Can you end a commercial contract early in Qatar, and what does it cost if the other side breaches?

Can you end a commercial contract before it expires?

Not just because it no longer suits you. A contract is the law of the parties: it can be revoked or changed only by agreement or on grounds the law allows (Civil Code Article 171). Stopping without a legal basis makes you the party in breach, liable for compensation (Article 256). The lawful routes are:

For employment contracts, see resigning in Qatar.

How do termination clauses and express termination clauses work?

Contracts are performed as written and in good faith (Article 172), so follow the clause's notice period and method.

• A clause ending the contract automatically on default, without a court ruling, works only if its wording is explicit; so does any clause limiting the judge's power over termination (Article 184).
• Outside commercial matters, such a clause does not remove the need for formal notice, whatever the parties agree (Article 184).
• A party that reserved a right to terminate against a set payment loses it once it performs, or accepts the other side's performance (Commercial Law Article 85).
• In commercial matters, once a performance deadline has passed, the creditor need not accept late performance unless agreed otherwise (Commercial Law Article 84).

For drafting them, see reviewing a contract before you sign.

When will a court terminate a contract for breach, and what is formal notice?

If one party to a two-sided contract fails to perform, the other may, after formal notice, ask the court to end it, with compensation if due. The judge may instead give the debtor time, or refuse if the breach is minor compared with the whole (Article 183). For commercial debts, time to pay or instalments are allowed only where the law provides, or in extreme necessity without serious harm to the creditor (Commercial Law Article 79).

Formal notice («إعذار») is an official demand to perform. Compensation is due only after it, unless the parties agree or the law provides otherwise (Article 260).

Where both sides' obligations are due, each may withhold performance until the other performs, unless agreed otherwise or custom differs (Article 191).

What about force majeure and changed circumstances?

The Civil Code separates impossible performance from performance that is possible but excessively onerous.

A debtor owes no compensation if it proves an outside cause (Article 256), such as force majeure, a sudden accident, or the fault of the injured party or a third party (Article 204). If performance is only partly impossible, the creditor may keep the rest or ask for termination (Article 188).

Check your force majeure clause first: many set a notice deadline. For construction, see construction payment disputes.

What does a breach cost? Damages, penalty clauses and earnest money

The party in breach pays compensation, set by the court if neither the contract nor the law fixes it (Articles 256 and 263).

• Compensation covers loss suffered and profit missed that follow naturally from the breach and could not reasonably be avoided (Article 263).
• Without fraud or gross fault, the debtor pays only for harm normally foreseeable when the contract was made (Article 263).
• The court may cut or refuse compensation if the creditor's own fault caused or increased the harm (Article 257).
• For late payment of money, compensation needs formal notice and proof of harm, and is set as fairness requires (Article 268).

A penalty clause fixes compensation in advance, for obligations other than paying money (Article 265). It is not due if the debtor proves the creditor suffered no harm, and the court may reduce it if the debtor proves it is grossly excessive or the obligation was partly performed; contrary agreements are void (Article 266). More is recoverable only for fraud or gross fault (Article 267).

In a commercial sale, a missed delivery date ends the contract without notice, unless the buyer tells the seller within three days that it insists on performance (Commercial Law Article 109). The buyer may then claim the gap between the agreed price and the market price on the delivery date, plus other losses (Article 110). If the buyer fails to pay on time, the seller may, after notice, claim the gap between the agreed price and the resale price (Article 120).

Earnest money («العربون») paid at signing gives each party a right to withdraw, unless they meant otherwise or custom differs (Article 100). A payer who withdraws loses it; a recipient who withdraws returns it plus an equal amount, even without harm (Article 101).

What should you do before terminating, and which time limits apply?

1. 1

   Read the termination, notice, force majeure, penalty and dispute clauses.

2. 2

   Identify your basis: agreement, a clause, breach or impossibility.

3. 3

   Gather evidence: the contract, annexes, correspondence, invoices, delivery records and proof of the breach and its date. Commercial matters can be proved by any means unless the law says otherwise (Commercial Law Article 86).

4. 4

   Send notice in the form the contract and the law require, and keep proof of delivery.

5. 5

   Record the reply, and check limitation periods.

Time runs from the due date (Article 410). A court claim or the debtor's acknowledgment interrupts it (Articles 413 and 414), and no different period can be agreed (Article 418). See also recovering a debt in Qatar and settlement, mediation, arbitration or court.

When should you speak to a lawyer?

Advice helps most before a termination notice goes out, because ending a contract without a sound basis can make you the party in breach. Signs it is worth asking:

• The contract has no termination clause, or an unclear one.
• You received a termination notice or a penalty claim.
• The other side relies on force majeure or rising costs.
• You paid earnest money or an advance.
• The contract chooses arbitration or foreign law, or is bilingual: see Arabic and English contracts.
• The other side is struggling financially, or payment is long overdue.

Questions people ask