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September 28, 2019
There may be a lot of discrepancy and ambiguity in the pages of a contract which may not be spotted by the naked eye. A scrutiny of the provisions of the contract is required to avoid any unfortunate issues in the future. Reviewing the commercial terms, the termination clause, and provisions related to damages and/or penalty, if applicable, are important considerations. One must also have adequate information about the other party, including their identity documents, and corporate license, if available, amongst others.
It isn't uncommon for parties to ignore the provisions of the contract and sign it without truly recognizing the obligations the contract entails. Always consult Legal Consultants in Dubai before binding yourself under an agreement which fails to safeguard your interests. Nevertheless, the Lawyers of Dubai will give the readers some essential tips on the crucial considerations to keep in mind while reviewing a contract.
1. Law Governing the Contract
All the contracts within the UAE are governed by several laws such as Federal Law Number 5 of 1985 (UAE Civil Code), Federal Law Number 18 of 1993 (Commercial Transactions Law), and Federal Decree-Law No. 32/2021 On Commercial Companies (Companies Law).
The applicability of a specific law depends on the type of agreement, for example, any commercial contract will be governed by Commercial Transaction Law, whereas any contract entered into between the partners of the company will be governed by Companies Law, etc. In addition to the above, the contract may be governed exclusively by particular laws promulgated for such specific types of contracts, for example, employment contracts are regulated by the Labor Laws of UAE.
2. Right to Contract
It is indeed pertinent for the contracting party to determine whether or not they have the right to contract or if they have fulfilled the fundamental elements for entering into the contract.
These include the capacity to contract, mutual consent to a contract, a constitutional subject matter and permissible legal obligations. Besides the above, the UAE Law obliges the parties to evidence the offer and acceptance, true intent and the parties' capability to enter into a contract.
A contract is said to be valid if it is legal in its essence and characterisation, issued by a person capable of signing, has legal object and cause and is not subject to a void condition. That said, there are certain contracts which may be void or voidable, for example, any contract to commit a criminal act or any contract which is against the moral and public values of the country is void ab initio. Any contract signed by the party who cannot contract will be null and void.
3. Bona Fide Intentions
Legal jurisprudence offers substantial significance to the good faith or bona fide intentions of the parties while entering into any commercial arrangement. It is very pertinent for the parties to have true intentions while signing the contract, which can be evident from the terms and provisions of the contract.
Usually, most contracts should have a confidentiality clause as once the parties agree with the terms and conditions, the next step is to allow access to confidential information. Accordingly, it is generally a good practice to have a confidentiality clause, safeguarding information and restricting them to pass on such information which can jeopardize the market position of the contracting party.
Although UAE law will be able to protect either of the contracting parties from violation of the right to privacy, it is certainly important to put such a confidential clause in the contract which can protect the parties from unforeseen circumstances.
5. Termination Provision
The termination clause is an important provision in the contract and should be reviewed thoroughly before signing. A termination clause is inserted in the contract allowing either party to terminate the contract mutually. This is per the UAE Civil Code which authorizes the parties to terminate the contract either by mutual consent or by court order or operation of law.
The termination by mutual consent empowers the parties to terminate the contract due to non-performance of contractual obligations or breach of any provision or by mutual decision. Accordingly, the presence of a termination clause can prevent the parties to approach UAE courts for terminating any agreement and subsequently prevent legal and court expenses.
Nevertheless, these clauses are tricky to understand and determine the events upon the happening of which the party will be authorized to terminate the contract.
6. Governing Law and Dispute Resolution
Last but not least, the governing law and the dispute resolution clause are one of the most crucial provisions which set out the law governing the contract in the event of a dispute. The clause will also set out the dispute resolution authority which will have jurisdiction to hear the matter of dispute.
The agreement may refer to arbitration as a dispute resolution mechanism, and prevent either party from registering a case before the civil courts and vice versa. While reviewing the governing law clause, one must consider the territorial jurisdiction of the contract, the value of the contract, costs related to the dispute resolution procedure and other relevant matters to arrive at a dispute resolution mechanism which is commensurate with the factors listed above.