Tuesday, December 10, 2013

Award of Contractual Damage - Omani Supreme Court Principles

The Omani courts have distinct principles and doctrines which are applied when deciding on whether to award damages in cases for breach of contract.

Some of the most important principles as applied by the Omani courts include:

  1. As regards the amount of compensation, the Court may either make a judgment for award of damages, or the parties may specify an amount for damages in the form of a compensatory clause or a penalty clause in the contract and, at times, the law will have a specific provision which enables the award of compensation for a specific scenario or circumstance.
  2. “A contract is the law governing both parties” or in legal terms “Pucta Sunt Servanda”. The doctrine refers to private contracts, stressing that contained clauses are the law governing the relationship between the parties. Accordingly, if a specific clause exists in a contract, i.e., a compensation clause or a penalty clause, which stipulates a pre-determined amount as compensation for non-fulfillment of an obligation, in this case the Court is not required to use its discretion to decide on the amount of compensation to award. This principle is of course subjected to certain exceptions: for instance, the compensation amount must not be exaggerated therefore unjustly enriching the party receiving it, and damages will be awarded provided that the elements of compensatory damages are available.
  3. There are three elements for the award of damages in contract, namely: breach of contract, loss and causation. In contractual damages, loss must be direct and there must be a causal link between the breach and the loss suffered.
  4. Compensation will only be awarded in respect of actual loss suffered. Financial loss is the first and foremost element for the award of damages for breach of contractual obligations. There must be actual loss and direct loss. Mere possibility of loss and breach of contract alone will be insufficient to justify an award of damages.
Further to the aforementioned, the new Omani Civil Code promulgated by Royal Decree No. 29/2013 under Book I, “Obligations and Personal Rights”, now enshrines some of the abovementioned principles, rendering them codified legal provisions.