In-Brief:
- The UAE’s new Civil Transactions Law has introduced pre-contractual duties of good faith, disclosure and confidentiality, which has direct implications for how M&A parties conduct negotiations, manage disclosures and handle confidential information.
- While parties are not required to complete a transaction, a party that negotiates or withdraws in bad faith may be liable for the other party’s actual losses, including due diligence and advisory costs.
- Buyers, sellers and advisers should treat the data room and Q&A log as part of the deal record, and ensure that disclosures, withdrawals from transactions and decision-making are properly documented. Failure to do so may expose a party to a claim under the new Civil Transactions Law.
A buyer signs an exclusivity agreement, spends twelve weeks and substantial advisory fees reviewing the data room, and the seller walks away without explanation days before the SPA is due to be signed. A seller's disclosure letter is silent on a supply issue from a key vendor that only surfaces days before the proposed signing date, several months after the parties commenced discussions. Until recently, both scenarios were treated as ordinary deal risks; managed, if at all, through carefully worded letters of intent. Typically, the parties simply had to absorb their own costs.
The UAE's new Federal Decree-Law No. 25 of 2025 Issuing the Civil Transactions Law (the "New CTL"), in effect since 1 June 2026, has for the first time introduced codified duties governing what happens before a deal is concluded. This article focuses on three provisions: Articles 121, 122 and 123, and on what they mean in practice for the parties who actually run the early stages of an M&A process.
Why this matters now
On a majority of UAE M&A mandates, the corporate finance adviser is on the ground from day one: preparing the teaser and information memorandum, populating the data room, managing the bidder list, fielding management presentations, and shaping the commercial narrative that will eventually be reflected in the SPA. Lawyers, by contrast, are typically brought in at the drafting stage; by which point the disclosure record, the Q&A log, the exclusivity arrangements and the negotiation history are often quite advanced.
Prior to the New CTL coming into effect, that early phase was effectively a legal no-man's-land. Before a contract existed, the parties owed each other very little; a party could sit on information, run discussions in bad faith, or pull out for opportunistic reasons, largely beyond the reach of contract law. The New CTL closes this gap with an explicit, non-excludable duty of good faith and disclosure applicable from the commencement of negotiations. For advisers, this means that the early stages of the deal process must be run carefully as they are now a potential source of legal risk.
Article 121: Good faith across the transaction
Article 121(1) requires the proposal, conduct and termination of negotiations to meet a standard of good faith, covering the entire pre-signing period, including the letter of intent (“LOI”) stage, exclusivity arrangements and multi-bidder sale processes. Article 121(2) confirms that entering into negotiations does not create an obligation to conclude a contract. Article 121(3) makes a party acting in bad faith liable for the actual loss suffered by the other party; the default measure does not extend to the expected benefits of the un-concluded contract or to lost opportunities, though the parties remain free to agree a different damages measure (for example, a break fee or liquidated damages clause in the LOI). Article 121(4) provides that deliberately withholding a material fact affecting the validity of the contemplated contract constitutes bad faith.
Practical implication. Buyers and sellers on M&A transactions must act in good faith for the entirety of the pre-signing period – if they do not, they could be in breach of Article 121. Recoverable losses may include wasted due diligence expenditure, advisory fees and other out-of-pocket costs, but (unless otherwise expressly provided) not the transaction value itself. Where a buyer or seller discontinues a transaction, the commercial reasons should be documented contemporaneously; this record will be central to defending any later allegation of bad faith under Article 121(3). Liability, damages, confidentiality, exclusivity and costs provisions in the LOI should be expressly stated to be legally binding, and drafted with sufficient clarity to be enforceable.
Article 122: Duty to disclose information relevant to the transaction
Article 122(1) requires a party aware of information of "decisive importance" to the other party's decision to contract to disclose it. The concept is broad enough to capture material litigation, key contracts, major customer or supplier dependencies, regulatory non-compliance and financial condition. Article 122(2) makes the obligation mutual: a buyer's own material facts, including its financing capacity or its post-acquisition intentions for the target's workforce, may fall under the same duty. Article 122(3) shares the evidential burden, meaning the data room index, Q&A log and disclosure tracker may now form the primary evidential record in any claim. An unorganised or incomplete audit trail is, in itself, a material litigation risk.
Article 122(4) provides that the duty cannot be restricted, waived or excluded by agreement; any provision purporting to do so is void. Warranties, indemnities, liability limitations and disclosure-letter mechanics remain the principal means of allocating contractual risk in the SPA, but should not be assumed to displace the separate statutory disclosure regime. The boundary between those contractual arrangements and Article 122 will ultimately benefit from judicial clarification.
Practical implication. Sellers must disclose all material information. Where a seller wishes to withhold material information, for commercial or other reasons, this will need to be carefully considered in light of the duties under Article 122. The data room index, data room contents, Q&A log, disclosure tracker and material transaction communications should be treated as part of the formal transaction record from the outset, not as procedural housekeeping maintained while the lawyers finalise the SPA.
Article 123: Confidentiality obligation
Article 123 establishes a statutory duty of confidentiality that may apply even where no separate NDA has been signed, provided the information is confidential by its nature and its use or disclosure is unauthorised. A prospective buyer that withdraws after reviewing the target's customer contracts, pricing and strategy, and then uses that information to solicit customers or compete, may face statutory liability. Remedies may include compensation for actual loss and lost profit, restoration measures, or specific acts such as stopping the misuse or ordering the return or deletion of information.
Article 123 should be treated as a statutory floor rather than a substitute for a properly drafted NDA. In particular, it does not address certain provisions which are often included in NDAs, such as non-solicitation, non-compete or standstill undertakings.
Practical implication. Appropriately drafted NDAs remain a requirement for every party given access to the data room. The Article 123 backstop is a safety net, not a replacement for bespoke contractual safeguards.
Quick takeaways for deal teams
- Document the commercial reasons for any discontinuation of the process, contemporaneously. This is likely to be the single most useful piece of evidence in defending a bad-faith claim under Article 121(3).
- Treat the data room index, Q&A log and disclosure tracker as part of the formal transaction record. They are now a potential evidential record in a statutory disclosure claim.
- Require appropriately drafted NDAs from every party given data room access. Article 123 is a floor, not a substitute.
Final thoughts
Articles 121 to 123 introduce a clearer statutory framework governing conduct during contractual negotiations, with direct implications for how M&A parties conduct negotiations, manage disclosures, and handle confidential information. The practical scope of these provisions will ultimately depend on how the UAE courts interpret them. What is likely, however, is that the next twelve months of UAE M&A mandates will, for the first time, see pre-signing process discipline tested in litigation. It is clear that advisers who treat the data room and Q&A log as part of the deal record, and ensure that disclosures, withdrawals from transactions and decision-making are properly documented, will be significantly better positioned than those who do not.
If you would like more information on this topic, or have any questions, please contact Patrick Tweedale, Partner, Corporate M&A at p.tweedale@hadefpartners.com.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.