Get it right if you want to get out: Looking at termination rights under Qatar law

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OHL and Contrack v. Qatar Foundation [2019]

A decision of an English court in October 2019 has considered aspects of the Qatar Civil Code in the context of termination of a contract where a party was in default. This is an interesting development as construction disputes are typically settled by arbitration, where the findings are not made public, or by the local Qatar courts, where the judgments are published in Arabic. The English court’s approach is likely to be considered relevant and of interest for those working in the Qatar construction sector.

Facts 

Qatar Foundation (QF) terminated its contract with OHL and Contrack (JV) for the development of the Sidra Hospital Complex in Doha. The contract is governed by Qatari law, and allows disputes to be resolved by ICC arbitration seated in London. QF commenced arbitration against the JV, and the arbitral award was in QF’s favour. 

Issue

The JV challenged the tribunal’s finding at the English court, on the basis of serious irregularity, that QF validly terminated the contract in circumstances where termination was effected by service of a notice and not by a court (or tribunal) order.

Termination without court order

Under Article 184 of the Qatar Civil Code, it is permissible to agree that a contract is considered terminated, automatically, without the need for a court order when a party fails to perform its obligation under the contract. Further, such condition and the agreement would not limit the authority of the judge in relation to termination unless the contract expressly indicates that this is the parties’ intention.

The contract permits QF to terminate by giving notice if the JV is in breach. However, the contract does not contain express wording stating that QF can terminate without the need for a court order. The JV argued that termination by QF was invalid or unlawful on the basis that it did not obtain a court or arbitral order in accordance with Article 184. 

QF’s position is that no such order is required for termination in circumstances where the termination clause clearly and unambiguously allows QF to terminate the contract for breach by service of a notice. The tribunal found in favour of QF on this point and further found that it was not necessary for the parties to use specific wording in the termination clause that a court or arbitral order is not required. 

The English court dismissed the JV’s challenge. 

Implication

If a contract does not expressly permit an innocent party to terminate the contract for breach by service of a notice, a court or arbitral order may be required for termination in accordance with Article 184. If a court or arbitral order is sought prior to termination, the court or tribunal is unlikely to grant the order without first extensively considering the facts and merits of the grounds for termination. 

The commercial reality is that, in circumstances where a party is in serious breach giving rise to grounds for termination, the innocent party is likely to issue the termination notice without a court order to move things forward. If a defaulting party initiates proceedings to challenge the termination, the court or tribunal could either find that such order is not required or retrospectively give legal effect to the termination if there are strong grounds to terminate.

Despite the fact that this judgment is non-binding and does not set any legal precedent, it may offer comfort to a party if it is considering terminating a contract with a defaulting party, and whether it should seek a court order first, especially if the clause is clear and the parties have agreed that a notice is required.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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