Termination is the ultimate self-help remedy under a construction contract, but is it really a “self” help remedy?
Most construction contracts contain some provisions for termination, including FIDIC and the FIDIC based contacts found in Qatar.
The employer is likely to be able to terminate for events such as the contractor’s: insolvency; failure to provide performance security; failure to comply with a notice to correct; failure to proceed with the works as required by the contract; abandonment; or subcontracting the works without consent.
Typically the employer will be required to give notice to the contractor prior to terminating the contract. Though interestingly, in the case of FIDIC even if the contactor remedies the default during the notice period, this does not extinguish the employer’s right to terminate.
The standard form FIDIC contract will allow the contractor to terminate, on notice, if (amongst other things) the employer: fails to make payment, within the timescale, of any sum due; fails, substantially, to perform his obligations under the contract; or becomes insolvent. Though in Qatar, at the moment, you can expect these provisions to be deleted.
A construction contract will set out what happens on termination. For example the value of the work shall be determined and the employer may then deduct/recover the additional cost of completing (or using a third party to complete) the works.
Similar provisions can be found in the law: if one party fails to fulfil its obligation the other party may, after giving notice, seek rescission of the contract together with compensation. However, the word “seek” is indicative of the need to obtain an order of the court to effect the rescission and that rescission may be refused by the judge, in particular if he considers the default to be minor (he might award money instead). Alternatively, the judge may give the defaulting party opportunity to rectify its default or allow the employer to engage a third party to rectify the default.
Does this mean that a party wishing to terminate a contract needs to obtain an order from the court first? Even if the contract allows for termination?
The law actually allows for the parties to agree, up front, in their contract that a court order is not necessary. Though the contract must to be explicit that it is the intention of the parties that the contract will automatically rescind upon the happening of an event. Rarely does a construction contract do this. Typically, standard form contracts allow a party to elect to terminate (e.g. the employer may terminate…”) rather than provide that it should occur automatically.
On this basis it is often argued that it is not possible to terminate a construction contract in Qatar without a court order (save in the presence of explicit wording, as mentioned above). Argued by the “terminated” party seeking to challenge the validity of a purported termination.
However, the Civil Code does not operate so as to limit the will of the parties in this way. Those trying to avoid the consequences of termination ignore a crucial distinction between the provisions set out in a construction contract and those of the Civil Code:
The contractual termination rights are merely terminating certain of the contractual rights and obligations, it is intended that the contract remains in force and indeed it provides for a series of events (usually valuation and payment related) to flow from the exercise of the option to “terminate”.
The Civil Code by contrast contains provisions for the contract to be extinguished. It operates to put the parties back into the position they would have been in had they not entered into the contract in the first place.
Therefore, the law will uphold the termination provisions of the construction contract without the need for any court order. Termination is a “self” help remedy. A court order is only required where one party wishes to treat the contract as if it never existed.