Termination of Contract under UAE Law

Termination of the contract is governed by Section 5 of the UAE Civil Code from Article 267 to 275.

A valid contract can’t be terminated under UAE laws except by the following three modes:

1. With the mutual consent of the Party.

2. With an order of the Court.

3. Under the provision of the law.

First mode of termination of contract is by way of mutual consent of the parties. Under Article 268 of UAE Civil Code the contracting parties with the mutual consent can terminate the contract. As per Article 270 of the UAE Civil Code the revocation/ termination of contract should be by offer and acceptance in the session ( Majlis). The precondition for such termination is that the subject matter of the contract must be in existence. If part of the subject matter of the contract is not in existence then the termination shall be valid to the extent of the existing subject matter.   

The second mode of termination is by way of the order of the Court. However, Article 271 of UAE Civil Code gives freedom to the parties to dispense with the requirement of the court order for termination of the contract, if they mutual agree for that. If the parties mutual agree in a written contract that in case of non- performance of contractual obligation by one party, the other party has right to cancelled/ terminated by a party without need for a judicial order then there is no need to obtain a court order for termination of the contract.   

Article 272 stipulates the procedure to terminate the contract by a court order. If a party to contract fails to perform his contractual obligation, the other party may give notice to the defaulting party with an instruction to perform his contractual obligations or face termination. If the defaulting party failed to act upon the notice given by the other party, that party can move to the court for termination of the contract. Court may order the defaulting party to perform his obligation forthwith or may defer such performance for a specified period. Court may also pass an order for termination of the contract and can award compensation to the non- defaulting party.    

The third mode of termination of contract is by way of operation of law. Article 273 of UAE Civil Code governs the termination of the contract by operation of law. If performance of the contract becomes impossible due to force majeure conditions then the reciprocal contractual obligations of the parties shall cease and the contract shall stand automatically cancelled.

In case of partial impossibility, only that part of the contract which is impossible shall be extinguished and the same shall apply to temporary impossibility in continuing contracts.

Article 274 and 275 of the UAE Civil code deal the effects of dissolution/ termination of the contract.

Under clause 274, if the contract is cancelled/ terminated automatically or by the act of the parties, then the two contracting parties shall be restored to the position they were in before the contract was made, and if not possible, compensation may be ordered by the court.

As per Article 275 of the UAE Civil Code, if the contract is dissolved by the reason of voidness or cancellation or through any other cause and each of the parties is obliged to return that which he has obtained, it shall be permissible for each of them to retain what he has received so long as the other party has not returned what he has received from the former, or provided security for such return.

( You can mail to writer at azeez_nazar@rediffmail.com)