property law

|

September 01, 2019

|

3277 views


| Your comment matters, please click here to rate article!



Contractual relationship may come to an end; the trust may vanish and, in the troublesome financial atmosphere, organizations or people can be declared bankrupt. Thus, the clause allowing either or both the parties to rescind a construction contract should be considered prior to signing the agreement. In the legal world, this clause is known as the Termination of the contract. Termination of a construction contract can exhibit genuine dangers and has a vast impact if done inappropriately. This is on the basis that if termination is done without appropriate reasons is itself deem to be a rapture of an agreement. It is thus vital that both the parties comprehend and value the law of the contract termination and subsequent procedures. Ergo, it is always advised by Construction Lawyers of UAE to beware of the legal consequences prior to taking such a drastic step and should never be taken lightly.

Common Grounds for Termination

Ideal Construction contracts set out the premise on which the party can terminate the agreement, some of the common grounds on which parties are allowed to rescind the contract are as follows:

  • Either party is declared bankrupt and pays off the creditor;
  • Either party is insolvent;
  • Contractor fails to abide by the obligations under the contractor fails to perform the construction works properly;
  • Construction work is suspended due to court or any other relevant authority;
  • Failure of the owner to remunerate the contractor;
  • Owner breaches the contract.

In lieu of the foregoing, there are numerous consequences of termination which can involve significant work for replacement contractor, if the previous contractor was terminated or for the contractor it may lead to non-payment of dues by the employer. Even if the employer has the potential to clear the outstanding dues of the contractor. Due to a considerable number of challenges emerging out of terminations, it is prudent for contracts to contain "early warning" systems that can alert the parties towards the violations and allow them to undo the breach. All things considered, termination can be the main practical choice in specific circumstances (for example in bankruptcy or failure to perform contractual obligations), and this article will address some vital points to consider regarding the termination of construction contracts and subsequent consequences.

Are you sure you can Terminate?

At the time of terminating the contract, the terminating party should be assured that he holds a lawful right to terminate the contract and follows the legal procedures to terminate the contract. It is exceptional for parties to erroneously presume that they have the privilege to end in a specific circumstance and to terminate without possessing a legal right to do so. As a result, the termination will be ineffectual, and the terminating party will be exposed to unnecessary civil claims for damages. Instead of being the blameless party, the party who inadequately ends the agreement accidentally becomes the party in breach.

Termination rights within contracts

Given the difficulties in the law to terminate the agreement, parties often agree on certain obligations, breach of which lead to the termination of the agreement. Subsequently, it mentions the conditions that will be followed during termination along with the compensation clause. The preceding is based on the FIDIC form which governs the construction contracts.

UAE law and Termination

The Civil Law and the Commercial Transactions Law of UAE govern the termination of construction contracts which is also referred to as Muqawala Contracts and states that "a contract of muqawala shall be terminated upon completion of the works as agreed between the parties or upon termination of the contract post receiving order from the competent court."

The law further sets out rights of termination mutually; it is essential that the agreement gives that the termination can be effective even without a court order. In the event that the agreement does not have such a condition, the terminating party is required to inform the other party of its intention of terminating the contract prior to seeking court's order. However, if there are no conditions which allow parties to terminate the contract on their terms, they may any time seek assistance and consent of competent court before taking such action.

Additionally, the relevant court will contemplate all relevant positions of both the parties while determining to terminate the contract or not. Contingent upon the circumstances, the may order for specific performance of the contract as a replacement of the termination. The concerned ordered provides an opportunity to the breaching party to remedy the wrong and fulfil the pending obligations. The event of force majeure can also lead to termination of the contract as these are certain unforeseen events which can make it impossible for the contractor to perform his contractual duties.

Repercussion of Termination

The core value is that compensation ought to be equivalent to the quantum of the damage endured. Under the Civil Code of UAE, a party is qualified for damages equal to "harm, indeed, endured post the occurrence of an event". Without extortion and gross carelessness, certainty and predictability are required so as to recoup damages from breach of the agreement.

So as to deal with the procedure following termination, parties every now and again concur on a legally binding component that applies to the change. For instance, if an Employer terminates by virtue of a Contractor's violation, usually for the Employer to not be forced to make additional payments to the contractor until the expense of finishing the works has been resolved. The expectation of such wording is to guarantee that the Employer is in the loss on account of appointing a replacement contractor.

An employer should subsequently hold the right to recover from the contractor the relevant documents of the constructions and the ability to recover anything pertaining to the contract. A Contractor who terminates by virtue of the Employer's breach is normally qualified for damages under the contract and the out of pocket expenses incurred by the contractor. Parties are allowed to concur the appropriate rate of interest on the late payment, subject to a maximum of 12%.

Conclusion

At the time of finalizing the contracts, parties should be equally focused on the termination clause compared to other contractual obligations, to be prepared for the worst. Unfortunately, construction projects frequently encounter issues ergo; it is pertinent that parties spend the time to agree well-drafted termination clauses to facilitate the challenging process of termination.

Related Links


Copyright © of this article is retained by the author and/or other copyright owners. We explicitly grant you permission to download a copy, without any alteration, of this article for personal non-commercial research or study, without prior permission or any charge. This article can be utilized on your website or for marketing, however, we grant you permission to host this article on your website and no other rights. This content should not be altered in any way or sold commercially in any format without prior permission of the copyright holder. During reference of this article, full biographic details entailing the name of the author, his designation, the institute and the publishing date of the article shall be provided.


Client Testimonials

I owe the success of my case to Dr. Hassan's diligent approach. He remained focused, put me at ease and always went the extra mile. Dr. Hassan tirelessly put my case in the best possible light and I cannot thank him enough. I would highly recommend Dr. Hassan - I am grateful to him from the bottom of my heart.

Raphael Lauria
Manager, FME General Trading

Dr. Hassan Elhais is among the best legal consultants I have ever worked with. He has an amazing ability to reduce complex issues into a simple concept that non-legal people can understand. He consistently develops innovative litigation strategies that help us to achieve our ultimate legal goals.

Zhuo Liu
Client

...the extraordinary effort that has been exerted by the staff, and we specially thank Dr. Hassan Mohsen Alhais. Wishing your continues success & excellence...

H.H. Sheikh Saeed Bin
Mohammed Hashir Al Maktoum

I believe everyone should recognize what a difference Dr. Hassan Elhais work has made to people's lives; and especially to our family's life, because we will remain forever grateful to each and every one of his team.

Luis Pozueco
Client

Dr. Hassan Elhais never fears cases that involve exposure and he always gives me his honest assessment of our chances of success, which is invaluable to me.

Bassam Yamout
Director, JM Metal Trading LCC

He aided us not only in providing legal advice but also in all legal issues that required a long term strategic approach to achieve most favorable and optimum outcomes he provided us with high level of professional service.

Philippe Delbecq
Client

Dr. Hassan Elhais is a responsible, reputable counsel who operates to high levels of service.

British Client

Dr Hassan Elhais is responsive, thorough and creative with his advice, and is a valued advisor and legal consultant.

Asma Mattar
Manager, Italian Style

Regardless of the complexity of the matter I know Dr. Hassan Elhais will consider not only legal strategy but also business practicalities in providing advice and litigation options.

Dr. Massimo Hakim
Chairman, Italian Style

I recommend Dr. Hassan Elhais to anyone who says 'I'm in legal trouble'. I was extremely satisfied with the high standard of his work. He has always been there when I have needed him and I refer all my clients, family and friends to him/his firm.

Manish Gupta
Marketing Manager, Express Digital System

Dr. Hassan Elhais was very professional and he listened to my needs. He was very prompt, efficient and always kept me informed. Dr. Hassan Elhais's service was excellent and I would definitely recommend him to friends and colleagues.

James Horsley
British Client

Comments

No comments found.

Leave a Comment

Your email address will not be published. Required fields are marked *

Want to know more?
Then talk to us.


Select your Language:

        

Main Menu