Compensation for Breach of Contract Dubai – Damages under UAE Law
Posted by 7starsdubai on February 22, 2012
Consideration should be given to whether contracts yet to be entered into should specifically address these issues.
But what if the decision is taken not to do so or an existing contract does not address damages?
The Civil Code provides an entitlement to compensation for breach of contract even where the contract itself does not provide for such compensation.
Damages under UAE Law
The purpose of damages is to compensate a party for any loss suffered as a result of default by counterparty to a contract.
If damages for a breach of contract are not fixed under a provision of the law or in the contract itself, the Civil Code gives the court discretion to assess compensation “in an amount equivalent to the damage in fact suffered at the time of the occurrence”. The focus here is on the actual loss suffered by a party and gives the court a broad discretion to determine an appropriate award of damages on the basis of the facts and evidence before it. However, how is the ultimate determination made and what limits are imposed on the amount of compensation that may be awarded?
Other provisions of the Civil Code that do not specifically relate to contractual damages may give some guidance as to how compensation may be assessed by a court: “In all cases the compensation shall be assessed on the basis of the amount of harm suffered by the victim, together with loss of profit, provided that it is the natural result of the harmful act”.
The key element of this provision is that a party suffering loss will be compensated for that loss, including any loss of profit, which flows naturally from the default. The explanatory memorandum to the Civil Code says damages are payable in respect of the actual loss suffered as well as loss of expectation (that is loss of an opportunity to obtain a benefit under a contract or to avoid a loss).
Each type of damages claimed will need to be substantiated and shown to result from the breach. Consequential (or indirect) losses will generally only be recoverable where it can be shown that the party causing the loss did so with a malicious intent. While it is important to keep in mind the award of damages is always at the court’s discretion, a specific damages regime in a contract can have the benefit of providing greater certainty as to a party’s right to contractual damages and can assist parties negotiate ways of avoiding recourse to court in this challenging environment.
Read also Contract Law in UAE
UAE contract law – 5 legal points to remember
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UAE contract law – 5 legal points to remember
When overseas investors in the UAE negotiate their contracts, the choice of governing law for their contract can be a point of contention. Often, foreign parties want to choose a neutral and well-established law, such as English law or New York law.
However, the respective bargaining powers of the parties may result in the foreign investor agreeing to UAE law. In other scenarios, the UAE law itself may dictate that it should be used to govern the contract, such as is required for Dubai government contracts under a Decree from 1988. Certain other types of contracts are also required to be governed by UAE law in practice, including UAE employment contracts and memoranda of association to establish a UAE company.
This article focuses on a few key legal points to note under UAE contract law as set out in the UAE Civil Code, particularly where they are different to English or other common law jurisdictions.
Beware of agreements to agree – the courts may enforce the missing details
Article 141 of the UAE Civil Code provides that the parties to a contract must agree on the essential elements of the obligation, but that they can leave matters of detail to be determined at a later date. In this circumstance, if a dispute arises, the judge will make a ruling on the missing terms in accordance with the other provisions of the contract and the law. However, it is clear from the Ministry of Justice official commentary that, for a UAE court to do so, it must be clear that the parties intended to reach an agreement even if they fail themselves to finalise all of the details of the contract.
This departs from the usual position under English law, for example, under which agreements to agree in the future are generally not capable of being enforced. Contracting parties may often tactically choose to phrase a point of detail as an agreement to agree in the full knowledge that if they do not agree in the future, it will not become a term of the contract.
It is also worth noting in this context that the implied obligation of performance in good faith may mean that the courts will find bad faith (and therefore a breach of contract) if the parties fail to agree in certain circumstances, such as one party failing to take reasonable efforts to reach an agreement, or entering into parallel negotiations with a third party.
Therefore, under UAE contract law, parties may be well advised to expressly state that there is no intention that the parties will be bound by Article 141, unless and until an agreement is entered into in writing between the parties.
Only fraudulent behaviour constitutes misrepresentation
Common law lawyers are used to the legal concept of misrepresentation forming an alternative cause of action to breach of contract for parties who have been induced to enter into a contract by statements made by one party which have subsequently be proven to be untrue (and which may also be incorporated in the contract in the form of warranties, for example). Misrepresentation is effective because its scope is wide and includes innocent and negligent statements. It may also be fraudulent or reckless. It has a different basis for the calculation of compensation to a claim for breach of contract and also allows rescission of the contract.
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