The previous article on the subject discussed some essentials of contract under the Oman Civil Transactions Law, Royal Decree 27/2013 (Code). These relate to subject-matter of a contract, ingredients of a lawful contract, and void and voidable contracts.
The Code contains several provisions on the effects of contracts i.e. the implications arising from contracts that have been validity and lawfully executed.
The Code requires all contracts to be executed in accordance with the contractual provisions agreed between the parties.
However, the Code specifically states that contracts must not be confined merely to committing the contracting party to its contents, but shall also deal with its requisites pursuant to law, customs and justice, in accordance with the nature of the obligation. In other words, even when contractual provisions have been agreed, the duties and obligations that they give rise to are not to be viewed in isolation, but in the context of law, customs and justice, depending upon the nature of the obligation.
The above provision is important in the social and cultural milieu of the Sultanate of Oman, as cultural mores and norms in different forms and manifestations typically underlie private contracts entered between contracting parties. Based on the above provision, parties to a contract may invoke customary practices that relate to an obligation agreed under a contract. The burden of proving the existence of the customary practice and the fact that it relates to the contractual obligation under question, would be on the party alleging it.
The Code also contains provisions that deal with one party failing or refusing to perform its contractual obligation. To this effect, the Code provides that if mutual obligations under a contract are due for performance, either party to the contract may refuse to perform his/her obligation if the party does not perform that which he/she is obliged to do. As to how this provision would be interpreted by Courts in the event of a dispute between contracting parties would, of course, vary from a case-to-case basis and depend upon the terms of the contract.
In line with the tenets of equity and justice, the Code contain a very important rule that relates to “contracts of adhesion”. The Code provides that if a contract of adhesion contains unfair provisions, it shall be permissible for the court to vary those provisions or to exempt the adhering party therefrom in accordance with the requirements of justice, and any agreement to the contrary shall be void.
Contracts of adhesion are contracts that are offered on a take-it-or-leave-it basis. Contracts of adhesion exist in many forms such as “standard terms” offered by sellers of goods or services. Consumers are typically made to sign such contracts without being given the right to modify or alter the terms of such contracts. The presumption under adhesion contract in many legal jurisdictions around the world is that the typical bargaining power that normally exists between two contracting parties i.e. to negotiate the terms of the contract or the price are non-existent in the case of adhesion contracts. Generally, courts therefore view adhesion contracts with suspicion and scrutinize their terms and sometimes void certain provisions because of the possibility of unequal bargaining power, unfairness and unconscionability.
In light of the above rule on adhesion contracts under the Code, it may be noted that adhesion contracts are not, per se, void or illegal. The remedy available to a party that has acceded or agreed to an adhesion contract which contains unfair provisions is to invoke the jurisdiction of a court seeking the court’s intervention to vary the unfair condition or to exempt it from complying with the unfair provisions. As to what constitutes “unfair conditions” is a subjective and open-ended term and the interpretation of this term would depend upon the subject-matter of the contract and the nature of the good or service, amongst other relevant factors.
The Code also provides that if exceptional circumstances of a public nature, which could not have been foreseen, occur as a result of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the court, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void.
The above provision under the Code does not elaborate upon terms “exceptional circumstances of a public nature” or “grave loss”. In the absence of the aforesaid terms being defined, much would the judicial construction or interpretation of these terms by Omani Courts. The next article on the subject will touch upon the recognised rules of interpretation of contracts under the Code.