Lost in Translation: How Poorly Drafted Contracts Are Derailing US Companies' Gulf Business Before It Begins

A technology company based in Austin, Texas, spent fourteen months negotiating a SaaS licensing agreement with a mid-sized logistics firm in Abu Dhabi. The commercial terms were agreed early. Pricing, implementation timelines, support obligations — all of it was settled within the first three meetings. What consumed the remaining eleven months was a dispute over the contract itself: its governing law clause, its interest provisions, its force majeure language, and ultimately its arbitration mechanism.

The deal eventually closed, but the legal costs incurred by both parties during the contract negotiation phase exceeded the value of the first year's license fees. The Austin company's general counsel described the experience as "negotiating in two different legal universes simultaneously."

This is not an unusual story. It is, in fact, a representative one.

The Assumption That English Is Neutral

US companies entering Gulf markets frequently treat English-language contracts as a neutral starting point — a shared commercial lingua franca that both parties can work from without significant adjustment. This assumption misunderstands the relationship between contract language and legal culture.

In the United States, commercial contracts are interpreted against the backdrop of common law principles: objective intent, the parol evidence rule, the implied covenant of good faith and fair dealing. These interpretive frameworks are so deeply embedded in American legal practice that most US attorneys apply them instinctively, without recognizing that they are culturally and jurisdictionally specific.

Gulf commercial law operates from a different foundation. The UAE's legal system is a hybrid, drawing from civil law traditions — particularly Egyptian and French-influenced codes — as well as Islamic jurisprudence. Saudi Arabia's commercial law framework is more directly rooted in Sharia principles, administered through a specialized commercial court system that has undergone significant modernization since 2021 but retains distinctive interpretive approaches that differ substantially from common law practice.

When a US attorney drafts a contract clause and a Gulf attorney reviews it, they are not simply reading the same words differently. They are applying different foundational assumptions about what contracts are, what obligations mean, and how disputes should be resolved.

The Interest Problem

Few contract provisions create more friction in Gulf negotiations than those addressing interest on late payments or financing arrangements. In Islamic finance and commercial law, riba — broadly understood as the charging of interest — is prohibited. The prohibition applies with varying degrees of strictness across different Gulf jurisdictions and commercial contexts, but it is a genuine legal and cultural reality that US exporters cannot simply draft around.

American companies accustomed to including standard late payment interest clauses — "interest shall accrue at the rate of 1.5% per month on any overdue balance" — frequently encounter flat refusals from Gulf counterparties who are not being difficult; they are responding to a legal framework that treats such provisions as unenforceable or, in some contexts, void.

The commercial solution is not to abandon protection against late payment. It is to restructure that protection in a form that achieves the same economic outcome through a Sharia-compliant mechanism. Profit-sharing structures, murabaha-style deferred payment arrangements, and penalty provisions framed as liquidated damages rather than interest can all serve the same commercial purpose while remaining enforceable in Gulf jurisdictions.

This requires drafting expertise that most US general counsel offices do not maintain in-house. It also requires a willingness to engage with the Gulf counterparty's legal advisors as collaborative architects of the agreement rather than adversarial reviewers of a US-drafted template.

Dispute Resolution: Choosing the Wrong Forum

The governing law and dispute resolution clauses in US commercial contracts typically specify US courts or American Arbitration Association (AAA) proceedings. From an American business perspective, this is simply prudent risk management — keeping disputes in familiar territory.

From a Gulf counterparty's perspective, it is frequently a non-starter.

Enforcing a US court judgment in the UAE or Saudi Arabia is neither straightforward nor guaranteed. The UAE does not have a reciprocal enforcement treaty with the United States, which means a US federal court judgment must navigate a recognition process in UAE courts that can be time-consuming and outcome-uncertain. Saudi Arabia's enforcement framework presents similar challenges.

The practical consequence is that US companies insisting on US governing law and US dispute resolution forums are, in many cases, negotiating for protections that would be extremely difficult to exercise if a dispute actually arose.

The regional alternative that has gained significant traction is arbitration under the rules of the Dubai International Arbitration Centre (DIAC) or the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC), with UAE law or English law as the governing framework. Both mechanisms are internationally recognized, and UAE arbitral awards benefit from enforcement pathways that US court judgments do not. Saudi Arabia's accession to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards further strengthens the case for arbitration as the preferred dispute resolution mechanism in Gulf commercial agreements.

Communication Gaps That Kill Deals Before the Contract Stage

Contract disputes are often the visible symptom of a communication breakdown that began much earlier in the commercial relationship. Gulf business culture places significant weight on relationship development, trust-building, and the kind of informal alignment that precedes formal agreement. American companies accustomed to moving quickly from term sheet to signed contract frequently misread the pace of Gulf negotiations as indecision or bad faith.

A US food and beverage company that engaged a regional distributor in Bahrain in 2022 reported that negotiations stalled repeatedly not over commercial terms but over what the Bahraini counterparty described as a lack of "proper understanding" of the relationship. The US company was sending junior legal staff to meetings that the Bahraini firm expected to be attended by senior principals. The implicit message received was that the US company did not take the partnership seriously — and no contract language could repair that impression once it had formed.

Senior engagement, patience with the relationship-building phase, and a genuine willingness to understand the counterparty's business context are not soft skills in Gulf commercial practice. They are prerequisites for reaching the table at which contracts are actually signed.

Practical Guidance for US Companies

The cost of getting Gulf contract architecture right does not have to be prohibitive. Several approaches allow US companies to build enforceable, culturally appropriate agreements without engaging a full-service Gulf law firm on every transaction.

First, develop a Gulf-adapted master agreement template. Working with a specialist in UAE or Saudi commercial law to create a foundational contract framework — one that addresses governing law, dispute resolution, interest substitution, and key commercial terms in a form that Gulf counterparties recognize as legitimate — is a one-time investment that pays dividends across multiple transactions.

Second, use bilingual contract execution. Arabic is the official language of UAE commercial law, and in any dispute before UAE courts, the Arabic text of a contract will prevail over an English version if the two conflict. Contracts executed in both languages, with a clear statement of which version controls in the event of inconsistency, provide protection that English-only agreements simply cannot offer.

Third, invest in cultural briefings for negotiating teams. Understanding the significance of Ramadan timing on business schedules, the role of wasta (relationship influence) in commercial decision-making, and the expectations around hospitality and formality in Gulf business settings is not peripheral knowledge. It is operationally relevant information that directly affects negotiation outcomes.

The Gulf market rewards preparation. Companies that arrive with contracts built for a different legal world will continue to pay — in legal fees, in lost deals, and in the slow erosion of commercial relationships that took years to develop.