AI And UAE Contract Law: 7 Legal Risks Businesses Must Address Before Using Automation

AI can simplify contract management, but businesses must protect against liability and errors in automated agreements.

Artificial intelligence is changing how businesses prepare contracts, negotiate commercial terms and communicate with customers. In the UAE, companies are increasingly using AI-powered tools to draft agreements, review clauses, assess commercial risks, generate quotations and automate customer interactions. While these applications can reduce turnaround times and administrative costs, they also raise important questions about legal responsibility when an automated system produces an error or communicates a commitment.

For businesses operating in the UAE, the central issue is not whether AI can be used in contracting, but how its use affects contractual obligations, civil liability and regulatory compliance. An AI system does not independently assume the legal responsibilities of the company using it. Businesses must therefore understand the applicable legal framework and establish appropriate safeguards before integrating automated tools into their contracting processes.

Is AI-Assisted Contracting Legal In The UAE?

There is no single UAE law that comprehensively regulates AI-assisted commercial contracting as a separate legal category. Instead, the legal consequences are assessed under existing legislation governing contracts, civil liability, electronic transactions, personal data and consumer protection.

The absence of a standalone AI contractual liability regime does not mean that AI-generated agreements fall outside the law. General legal principles continue to apply when a business uses automated tools to prepare documents, make offers, accept terms or communicate with another party.

An AI system does not have independent legal personality under the general UAE legal framework and cannot assume contractual obligations in its own name merely because it generated a particular clause or message. Responsibility must instead be examined in relation to the individuals and businesses involved, their authority, their conduct and the circumstances of the transaction.

Consequently, companies should not treat AI-generated content as legally inconsequential simply because it was produced automatically. A quotation, contractual offer or communication generated through an AI-enabled platform may have legal consequences depending on its content, the authority behind it and the applicable law.

Which UAE Laws Apply To AI-Generated Contracts?

Businesses using AI in commercial transactions should consider several areas of UAE law rather than relying on a single statute.

1. UAE Civil Transactions Law

The UAE Civil Transactions Law provides the general framework for contractual obligations and civil liability. The validity and effect of an agreement depend on the applicable legal requirements, including the parties’ consent and the relevant terms of the transaction.

Where a company uses AI to prepare contractual provisions or communicate an offer, the legal position must be assessed in the context of these principles. An inaccurate clause generated by a system does not automatically invalidate an agreement or release the company from its obligations. The outcome will depend on the circumstances, the applicable contractual rules and any relevant grounds for challenging the agreement.

2. Electronic Transactions And Trust Services Law

Federal Decree-Law No. 46 of 2021 on Electronic Transactions and Trust Services provides a framework for electronic transactions and recognises contracts formed through automated electronic systems, subject to the applicable provisions.

This is particularly relevant where businesses use AI-powered platforms to communicate offers, process acceptances or complete contractual steps without direct human intervention at every stage. Companies should ensure that automated systems operate within clearly defined authority and that their electronic communications accurately reflect the terms the business intends to offer.

A technical malfunction or an unexpected automated response does not, by itself, determine whether a contract is binding. The legal effect must be considered in light of the applicable legislation and the facts of the transaction.

3. UAE Data Protection And Consumer Protection Laws

Federal Decree-Law No. 45 of 2021 on the Protection of Personal Data may apply when an AI system processes personal information within its scope. Businesses operating in the Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM) must separately consider the data-protection rules applicable in those jurisdictions.

The Consumer Protection Law, Federal Law No. 15 of 2020, may also be relevant where AI tools interact with consumers, communicate prices or influence purchasing decisions. Companies should ensure that automated customer communications comply with applicable requirements and do not create misleading impressions about products, services or contractual terms.

The precise obligations will depend on the company’s activities, the information being processed and the relevant jurisdiction.

Who Is Liable When AI Makes A Contractual Error?

One of the most important legal questions is who bears responsibility when AI produces an incorrect clause, misstates a price or recommends a commercially damaging decision.

A business generally cannot avoid its own contractual obligations simply by attributing an error to the technology it uses. If an employee relies on an AI-generated recommendation or an automated platform communicates a commitment on the company’s behalf, the legal consequences will depend on the applicable rules and the circumstances in which the communication was made.

Responsibility may also extend to other parties involved in developing or supplying the system. A technology provider, software developer or consultant may face exposure depending on its contractual undertakings, representations, conduct and contribution to the loss. However, liability is not automatically shared among all participants simply because they were involved in the same project.

Businesses should examine the purpose for which the tool was acquired, the provider’s contractual commitments, the way the system was configured and the extent of human supervision. They should also consider whether the tool was used within its intended scope and whether appropriate checks could have prevented the error.

These factors make it important to establish responsibility before a dispute arises, rather than attempting to determine it after a contractual loss has occurred.

Seven Legal Risks Businesses Should Manage

AI-assisted contracting can introduce risks that extend beyond the accuracy of the wording in an agreement. Businesses should address the following issues before relying on automated systems in material transactions.

1. Incorrect Contractual Terms

AI may produce inaccurate clauses, omit important provisions or misunderstand the commercial purpose of an agreement. Such errors can affect payment obligations, termination rights, warranties, indemnities and dispute resolution.

Contracts generated or reviewed by AI should therefore be checked by an appropriately qualified person before approval or signature, particularly where the agreement involves substantial financial commitments or complex legal obligations.

2. Unauthorised Offers And Commitments

An automated system may communicate a price, accept a proposed condition or make a representation that exceeds the authority intended by the business. Companies should establish clear limits on what an AI tool may communicate, approve or execute.

Internal procedures should specify which commitments require employee approval and which routine communications may be handled automatically.

3. Unclear Liability Under Technology Agreements

Technology providers may limit their responsibility for inaccurate outputs, service interruptions, data loss or consequential losses. They may also impose financial liability caps that are substantially lower than the potential losses arising from a serious contractual error.

Businesses should review these provisions carefully and negotiate appropriate warranties, indemnities and liability limits. The agreement should address material system failures, confidentiality breaches, intellectual-property disputes and the consequences of changes to the technology.

4. Confidentiality Breaches

Uploading commercial agreements, client correspondence, legal advice or pricing information into an external AI platform may expose confidential material to risks that the business has not properly assessed.

Companies should determine which information employees may enter into approved tools and whether the provider can retain, access or reuse submitted material. Confidentiality obligations must be considered even when the information does not qualify as personal data.

5. Personal Data And Cross-Border Transfers

AI systems may process customer details, employee records and information contained in contracts. Businesses should understand where this data is stored, who can access it and whether it is transferred outside the relevant jurisdiction.

Data-processing arrangements should be reviewed against the applicable UAE or financial-free-zone requirements. Particular care is needed when an external provider operates from another country or uses infrastructure across multiple jurisdictions.

6. Consumer Complaints And Misleading Communications

AI-powered chatbots and automated sales platforms may provide information about prices, refunds, service terms and customer entitlements. If that information is inaccurate or inconsistent with the company’s actual terms, the business may face complaints and potential legal exposure.

Companies should introduce escalation procedures for disputed charges, substantial refund requests and significant financial commitments. Automated customer-facing tools should also be tested regularly to ensure that their responses remain accurate.

7. Insufficient Records And Human Oversight

Without adequate records, it may be difficult to establish how a contractual error occurred, which information informed a decision or whether an employee approved the outcome.

For material transactions, businesses should retain appropriate records of the system used, relevant inputs, changes to contractual wording and human approvals. Access controls, review procedures and clear lines of responsibility can help identify errors and support the investigation of disputes.

How Can Businesses Reduce AI Contracting Risks?

Effective AI governance begins with defining the role of automation within the organisation. Businesses should identify approved platforms, specify permitted uses and restrict the processing of confidential or sensitive information where appropriate.

Contracts with AI providers should be reviewed as risk-allocation agreements, not merely as standard software purchases. Provisions covering data security, confidentiality, intellectual property, service availability, liability, incident notification and termination should reflect the nature and potential consequences of the intended use.

Human review should be proportionate to the significance of the decision. An AI tool may be suitable for summarising routine correspondence, but a recommendation to terminate a major commercial agreement requires a different level of scrutiny. Businesses should retain decision-making authority over significant contractual commitments and ensure that employees understand the limits of the systems they use.

Companies should also establish procedures for responding to errors. These may include suspending an affected automated process, preserving relevant records, notifying appropriate internal personnel and assessing whether counterparties need to be contacted. Early intervention can help contain losses and reduce the likelihood of a technical error developing into a wider contractual dispute.

Conclusion

AI is becoming an important tool in UAE contract management, but its adoption does not displace established legal principles. Businesses remain exposed to the consequences of contractual commitments made through their systems, while the liability of technology providers and other participants depends on their respective obligations and conduct.

The most effective approach combines carefully drafted technology agreements, sound data-governance practices, defined authority and meaningful human review. With legal guidance from Kaden Boriss, companies can put these safeguards in place, make better use of automation and reduce the likelihood that an inaccurate output, unauthorised commitment or data breach will develop into a costly legal dispute.

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