Commercial negotiations are often treated as a preliminary stage of a transaction, with legal obligations expected to arise only once the final agreement is signed. However, the way parties behave before signing can also have legal consequences, particularly when one party deliberately withholds important information or misleads the other during negotiations. For businesses operating in the UAE, this issue has gained particular significance following the introduction of Federal Decree-Law No. 25 of 2025, promulgating the Civil Transactions Law, which came into force on 1 June 2026.

Understanding Bad Faith in Commercial Negotiations

In simple terms, bad faith refers to acting dishonestly or unfairly when dealing with another party, rather than negotiating openly and honestly. For example, a business may knowingly provide misleading financial information to persuade an investor to proceed with a transaction or conceal a significant liability that could influence the investor’s decision. These situations are different from ordinary commercial disagreements or a genuine decision to walk away from a deal. A party is generally free to change its mind or reject proposed terms; the concern arises when its conduct breaches the applicable legal requirements.

Consider a company negotiating to acquire another business. Over several weeks, the parties exchange financial information, discuss commercial terms and incur professional expenses in anticipation of completing the transaction. Before the agreement is finalised, the prospective buyer discovers that the seller deliberately withheld information about a significant liability. The transaction falls through, leaving the buyer to bear the costs incurred during negotiations. Although no contract was signed, the circumstances may raise a question of pre-contractual liability. The relevant issue is not simply whether the deal failed, but whether the parties acted in accordance with their legal obligations throughout the negotiation process.

Under Article 121 of the new Civil Transactions Law, the initiation, conduct and termination of pre-contractual negotiations must comply with the requirements of good faith. The law preserves the parties’ freedom not to conclude a contract, but it also provides that a party who negotiates or terminates negotiations in bad faith may be liable for the actual damage suffered by the other party. Deliberately failing to disclose material information affecting the validity of the contract is expressly identified as a form of bad faith. The provision generally excludes the expected benefits of a contract that was never concluded, as well as lost opportunities to obtain those benefits, from compensation, unless otherwise agreed. Articles 122 and 123 also address the disclosure of information decisive to the other party’s consent and the protection of confidential information obtained during negotiations.

The distinction between a failed negotiation and wrongful conduct is also reflected in earlier UAE jurisprudence. Dubai Court of Cassation Civil Appeal No. 267/2016 has been cited in legal commentary concerning negotiations that did not result in a concluded contract. The principle associated with the decision is that negotiations do not, by themselves, oblige parties to enter into a contract, although fault associated with the negotiation process may give rise to liability under the applicable legal framework. As the decision predates the new Civil Transactions Law, it should be understood as historical context rather than a judgment applying the new provisions.

What This Means for Businesses and How ASK Can Help ?

For businesses, the implications extend beyond the drafting of the final agreement. Information provided during negotiations should be accurate, material information should be disclosed where legally required, and confidential documents should be appropriately protected. Keeping records of correspondence, disclosures, draft agreements and due diligence can also prove important if a dispute arises. However, not every omission, inaccurate statement or change of commercial position will automatically result in liability. The circumstances, the nature of the information, the applicable legal requirements and the loss suffered must be assessed in each case.

The new provisions reinforce the importance of addressing legal risks before a transaction reaches the signing stage. Businesses remain entitled to reconsider commercial decisions and withdraw from negotiations where circumstances warrant it, but that freedom must be exercised consistently with the requirements of good faith. At ASK Legal Consultancy, we assist businesses in identifying and managing legal risks through the review of commercial arrangements, advice on disclosure obligations, assessment of potential pre-contractual liabilities and protection of confidential business information. Where negotiations have broken down and misconduct is suspected, we can advise on the available legal options and the evidence required to support a claim. Seeking legal advice at an early stage can help businesses protect their interests, manage exposure and approach commercial transactions with greater clarity and confidence.