Most disputes end in a settlement agreement, and most settlement agreements in this market are drafted on an English-law template. The UAE Civil Transactions Law treats settlement — sulh — as a nominate contract with its own rules, now at Articles 671 to 684 of Federal Decree-Law No. 25 of 2025.
Two of those rules cut directly against standard drafting. Article 684 makes a settlement indivisible, so the invalidity of any part invalidates the whole — which is the opposite of what a severability clause is meant to achieve. And Article 672(2) requires capacity to make donations where the settlement involves waiving rights, which is an authority question most corporate signatories have never been asked.
Contents
1. What makes an agreement a settlement
Article 671 defines settlement as a contract by which the parties resolve an existing dispute, or avert a potential one, by each party reciprocally waiving part of their claim.
The reciprocity is definitional, not decorative. An arrangement in which one side gives up something and the other gives up nothing is not a settlement within Article 671 — it is a discharge, governed by Articles 425 to 427, or a gift. That distinction matters because the two are governed by different rules on capacity, revocation and form.
Note also that the Law expressly contemplates settling a potential dispute, not only a live one. A pre-dispute compromise, a standstill with mutual concessions, or a deed signed to head off a threatened claim can all be settlements.
2. Article 672 — the capacity trap
672(1). A person entering into a settlement must possess the legal capacity to dispose of the rights covered by the settlement for consideration.
672(2). Capacity to make donations is required if the settlement involves the waiving of any rights.
Because Article 671 defines settlement as reciprocal waiver, 672(2) is engaged by the ordinary case rather than the exceptional one. A settlement in which a claimant gives up part of its claim requires, on the face of the Law, capacity to make a gratuitous disposition.
That connects to two other provisions and the three should be checked together:
- Article 870 — settlement is named in the list of acts requiring a special agency specifying the type of act. A general power of attorney does not authorise an agent to settle.
- Article 989 — suretyship likewise requires capacity to make gratuitous dispositions, which is the same authority question in a different chapter.
For a company settling a claim, the practical sequence is: confirm the constitutional power extends to gratuitous acts; confirm the board or shareholder authority is specific to settlement; and confirm any power of attorney names settlement expressly. None of that is unusual diligence in a large settlement; it is routinely skipped in a modest one, which is where it is most likely to be challenged later.
Article 673 deals separately with settlements made by a discerning minor or a person of diminished capacity.
3. Article 676 — what can be settled, and the certainty requirement
Article 676 imposes three conditions:
- the subject matter must be something for which consideration may lawfully be taken;
- both the subject matter and the consideration must be known; and
- where the consideration is an object or usufruct owned by a third party, its effectiveness depends on that third party's position.
The certainty requirement is the one that bites in drafting. A settlement expressed to release "all claims whether known or unknown, present or future, arising out of any matter whatsoever" — the standard wide release — sits uneasily with a requirement that the subject matter be known.
The practical response is not to abandon the wide release but to anchor it: identify the matters and the claims being released with specificity, and let the general words operate around that core rather than instead of it. A release that can be read as settling identified disputes is in a materially better position than one that can only be read as settling everything in the abstract.
The third limb matters in group settlements, where the consideration is often provided by a parent or affiliate rather than by the party in dispute. Where that consideration is an asset owned by a third party, its effectiveness is not simply a matter between the settling parties.
4. Article 680 — the settlement is final, and it binds heirs
"A settlement results in the transfer of the settling party's right to the consideration settled upon and the extinguishment of the right that was the subject of the dispute. Neither party nor their heirs thereafter may revoke it."
Three consequences follow, and all of them favour finality:
- The original right is extinguished, not suspended. A claimant who settles has not parked the claim; it is gone, and the claimant's right now lies against the settlement consideration.
- It binds heirs. A settlement by an individual is not undone by their death, and their estate takes it as it stands. Read with Article 1029, under which a suretyship survives death, this is part of a consistent pattern in the Law: obligations compromised or guaranteed in life pass to the estate.
- Unilateral revocation is unavailable to either party.
Article 681 adds that the disputes covered by the settlement are terminated by it.
5. Articles 683 and 684 — unwinding, and the indivisibility rule
Article 683 — rescission by consent, but not always
The parties may rescind a settlement by mutual consent if it is in the nature of a commutative contract. Rescission is not permissible if the settlement includes the waiver of certain rights.
So even agreed unwinding is constrained. A settlement structured as an exchange can be undone by consent; one that operates by waiver cannot simply be reversed because both sides later prefer the original position. Parties contemplating a conditional or reversible settlement should structure it as an exchange, or build the contingency in as a term rather than relying on a later agreement to rescind.
Article 684 — indivisibility
"A settlement is indivisible; the invalidity of any part thereof entails the invalidity of the entire contract."
This is the provision most likely to surprise a drafter working from an international precedent, because it reverses the usual assumption. A severability clause is designed to let the agreement survive the failure of one term. Article 684 says a settlement does not survive it.
The drafting consequences are concrete:
- Do not rely on severability to carry a settlement past a defective term. On the face of Article 684 it will not.
- Audit each term for validity rather than treating any single clause as expendable — a term that offends a mandatory provision can take the whole settlement with it. Note in particular Article 224, under which any agreement excluding the hardship doctrine is void.
- Where parts of a deal should stand independently, consider separate instruments rather than one composite settlement, so that the failure of one does not collapse the others.
- On a challenge, Article 684 cuts both ways: a party attacking a settlement needs only to establish the invalidity of a part, while a party defending it must defend all of it.
6. Checklists
Before signing a settlement
- Confirm capacity and authority on the Article 672(2) basis — capacity to make donations, because reciprocal waiver is what a settlement is.
- If signing under a power of attorney, confirm it names settlement; Article 870 requires special authority specifying the type of act.
- Identify the released matters with specificity. Article 676 requires the subject matter and consideration to be known; a release only in general words is weaker.
- Where the consideration is provided by a third party or is a third party's asset, address its effectiveness expressly (Art 676(3)).
- Audit every term for validity. Under Article 684 one defective term can invalidate the whole agreement, and no severability clause will save it.
- If any part of the deal must stand alone, document it as a separate instrument.
After settling
- Treat the original right as extinguished, not suspended (Art 680). Enforcement now runs on the settlement consideration.
- Note that heirs are bound; a settlement does not fall away on death.
- If the settlement may need to be unwound, check Article 683 first — rescission by consent is unavailable where the settlement waives rights.
Challenging a settlement
- Capacity and authority are the first lines of attack, under Articles 672 and 870.
- Certainty of subject matter and consideration is the second, under Article 676.
- Article 684 means you need to invalidate only a part — the whole falls with it.
Transitional
- Article 4(1) preserves non-retroactivity: a settlement concluded before 1 June 2026 is governed on the substance by Federal Law No. 5 of 1985.
Primary sources
Every provision quoted above is taken from the instruments below. Links go to the official consolidated text, not to secondary commentary.
- Federal Decree-Law No. 25 of 2025 issuing the Civil Transactions Law — settlement at Arts 671–684; 672 capacity, 676 certainty, 680 finality, 683 rescission, 684 indivisibility
- UAE Ministry of Justice — laws and legislation — consolidated Arabic text, which governs over any English rendering
- UAE Government Portal — justice, safety and the law — federal legislation and the Official Gazette
Questions we are asked
Can a severability clause save a UAE settlement agreement if one term is invalid?
No. Article 684 of Federal Decree-Law No. 25 of 2025 provides that a settlement is indivisible and that the invalidity of any part entails the invalidity of the entire contract. That reverses the assumption behind a severability clause, which is designed to let an agreement survive the failure of one term. Where parts of a deal need to stand independently, the answer is separate instruments rather than one composite settlement.
What authority is needed to settle a claim in the UAE?
More than is usually obtained. Article 672(1) requires capacity to dispose of the rights covered for consideration, and Article 672(2) requires capacity to make donations where the settlement involves waiving rights — which, since Article 671 defines settlement as reciprocal waiver, is the ordinary case. Separately, Article 870 names settlement among the acts requiring a special agency specifying the type of act, so a general power of attorney does not authorise an agent to settle.
Can a settlement agreement be cancelled later in the UAE?
Rarely. Article 680 provides that a settlement transfers the settling party's right to the consideration settled upon, extinguishes the right that was the subject of the dispute, and that neither party nor their heirs may thereafter revoke it. Article 683 permits rescission by mutual consent only where the settlement is in the nature of a commutative contract, and expressly not where it includes the waiver of certain rights. A settlement intended to be reversible should be structured as an exchange, with the contingency written in as a term.
Does a wide “all claims known and unknown” release work under UAE law?
It is weaker than it looks. Article 676 requires that both the subject matter of the settlement and the consideration be known. A release expressed only in general terms sits uneasily with that requirement. The practical answer is not to abandon the wide wording but to anchor it: identify the matters and claims being released with specificity and let the general words operate around that core.
Is a settlement binding on the parties' heirs?
Yes. Article 680 states expressly that neither the parties nor their heirs may revoke the settlement. The original right is extinguished and the estate takes the settlement as it stands. That sits alongside Article 1029, under which a suretyship does not terminate on the death of guarantor or debtor — obligations compromised or guaranteed in life pass to the estate.
Can you settle a dispute that has not yet arisen?
Yes. Article 671 defines settlement as a contract by which the parties resolve an existing dispute or avert a potential one, by each reciprocally waiving part of their claim. A pre-dispute compromise, a standstill with mutual concessions, or a deed signed to head off a threatened claim can each be a settlement. The reciprocity is definitional: where one side gives up nothing, the arrangement is a discharge under Articles 425 to 427, or a gift, and different rules apply.
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Published 2026-10-03. General information only — not legal advice. Contact us for matter-specific advice.