One of the most frequent questions we receive at DY Legal Consultants is: “Can I get out of this contract?” The short answer is yes, but the process is strictly regulated. The UAE Civil Code embraces the principle of Pacta Sunt Servanda—agreements must be kept.
However, situations arise where a business partnership becomes untenable. Understanding the legal grounds for termination (Article 267) and the remedies for breach (Article 272) is vital to avoiding liability for wrongful termination.
The Three Legal Ways to Terminate a Contract According to Article 267 of the UAE Civil Code, a binding contract cannot be revoked unilaterally unless:
- By Mutual Consent (Iqala): Both parties agree to end the relationship. This is the safest route. It acts as a “rescission” where parties are often restored to their pre-contract positions.
- By Court Order: If there is a dispute, a judge must declare the contract terminated.
- By Provision of the Law: Such as in cases of Force Majeure (impossibility of performance).
Termination for Breach (Article 272) If your counterparty fails to perform their obligations, you cannot simply walk away unless your contract explicitly allows for “termination without court order” (as per Article 271).
If your contract is silent on this, Article 272 governs the process:
- Step 1: Notice. You must formally notify the other party of the breach and give them a chance to rectify it.
- Step 2: Judicial Review. If they fail to rectify, you may approach the court. The judge has three options:
- Order “Specific Performance” (force the party to do the work).
- Grant the debtor a “grace period” to finish the work.
- Order termination and damages if performance is no longer useful.
Unilateral Termination: A Risky Move
Many foreign investors assume they can terminate a contract “for convenience” (without cause) by giving notice. In the UAE, unless the contract specifically grants this right, unilateral termination can be considered a breach of contract itself. The party terminating “for convenience” may be liable to pay the other party for loss of profit for the entire remainder of the contract term.
Remedies: What Can You Claim?
If the contract is validly terminated due to breach, the innocent party is entitled to compensation.
- Actual Damages: Proven financial losses incurred directly due to the breach.
- Loss of Profit: Under UAE law, you can claim lost profits, but they must be “certain” and not hypothetical.
Moral Damages: In some cases, damage to business reputation can be claimed.
The Importance of a “Notice to Cure”
Before terminating, you generally must send a legal notice demanding performance. Failing to send this notice can result in the court rejecting your termination request, even if the other party is in the wrong.
How a Lawyer Can Help
Navigating Article 271 (contractual termination) vs. Article 272 (judicial termination) is complex. A contract lawyer can help you draft the termination notice correctly to ensure you don’t accidentally breach the contract yourself while trying to exit it.
Is a business partner breaching your agreement? Call DY Legal Consultants for an immediate strategy session.
