration and Choice of Law

Many commercial contracts in the UAE include arbitration clauses. While the Civil Code governs the substantive law, the procedural rules of the chosen arbitration center (e.g., DIAC, ADCCAC) will dictate the process. Furthermore, for international contracts, the choice of law clause is critical. Even if the contract is performed in the UAE, a foreign law may govern the contractual relationship, though UAE public policy considerations will always apply.

Whether you are drafting a complex international contract or facing a dispute, ensuring your agreements are robust and enforceable under UAE law is essential. Nour Attorneys provides comprehensive contract drafting and review services to mitigate the risk of future fraud and misrepresentation claims. Nour Attorneys Contract Drafting and Review

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. Readers should seek professional legal advice tailored to their specific circumstances before making any decisions or taking any action based on the content of this article.

Nour Attorneys Team

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