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Consultation Paper No. 3 Contract Law

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January 2003

This Draft Law is published for consultation purposes only. The regulatory authority reserves the right to amend this draft at its sole discretion. the enactment of this Draft Law is conditional upon the official publication of a Federal Decree the Amendment of Dubai Decree NO. 3 OF 2002, and the issuance of the Law by the chairman of the DIFC.

CONTRACT LAW OF THE DUBAI INTERNATIONAL FINANCIAL CENTRE

Primary Purposes

1. To establish freedom of contract in the DIFC.
2. To provide for the creation of binding contracts without formalities.
3. To establish a simple, workable legal framework governing the formation, validity, interpretation, content and assignment of contracts.
4. To establish rules relating to the performance of contract obligations and to provide effective redress in the event of non-performance for aggrieved contracting parties and third party beneficiaries.
5. To establish a complementary and coherent rules governing agency relationships.

Summary

Part 1: General

Establishes the title, authority, application, enactment, commencement and interpretation of the contract law.

Establishes freedom of contract; establishes that a binding contract can be created without formalities; establishes the binding nature of established usage within a trade or between parties; establishes the meaning of notice.

Part 2: Formation

Establishes that a contract is formed by the acceptance of an offer; establishes the definition of Offer and the possibility of revocation, withdrawal or rejection of an offer; establishes principles governing the mode, timing and withdrawal of acceptance; establishes the concept of 'counter-offer; establishes a duty of confidentiality but no duty of good faith in contract negotiations; establishes rules for the situation where contract terms are left undecided, where negotiations are expressed to be subject to contract, or where unwritten terms are excluded by a written contract; establishes rules for contracting on standard terms.

Part 3: Validity

Establishes rules relating to initial impossibility, mistake and transmission error in contracts; establishes mandatory rules relating to the right to avoid a contract in cases of fraud and where a contract is brought about by threat; establishes rules relating to confirmation by a party of a contract that he is entitled to avoid.

Part 4: Interpretation

Establishes rules for the interpretation of contracts.

Part 5: Content

Establishes certain implied contractual obligations including implied obligations to co-operate and to use best efforts and, in the absence of express provision, implied provisions as to reasonable quality of performance and reasonable price.

Part 6: Performance

Establishes rules relating to the time and place for contractual performance and the mode of payment where performance is by payment.

Part 7: Non-Performance

Defines non-performance; establishes the right to cure by the Non-Performing party and a right to allow additional time for performance by the aggrieved party; establishes the right to terminate for non-performance and the concept of anticipatory non-performance; establishes the concept of 'force majeure'; establishes the effects of contract termination and the concepts of restitution and set-off.

Part 8: Assignment

Defines assignment; establishes rules governing assignment.

Part 9: Rights of Third Parties

Establishes a right for a third party to enforce contract terms if he is expressly identified in a contract and either expressly permitted to enforce a term or benefits from a term that purports to be enforceable by him. Establishes restrictions on variation or rescission of a contract without the consent of such a third party beneficiary.

Part 10: Damages

Establishes the right to damages and compensation for reasonably forseeable harm sustained as a result of contractual non-performance; establishes rules on the measure of harm; establishes a duty to mitigate harm; establishes the recoverability of interest on unpaid debts and on damages; establishes a 6 year limitation period on actions for breach of contract which can be reduced to not less than one year by contract between the parties, but which is not capable of being extended.

Part 11: Agency

Defines the principal of agency; establishes the concepts of 'general agent' and 'special agent', establishes the concepts of 'disclosed principal' and 'undisclosed principal'; establishes the concepts of 'authority', 'apparent authority' and 'incidental authority'; establishes the duties and liabilities of an agent; establishes, in certain circumstances, a principal's duty to indemnify an agent; establishes the concepts of 'affirmation' and 'ratification' by a principal of the acts of an agent; establishes the liabilities and defences to liability of a principal.

Submission of Comments

Please note, that although each draft is in near final form, it is still 'work in progress' and may therefore undergo further amendments prior to enactment. However, it is anticipated that any amendments would be technical in nature rather than substantive and therefore the Regulatory Authority believes it is a sensible time to engage in consultation.

Any persons wishing to submit comments should, where applicable, provide details of the organizations they represent. In addition, persons suggesting alternative approaches are encouraged to submit the proposed text of possible amendments that would be necessary to incorporate their suggestions.

Please note that the names of the commentators and the content of their submissions may be published on the Regulatory Authority website and in other documents to be published by the Regulatory Authority. If you wish your name to be withheld from publication by the Regulatory Authority, please indicate this when you make your submission.

Any comments should be addressed to Ms. Roberta Calarese, Legislative Counsel, Regulatory Authority, P.O. Box 74777, Dubai, u.a.e. All comments should be provided in writing no later than 28 February 2003.