This last article on contracts will highlight provisions under Oman Civil Transactions Law Royal Decree 27/2013 (Code) dealing with termination of contracts. Certain provisions in the Code dealing with termination of contracts were also discussed in the last article. To recap, termination of contract refers to the act of putting an end to the obligations created by the contract. Termination has the effect of ceasing the obligation of the parties from the time the contract is terminated, unless the parties specifically agree that certain duties and obligations will continue to remain in force despite termination of the contract.
At the time of contract formation, it is of utmost importance for parties to pay attention to termination clauses and to visualise all possible circumstances in which the contract ought to terminate. It is important to bear in mind that circumstances that existed at the time that the contract was made can change, and the parties may, at a later stage, find it commercially unfeasible to remain committed to perform the duties and obligations originally agreed in the contract.
Article 102 of the Code provides that the parties to a contract can reach an agreement that the contract shall be considered terminated without need for a court ruling in case of failure (i.e. impossibility) to fulfil contractual obligations. Article 102 goes on to provide that such agreement between the parties (i.e. to terminate the contract) shall not exempt them from demanding payment due under the contract, unless parties agree otherwise.
Article 102 of the Code recognises the practical situation that contracts are made for a specific purpose, and if that purpose no longer exists or the parties are unable to achieve it, then through mutual consent, parties are free to terminate their contractual relationship.
Moreover, any such cancellation or revocation of the contract is without prejudice to either party’s right to claim payment due under the contract, unless both parties agree to waive it. These provisions of Article 102 are practical and in line with commercial reality.
Article 103 of the Code contains an important right vesting in a party aggrieved under a valid contract. This article provides that if one of the parties to a contract does not do what it is obliged to do under contract, the aggrieved party i.e. the party affected by non-performance may, after giving notice to the obligor, require that the contract be performed or cancelled.
This article further provides the court with the discretion to order the obligor to perform its obligations, to defer performance by the obligor to a specified time, and to order that the contract be cancelled and compensation paid in appropriate cases.
Article 103 is again a just and fair article in the Code that provides an aggrieved party with the right to notify and require the party under a contractual obligation to perform the same and with the right to cancel or terminate the contract.
The requirement of notice to be furnished on the obligor before exercising the right to terminate the contract is again a fair requirement under Article 103.
In addition to this right, the aggrieved party also has the right to seek court intervention to compel the obligor to perform its contractual obligations.
The courts would have the discretion to either require the obligor to perform the contract or to defer the performance to a specified time or order cancellation of the contract and pass an order for payment of suitable compensation by the obligor to the aggrieved party.
Article 104 of the Code covers another important provision under contracts known as “force majeure”. Force majeure, in general, are unforeseeable circumstances (e.g. war, famine, earthquakes, riots etc) that prevent fulfilment of contractual obligations. Generally, contracts either provide for the suspension of contractual obligations during force majeure event(s) or outright termination of the contract.
Article 104 provides that if force majeure occurs that makes the performance of a contract impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled.
This article goes on to provide that in case of partial impossibility due to force majeure, that part of the contract which is impossible shall be extinguished (lapse), and the same shall apply to temporary impossibility in continuing contracts, and in those two cases it shall be permissible for the obligor to cancel the contract provided that the other party is so notified.
It is advisable that all contracts should contain a robust force majeure clause that encapsulates the circumstances and events that are beyond control of the parties and upon the occurrence of which the contract would either be suspended (for the duration of those events) or stand terminated (after the passage of a specified time).
HASSAN SHAD
hassan.shad@arab-law.om
The author heads the Corporate and Commercial Practice at ARAB Advocates and Legal Consultants, Oman.
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