The general rules that decide whether a commercial contract exists in Qatar, how a judge will read it and what happens when one side fails to perform sit in the Civil Code issued by Law No. 22 of 2004. Parties often assume that the rules of a deal are whatever the contract says. In Qatar the Civil Code also decides when the contract came into being, which clauses a judge may amend, which promises bind before signing and how far a penalty clause can be enforced. This article explains, from our office in Kuwait and in cooperation with our partners in Qatar, how those rules work for a company negotiating, drafting or performing a commercial contract in Qatar. Article numbers refer to the Civil Code. Where the official Arabic text and an English translation differ, the Arabic controls, and we say so below where it matters.
When a contract comes into existence
Offer and acceptance
Article 64 provides that a contract is concluded as soon as an offer is joined by acceptance, provided its subject matter and cause are lawful, and without prejudice to any special formalities the law requires for certain contracts. An offer may be addressed to unidentified persons as long as the identity of the other party is not essential. A display of goods with their prices is an offer, subject to the rules of trade. By contrast, publications, advertisements and price lists in current use, and other statements about offers or orders addressed to the public or to particular persons, are not an offer unless the circumstances show otherwise (Article 69).
An offeror may withdraw the offer as long as it has not been accepted. But if the offeror fixed a time for acceptance, or the circumstances or the nature of the transaction require one, the offer stays open throughout that time and lapses when it expires (Article 70). Acceptance must match the offer. A reply that adds to the offer, takes something away or changes it in any way is a rejection that contains a new offer (Article 72). In a negotiation by email, a "yes, but on these terms" is therefore a counter-offer, and the last document in the chain is the one the other side may accept.
Silence
Under Article 73, no statement is attributed to a person who stays silent, but silence where a response is called for is acceptance. It is acceptance in particular where the parties have dealt with each other before and the offer relates to those dealings, or where the offer is for the benefit of the person it is addressed to. A buyer's silence after receiving the goods he bought is also acceptance of the terms in the seller's price list. A company that keeps receiving goods under a supplier's standard terms without objecting should assume it has accepted them.
Essential terms agreed, details left open
Article 79 is the rule that matters most for preliminary documents. If the parties have agreed on all the essential terms of the contract, and reserved detailed matters to be agreed later without stipulating that the contract does not come into being unless they are agreed, the contract is considered concluded. If a dispute arises over the unsettled matters, the court decides them according to the nature of the transaction, the law, custom and the rules of justice. A heads of terms document that fixes the price, the subject matter and the duration, and leaves other details to a later agreement, may therefore be a concluded contract, unless the parties expressly stipulated that no contract comes into being before the final agreement. If the intention is that nothing binds until a full agreement is signed, the document should say that the contract is not concluded without agreement on the remaining matters.
Standard terms
Article 80 deals with standard contracts and standard regulations. Where the parties agree that a model contract or model regulation governs their affairs, its terms apply unless a party proves that he did not know of them and had no opportunity to learn of them when agreeing. If the terms he did not know of are essential, the contract is void. If they are secondary, the judge resolves the dispute according to the nature of the transaction, current custom and the rules of justice. A supplier that incorporates its general conditions by reference should make sure the other side actually receives them.
Adhesion contracts
Articles 105 to 107 deal with contracts made by adhesion. Accepting a standard contract that the offeror sets for all its clients, on terms that cannot be negotiated, does not prevent the contract from being concluded (Article 105). If a contract made by adhesion contains arbitrary conditions, the judge, at the request of the adhering party, may amend them to remove their unfairness or exempt that party from them entirely, even if it is proved that he knew of them, as justice requires, and any agreement to the contrary is void (Article 106). Doubt in an adhesion contract is interpreted in favor of the adhering party (Article 107). A company that sells on non-negotiable terms should expect the more one-sided clauses to be the first the other side challenges.
Binding promises before the final contract
Promise to contract
Article 96 says that a contract by which one or both parties promise to conclude a specific contract in the future is concluded only if all the essential terms of the contemplated contract and the period within which it must be concluded are specified, without prejudice to the formalities in Article 94. Where the promise binds both parties, each must conclude the contract in its final form within the period set by the promise, on the same terms unless they agree to amend them or the nature of the transaction or the circumstances require an amendment (Article 97). Where it binds only one party, the contract comes into being if the promisee accepts within the period of the promise and his acceptance comes to the promisor's knowledge (Article 98). If a party breaches the obligation to conclude the promised contract, the other party, if he is not himself in breach, may ask for a judgment declaring the promise contract valid and enforceable, and that judgment stands in the place of the promised contract, without prejudice to any registration requirements (Article 99).
The practical point is that a promise without the essential terms and a deadline does not oblige anyone to sign, and a promise with both can be enforced by a judgment that replaces the signature.
Earnest money
Article 100 provides that earnest money paid when the contract is concluded indicates that each party has the option to withdraw, unless they appear to have intended otherwise or custom provides otherwise. A party who paid earnest money and withdraws loses it; a party who received it and withdraws must return it and pay the same amount again, even if the withdrawal caused no harm (Article 101). Where neither agreement nor custom fixes a period for exercising the option, it remains open until the party does something that shows he wishes to confirm the contract, but a party who fails to perform his obligations in the agreed time, or delays beyond what is usual, may be treated by the other as having withdrawn (Article 102). The rule differs from the Saudi position, where only the payer has the right to withdraw by default, so a regional group should not assume one deposit clause works in both countries.
How a judge reads the contract
Article 169 states that where the wording of a contract is clear, it may not be departed from by interpreting it to find the parties' intent. If interpretation is needed, the judge looks for the parties' common intention without stopping at the literal meaning of the words, guided by the nature of the dealing, the honesty and trust expected between the parties and the custom of the trade. Article 170 provides that doubt is interpreted in favor of the debtor, and that a clause exempting a party from liability is interpreted narrowly. The consequence for drafting is direct: doubt about an obligation is interpreted in favor of the debtor, and an exclusion clause that is loosely worded may be cut back.
Binding force, hardship and good faith
Article 171 states that the contract is the law of the parties and may be revoked or amended only by agreement or for the reasons the law provides. It adds a hardship rule. If general exceptional events that could not have been foreseen make performance, though not impossible, so onerous that it threatens the debtor with grave loss, the judge may, according to the circumstances and after balancing the interests of both parties, reduce the onerous obligation to a reasonable level. Any agreement to the contrary is void. As in the Saudi law, the word "general" is in the Arabic text, so the rule addresses events that affect the market or a sector, not a loss peculiar to one company, and the remedy is a reduction by the judge, not a right to stop performing. Article 172 requires performance according to the contract and in a manner consistent with good faith, and extends the contract to what is required by law, custom and justice according to the nature of the obligation.
Breach, rescission and force majeure
Under Article 183 of the Arabic text, where a party to a bilateral contract does not perform, the other may, after serving notice, ask for rescission with compensation where it is due. The judge may grant the debtor a period of grace where circumstances call for it, and may refuse rescission if what the debtor failed to perform is insignificant compared with his obligations as a whole. Note that the English translation of this article refers to a demand for performance as well as rescission, and the Arabic does not, so a client relying on an English translation should have the Arabic read before taking a position.
Article 184 allows the parties to agree that the contract is deemed rescinded without a court judgment if obligations are not performed. Such a clause is effective only if its wording expressly shows that the parties intended it. The same applies to an agreement restricting the judge's power over rescission. Outside commercial matters, the clause does not dispense with notice, and an agreement to the contrary has no effect. In a commercial matter, the article itself does not require notice for such a clause. This differs from the position under Saudi law, where Article 108 keeps the notice requirement unless the parties expressly agree otherwise. We would still serve notice in practice. On rescission the parties are restored to their position before the contract, and if that is impossible the court may award compensation (Article 185).
For force majeure, Article 188 provides that in bilateral contracts, where performance of one party's obligation becomes impossible for a cause beyond his control, that obligation and its corresponding obligations are extinguished and the contract is rescinded automatically; if the impossibility is partial, the creditor may keep the contract for the part that can be performed or ask for rescission. Article 204 relieves a person who proves that the damage arose from a cause beyond his control, such as force majeure, a sudden event, the fault of the injured party or of a third party, unless a provision says otherwise. The parties may agree that the debtor bears the risk of force majeure (Article 258), so the force majeure clause deserves real drafting attention.
Limiting liability and fixing damages in advance
Article 259 permits an agreement to exempt the obligor from liability for failure or delay in performing, except in case of his fraud or gross negligence. Combined with Article 170(2), which requires such clauses to be read narrowly, a limitation of liability clause is valid for ordinary breach but cannot be relied on to cover the obligor's own fraud or gross negligence. Article 259(2) does allow an agreement to exempt the obligor from fraud or gross negligence by persons he uses to perform his obligation.
Article 265 allows the parties to fix the amount of compensation in advance, in the contract or in a later agreement, where the obligation is not an obligation to pay money. Be careful here: some English-language versions of the Civil Code omit the word "not" in this article, while the Arabic text says "if the subject of the obligation is not a sum of money". A late-payment penalty on a money debt is therefore not covered by this article. Article 266 limits the effect of an agreed amount: it is not payable if the debtor proves that the creditor suffered no harm; the court may reduce it if the debtor proves that the estimate was grossly exaggerated or that the obligation was partly performed; and any agreement to the contrary is void. Article 267 adds that where the damage exceeds the agreed amount the creditor may not claim more unless he proves fraud or gross negligence on the debtor's part. Agreed damages may be reduced; they are not a guaranteed payment or, absent fraud or gross negligence, an amount the creditor can exceed.
What we review before you sign
We start with the negotiation trail: whether an obligation has already formed in a letter of intent, heads of terms or an exchange of messages, and whether a promise to contract meets the requirements of Article 96. We then review the drafting: whether the wording will read clearly to a judge under Articles 169 and 170, how the standard terms are incorporated and delivered, the notice, rescission and force majeure clauses, the hardship position under Article 171, and the limitation and agreed damages clauses against Articles 259, 265 and 266. We provide this service to our clients in Qatar from our office in Kuwait, in cooperation with our partners in Qatar.
Read also: Saudi Commercial Contracts: Civil Transactions Law Guide | Entering Qatar: Foreign Ownership and Free Zones Guide
Frequently asked questions
Is a letter of intent binding in Qatar?
It depends on its content, not its label. If it records agreement on all the essential terms and only leaves details open, it may be a concluded contract under Article 79. If it is a promise to contract, it binds only if it states the essential terms and the time for concluding the contract (Article 96). State expressly what the document is meant to do.
Is an exchange of messages enough to form a contract?
Yes, if an offer and an acceptance that matches it are exchanged on the substance of the deal. A reply that adds or changes terms is a counter-offer, not an acceptance.
Does silence count as acceptance?
Sometimes. Silence where a response is called for is acceptance, in particular where there were previous dealings or the offer benefits the recipient, and a buyer who keeps goods without objecting accepts the terms in the seller's price list (Article 73).
Can I stop performing if the contract becomes much more expensive?
Not on your own. Under Article 171, the judge may reduce an onerous obligation to a reasonable level where general exceptional events that could not have been foreseen threaten the debtor with grave loss. The rule is a remedy from the judge, not a right to stop.
Will a penalty clause be enforced as written?
Not always. Agreed damages are not payable if the debtor proves no harm was suffered, and the court may reduce an estimate that is grossly exaggerated or where the obligation was partly performed (Article 266). The article on advance fixing of damages (Article 265) applies to obligations that are not obligations to pay money.
Do you help draft contracts in Qatar?
Yes. We assist clients with drafting and reviewing their contracts in Qatar from our office in Kuwait, in cooperation with our partners in Qatar.