Understanding Article 248 of the UAE Civital Transactional Law: Protecting Against Unfair Contract Terms in the UAE

Contracts are the foundation of business and personal transactions, but not all contracts are created equal. In the UAE, one of the most critical legal provisions aimed at protecting individuals from unfair contract terms is Article 248. This article plays a crucial role in safeguarding parties with less bargaining power from oppressive contractual conditions.

What is Article 248?

Article 248 states:

"If a contract is made by way of adhesion and contains unfair provisions, it shall be permissible for the judge to vary those provisions or to exempt the adhering party therefrom in accordance with the requirements of justice, and any agreement to the contrary shall be void."

This provision targets contracts of adhesion—agreements where one party, usually with significantly greater bargaining power, imposes terms on the other without allowing for negotiation. Common examples include standard form contracts such as insurance policies, consumer contracts, lease agreements, and employment contracts. In such cases, the adhering party often faces a “take it or leave it” scenario, having little choice but to accept the terms as they are.

Purpose of Article 248

The core objective of Article 248 is to protect the weaker party in a contract of adhesion from unfair or oppressive terms that could infringe upon their rights or interests. The law empowers judges to modify or nullify these terms if they conflict with principles of justice, public order, or good faith. For instance, a judge may:

  • Reduce or eliminate an excessive penalty clause.
  • Invalidate a clause that waives liability for the more powerful party.
  • Provide relief from forfeiture clauses that impose undue hardship.

Real-World Applications of Article 248

The UAE courts have frequently applied Article 248 to strike down or adjust unfair contract terms. Here are some notable cases:

  1. Insurance Policy Exclusion (2017): The Dubai Court of Cassation ruled that a clause in an insurance policy excluding coverage for damage caused by fire or explosion resulting from war or civil commotion was unfair and void. The court found that this clause deprived the insured of the contract's essential benefit. As a result, the court ordered the insurer to pay compensation for damage caused by a fire during the Yemeni civil war.
  1. Unfair Lease Termination (2018): In another case, the Dubai Court of Cassation deemed a clause in a lease contract that allowed a landlord to terminate the lease without notice or compensation if the tenant missed one month's rent as unfair. This clause violated the tenant's right to security of tenure and due process. Consequently, the court ordered the landlord to compensate the tenant for unlawful eviction and related damages.
  1. Employment Contract Penalty (2019): The court struck down a clause in an employment contract requiring an employee to pay a penalty of AED 50,000 if he resigned within one year of joining the company. The court found the clause to be unfair, as it placed unreasonable restrictions on the employee's freedom of movement and career choice. The employer was ordered to pay the employee his full end-of-service benefits and wages.
  1. Consumer Rights Violation (2020): In 2020, the court found a clause in a consumer contract that limited the seller's liability for defective goods to mere replacement as unfair. This clause deprived the consumer of the right to seek compensation for damages. The court ordered the seller to compensate the consumer for the losses caused by the defective goods.
5.
  1. Service Contract Unilateral Changes (2021): The court ruled against a clause in a service contract that allowed the service provider to change the terms unilaterally without notifying or obtaining consent from the customer. The court deemed the clause unfair, violating the customer's right to fair treatment and transparency. The service provider was ordered to honor the original contract terms and compensate the customer for any losses incurred due to the changes.

Conclusion

Article 248 serves as a crucial safeguard against unfair contract terms in the UAE, ensuring that individuals and businesses are not subjected to unjust provisions imposed by more powerful parties. Whether dealing with employment, lease, insurance, or consumer contracts, the courts have consistently applied Article 248 to protect the rights and interests of the adhering party, reinforcing the importance of fairness, transparency, and justice in contractual relationships. For individuals and businesses alike, understanding the power of Article 248 can help navigate contracts more confidently, knowing that the law is there to protect against undue exploitation and imbalances of power.