Do you know how to terminate a commercial contracts?

No wonder, the concerned subject has been discussed by Lawyers in Dubai on numerous occasions. Yet, the frequency of contractors who are unaware of the rights and repercussions of terminating a commercial contract within UAE which convinced the Legal Consultants in Dubai to dedicate this article on the issue of termination and procedure pertaining to the same.

In below-mentioned paragraphs, you will study the legal options and redress available for terminating a commercial contract in consonance with UAE laws. Federal Law Number 5 of 1985 on UAE Civil Code talks about the dissolution of contracts under Articles 367-273. Where in, Article 267 clearly highlights the three different ways under which the parties can terminate the contract as follows:

a. By mutual consent;

Most contracts within UAE refer to a termination clause wherein contracting parties agree to dissolve the contract upon happening of a certain event especially breach of the terms of the contract. The Civil Code subsequently enable the parties to terminate the contract upon mutual consent. However, the parties must draft this clause prudently and in harmony with UAE law. In the event termination is due to breach of any clause or non-performance, the provision may allow the party to terminate without prior notice, else the notice is mandatory in accordance with Article 271 of the Civil Law. Nonetheless, parties may terminate the contract unilaterally as per their convenience by an explicit clause in the contract.

b. Order of the court;

As the name suggests, the parties may seek termination upon reaching out to the relevant authorities which may be Court or Arbitration Institute as the contract suggests. This option shall also be exercised in the absence of a termination clause in the contract.

c. By operation of the Law.

Under the said option, the law governing the contract shall be considered while terminating the contract according to the type of contract. Different types of contract persist in UAE which if requires termination shall refer to the specific laws.

Alternatively, any event beyond the control of parties or is unforeseeable may enable termination, making a contract unfeasible to perform. This is in accordance with Article 273 of the Civil Code. Furthermore, any situation of public nature may also empower the parties to terminate the contract. However, either of the contracting parties should confirm that the performance of the contract is inconvenient and unprofitable.

In accordance with Article 247, either party may terminate the contract regardless of mutual consent in the event if other party fails to adhere to the contractual obligations. The article reads as follows: "In a contract, where the contractual obligations are due, each of the contracting parties will have the authority to abstain from executing his part of the obligations, should other party failed to perform theirs."

It is clear from the foregoing provision that non-performance of the contract by either party will empower the other party to refrain themselves to continue the contract. However, the termination of the contract will not be executed, if the other party is willing to resume the contract. Nevertheless, the contractor may still approach the court for termination of the contract due to non-performance or failing to abide by the contractual obligations. Either party seeking a remedy under the foregoing provision, shall not suspend the work without prior notice to the other party. It is advised to issue notices entailing their non-performance and allowing them to remedy the breach.

Conclusion

Parting ways with the contracting party can be troublesome. However, the process of approaching court can be avoided by legally drafting the termination clause allowing mutual termination as contemplated under Article 267. The relevant provision ensures legality before the court and may also attenuate the court proceedings. Henceforth, prior to terminating any commercial contract, the party must assure that there exists a legal right to dissolve the contract or must seek legal assistance from Corporate Lawyers in UAE to review the terms of the contract in line with the UAE Civil Law and other contractual laws of the country to prevent the unnecessary hassle of termination before the court.

Dr. Hassan Elhais is a legal consultant in Dubai, specializing in the drafting of all statements of claim, memos and consultation on litigation of all manner.