Monday, February 26, 2018

Termination for Convenience under Omani Law

Typically, under English law there are no restrictions on one or more parties being allowed to terminate a contract “for convenience” or “without cause.”

However, under Omani law, Article 133 of the Civil Transactions Law promulgated by Sultani Decree 29/2013 (the “Civil Code”) suggests that the inclusion of such a provision would render the contract voidable:

A contract shall not be binding on one or both of the contracting parties despite its validity and enforceability if it contained a condition that such party may terminate it without mutual consent or legal proceedings. Either party may act unilaterally in terminating the contract if by its nature the contract is not binding on him or if he reserved to himself the right to terminate it.

In the UAE, there is an exception to this principle, but only in relation to “muqawala,” or construction, contracts.

A recent UAE Court of Appeal judgment, citing the Egyptian Civil Code, ruled that employers in construction cases could be entitled unilaterally to terminate a contract, on the grounds that “muqawala contracts often take a long time to complete and circumstances may change in the period between contract formation and completion of the contract work.”

No such exception exists in Omani jurisprudence. In the section of the Civil Code dealing specifically with muqawala contracts, Article 646 provides:

A contract of muqawala shall terminate upon the completion of the work agreed or upon the cancellation of the contract by consent or by order of the court.

Practitioners have usually dealt with this issue by adding wording to the effect that a party terminating for convenience would undertake to pay the other party adequate compensation for any costs or losses incurred by them directly flowing from the termination.

This type of wording aimed to prevent disputes by effectively anticipating what a court would order by way of compensation to a party whose contract had been terminated in violation of Article 646.

However, in Article 258 (1), the Civil Code introduced a very significant new remedy in Oman, namely the specific performance of contractual obligations. Previously, a claimant’s remedy for breach of contract was primarily limited to damages. Now a claimant may seek an order requiring a contract party to perform its contractual obligations.

We have yet to see if, and in what circumstances, the Courts will order specific performance. We note that Article 258 (2) illustrates that specific performance is a discretionary remedy, as it states that the Court may impose monetary damages in place of specific performance if in the circumstances specific performance would be “overly oppressive for the debtor”.