Losing money does not always mean that the person who lost it will be able to reclaim that amount from a third party.

That is an important consideration in civil and commercial disputes. A company may spend considerable sums on a supplier who fails to deliver, causing the business to lose a significant client, for instance. An investor may face losses as a result of a failed business venture. A breach of contract may necessitate spending far more than budgeted by a company to remedy the situation.

The financial impact of such occurrences is often indisputable. What is not always so clear is the extent to which these impacts give rise to a claim, who is responsible for them, and how much compensation can be obtained.

The connection between the breach and the loss

An important element of a compensation claim is the issue of causation – in other words, the connection between the alleged wrong and the loss suffered.

To illustrate, suppose a company hires a contractor to complete a particular task by a specific deadline, but the work is not completed on time, resulting in the company missing out on another contract.

While it may seem logical to attribute this loss to the contractor, there are likely to be other factors that could mitigate the company’s losses or affect its ability to claim compensation, such as internal approvals that delayed the project or concerns that the company’s customer had about the work.

It is important to determine whether, and to what extent, the circumstances that gave rise to the claim are connected to the loss and to establish what compensation, if any, can be awarded.

The amount claimed needs to be justifiable

There is more than one way to claim compensation. A compensation claim may include various types of damages, such as direct expenditure incurred by the claimant or losses suffered as a result of the defendant’s actions.

Each type of damage needs to be analysed separately, and the evidence supporting it must be evaluated. This is particularly important where the claim includes losses that were not directly incurred, such as consequential loss.

For instance, a company that was promised an AED 300,000 contract but failed to secure the deal because of a breach of contract cannot simply claim AED 300,000 in damages, since this sum represents not only the lost revenue but also the costs that the company would have had to incur to fulfil the contract.

The amount of compensation that can be awarded will depend on the evidence and the law that applies to the case. What is important to realise, however, is that while future or consequential loss may not be easy to quantify, that does not mean it cannot be recovered.

What if the contract stipulates the amount of compensation?

Sometimes, businesses attempt to manage the risk of a breach of contract by including a compensation clause that specifies the amount the breaching party must pay to the injured party.

Such clauses can be useful from a commercial perspective, particularly where it is difficult to estimate the potential damage caused by a breach. However, they do not necessarily guarantee that the agreed amount will be awarded in full.

Article 340 of the UAE Civil Transactions Law, Federal Decree-Law No. 25 of 2025, allows parties to agree on compensation in advance. However, the court may reduce the agreed amount if the debtor proves that it is excessive or that the original obligation has been partially performed. The court may also reduce the compensation if the creditor contributed to the damage through their own fault, or refuse to award compensation if the creditor’s fault predominates. Conversely, the creditor may claim more than the agreed amount if they prove that the debtor committed fraud or gross fault.

When drafting or interpreting a compensation clause, therefore, it is important to remember that while such a provision may provide greater clarity and help manage commercial risks, the amount ultimately recoverable may depend on the circumstances of the case and the applicable legal requirements.

Can compensation be claimed for non-financial damage?

It is not always easy to quantify damage in monetary terms. Depending on the circumstances, a claim may concern physical harm, property damage, or even moral damage.

Article 254 of the UAE Civil Transactions Law specifically refers to moral harm resulting from injury to a person’s dignity, reputation, and similar interests. That being said, determining whether moral harm applies to a particular case is only part of the process; the evidence, the requirements of the law, and the circumstances of the case are equally important considerations.

In other words, simply identifying the non-monetary damage that occurred is not sufficient to succeed in a claim. The claimant must satisfy the court that the defendant is liable and that the claimant is entitled to the compensation being sought.

A seemingly strong claim can be undermined before proceedings even commence

Failure to document a business’s losses accurately may weaken its position in a dispute.

A contract may have important terms missing, instructions may not have been provided in writing, or expenses incurred may not be properly itemised. A party may continue to fulfil its obligations under an agreement without recording the impact that a breach has had on its operations.

Such considerations affect the ability to reconstruct a situation and to separate the losses relevant to the dispute from those that are not.

Another important factor is the limitation period – in other words, the time within which a claim must be brought once it arises. The applicable time limit depends on the nature of the dispute and the law that applies. The longer a party waits to bring a claim, the more difficult it may become to address the situation effectively. For businesses, therefore, it is important to ensure that documentation is in order to enable them to assert their rights.

The implications for those seeking to claim compensation

The key takeaway for anyone considering a claim for compensation is that the law applicable to the dispute must be analysed carefully before attempting to negotiate a settlement.

This means understanding what legal remedies apply to the dispute and how they interact with the particular circumstances of the case. It also means examining the facts to establish whether, and to what extent, the defendant is liable and what compensation, if any, can be awarded.

The UAE Civil Transactions Law and related legislation contain a number of provisions that apply to compensation claims. Article 339, for instance, stipulates that where compensation is not determined by law or by contract, the court shall assess it by reference to the damage that has actually occurred. Article 255 may also be relevant when assessing claims for loss suffered or loss of profit, subject to the applicable legal requirements. Other laws may apply depending on the nature of the claim.

That being said, the validity of a claim and the ability to recover compensation depend on a careful analysis of the facts, the evidence, and the applicable law. These are matters that individuals and businesses should consider carefully before deciding on a course of action.

This article is for general informational purposes only and does not constitute legal advice. The outcome of a compensation claim will depend on the facts of a particular case and the law that applies to it.