DIFC Contract Law
Is the Law of Contracts a complete descriptive theory, explaining what the law is? Or is it a complete normative theory, explaining what the law should be? The traditional definition of a contract is one embracing all promises that the law will enforce. However, even a theory that focuses only on the enforcement of bargains in the law of contracts must still consider the entire continuum from standard form commercial contracts between business firms to contracts between firms and consumers. A law of contract which comprehends such a broad domain has not yet been explained by any descriptive theory.
As per the basic principles of English Contract Law, a contract is an agreement giving rise to obligations which are recognized or enforced by law. The 3 basic essentials to the creation of a contract:
- contractual intention; and
The first essential of a contract is that the parties should have reached an agreement, which is generally when one party makes an offer, which is accepted by another party. The English courts will apply an objective test in deciding whether the parties have reached an agreement. In Stover v Manchester City Council ( 1 WLR 1403), an offer was defined as an expression of willingness to contract on specified terms with the intention for it to be binding once it is accepted by the person to whom it is addressed.
In Carlill v Carbolic Smoke Ball Company ( 2 QB 256), a medical firm advertised that flu would be cured by its new drug, a carbolic smoke ball, and if it did not cure, buyers would receive £100. When sued, Carbolic argued the advertisement was not a legally binding offer; it was merely an invitation to treat, a mere puff or gimmick. However, the advertisement was held to be an offer by the Court of Appeal. An intention to be bound could be inferred from the statement that the advertisers had deposited £1,000 in their bank "shewing our sincerity".
The Dubai International Financial Centre Law Number 6 of 2004, cited as the Contract Law 2004 (the "Law"), applies in the jurisdiction of the Dubai International Financial Centre (DIFC). Nothing in the Law requires a contract to be evidenced by or concluded in writing. The contract shall be proved by any means, including witnesses. A validly entered contract is binding upon the parties and can be modified or terminated only as per its terms or by agreement or as otherwise provided in the Law. However, the parties to a contract may exclude the application of the Law or digress from or alter the effect of any of their provisions, except as otherwise provided in the Law.
The acceptance of an offer concludes the manner of formation of a contract in the Law. A contract is modified, terminated or concluded by the mere agreement of the parties, without any further requirements. As per the Law, a proposal for concluding a contract constitutes an offer provided it is sufficiently definite along with indicating the intention of the offeror as one to be bound in case of acceptance. However, an offer can be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer. Similarly, an offer may be revoked if the revocation reaches the offeree before it has dispatched an acceptance.
DIFC being an international centre paves the way for linguistic discrepancies. The Law states that where a contract is drawn up in two or more language versions which are equally authoritative and in case a discrepancy between the versions arises, preference shall be given to the interpretation as per the version in which the contract was originally drawn up.
The Law states that the contractual obligations of the parties may be express or implied. Article 57 of the Law states that the implied obligations arise from:
- the purpose and nature of the contract;
- usages and practices established between the parties;
- fair dealing and good faith; and
Article 62 of the Law states the “Price determination”. Where a contract has not fixed or made provision for determining the price, in the absence of any indication to the contrary, the parties are considered to have referred to the price charged at the time of concluding the contract for such performance in comparable circumstances and to a reasonable price when no such price is available. The price shall be a reasonable price also in case the price was to be fixed by a third person, and that person does not or cannot do so. When the price is to be fixed by reference to factors which have ceased to exist or to be accessible or do not exist, the nearest equivalent factor shall be treated as a substitute.
While Part 7 of the Law deals with the time, order, place and payment of Performance, Part 8 of the Law states regarding the Non-Performance. Non-performance has been defined in Article 77 of the Law as a failure by a party to perform any one or more of its obligations under the contract, including defective performance or late performance.
However, the non-performing party may, at its own expense, cure any non-performance, provided:
- it gives notice regarding the proposed manner and timing of the cure, without undue delay;
- the cure is appropriate in the circumstances;
- the aggrieved party holds no legitimate interest in refusing the cure; and
- the cure is effected promptly.
Article 82 of the Law also mentions about Non-Performance in case of Force majeure. Except with respect to a mere obligation to pay, non-performance by a party is excused when the party is able to prove that:
- the non-performance was due to an impediment beyond its control; and
- the party could not reasonably be expected to have considered the impediment at the time of concluding the contract or avoided and overcome it or its consequences.
For when the impediment is temporary, the excuse of Non-Performance shall have effect for such reasonable period considering the effect of the impediment on the performance of the contract. Notice of the impediment and its effect on its ability to perform must be given to the other party by the party who fails to perform. Failing to give notice within a reasonable time may hold the party that failed to perform liable for damages resulting from such non-receipt. However, a party can still exercise a right to terminate the contract or to withhold performance or request interest on money due.
Part 9 of the Law deals with the assignment of rights and obligations. An assignment of a contractual right is a transfer by virtue of which the assignor's right to performance by the obligor is extinguished in part or in whole, and the assignee acquires a right to such performance. An assignment of a contractual obligation is a delegation of the obligation to the assignee. An assignment of a contract by a party is an assignment of the contractual rights and delegation of the contractual obligations of the party.
Part 10 of the Law lays down the rights of the third-party to enforce the contractual term. A "third-party" is a person who is not a party to the contract. The third-party must be expressly identified in the contract by name, as a member of a class or as fitting a specific description but need not be in existence when the contract is entered into.
The third-party may in his own right, enforce a term of the contract provided:
- the contract expressly provides that he may do so; or
- the term purports to confer a benefit on him unless it appears that the parties did not intend the term to be enforceable by the third-party.
Part 11 of the Law lays down provisions for the right to damages. Non-Performance, except if excused under the Law, gives the aggrieved party a right to damages exclusively or in conjunction with other remedies. The Non-Performing party is liable only for harm which it had or could reasonably have foreseen at the time of concluding the contract as being likely to result from its Non-Performance. The aggrieved party is granted full compensation for harm sustained, the loss which it suffered or any gain of which it was deprived, as a result of the Non-Performance. The assessment is at the discretion of the Court when the amount of damages cannot be established with a sufficient degree of certainty.
Part 12 of the Law lays down provisions for "Agency". An agency relation exists only when there has been consent by the principal to the agent that the agent may act on his account, and consent by the agent to act so. A general agent is an agent authorized to conduct a series of transactions involving continuity of service, and a special agent is an agent authorized to conduct a single transaction or a series of transactions not involving any continuity of service. The Law also provides for the Disclosed principal; Partially disclosed principal; and Undisclosed principal along with providing for authority, liability and indemnity of the Agency relation.
The contribution of the classical contract law to the modern law of contract is a mixed one. The most enduring legacy is the conception of contract as an institution and their insistence on the contract’s independence from other forms of legal obligation. By contrast, classical lawyers’ monolithic view of a contract is outdated and harmful to modern law. To combat the needs of an increasingly complex society in Dubai, the DIFC Contract Law had to be more complex and more sophisticated. The relativity to English Contract Law was essential as the DIFC Contract Law was adequately to perform the plethora of roles assigned to it.
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