<p><strong>Introduction</strong><br /><br />In the last few years, the Dubai courts  have witnessed many cases filed by investors/purchasers of real estate against  developers requesting the courts to terminate their contract. This article  considers the merits of some of the arguments raised by the purchaser and the  developer in a recent judgment where a developer failed to deliver an apartment  by the contractual hand-over date (at the time of judgment, the hand-over date  was approximately 3 years in delay) and legislation (that has been spurred by  the economic crisis) that sets out circumstances when a purchaser or developer  can terminate a contractual  relationship.<br /><br /><strong>Background</strong><br /><br />The Developer (the  Defendant) and the Claimant entered into a contract in February 2006 for the  purchase of an apartment. Contractual delivery was to occur two years later;  however, the Developer failed to meet its delivery obligation and the Claimant  filed a case against the Developer requesting the court to:</p>
<p>1. cancel the contract;<br />2. order the Developer to reimburse the money that  was paid for the apartment; and<br />3. pay damages incurred by the Claimant as a  result of the delay.&nbsp;<br /><br />The Defendant argued that the delay was caused by  reasons beyond his control and that he made every effort to deliver the  apartment on the delivery date despite the fact that infrastructure services  were not provided to the Developer by the Master Developer. The Defendant filed  a counter claim and requested the court to appoint an engineering expert from  the Land Department to assess the Defendant&rsquo;s justification for the delay.&nbsp; The  Court appointed an expert who prepared a report in favour of the Defendant  confirming that the causes for delay were outside the Defendant&rsquo;s control. As a  result of the report and the Court of First Instance&rsquo;s evaluation of the  Claimant&rsquo;s reasons for termination, the Court of First Instance rejected the  Claimant&rsquo;s case to terminate the contract and decided that the Defendant had  fulfilled its obligations to the best of his ability.<br /><br /><strong>The Court&rsquo;s  reasoning for rejecting the Claimant&rsquo;s case is set out  below:<br /><br /></strong>1.&nbsp;At the outset the Court made reference to the concept  of good faith contained in article 246 of the Civil Code which provides that the  parties have an obligation to conduct themselves towards each other in the  performance of the contract in a manner that is consistent with principles of  good faith.<br /><br />Pursuant to Article 246 of the Civil Code, the Court looked  at the issue of the Defendant&rsquo;s performance and whether the delay, by the  Defendant in performing its obligations was due to his own fault and whether  such delay constitutes grounds for granting the Claimant his request to  terminate the contract. In this case, the courts decided that the Defendant  fulfilled its obligations in good faith as the Defendant had reached the final  stage of completion (and obtained all the necessary approvals) but for reasons  beyond its control was unable to obtain a completion certificate and accordingly  unable to meet the precondition for contractual delivery.<br /><br />2.&nbsp;It was  further established that according to Article 267 of the Civil Code, &ldquo;if the  contract is valid and binding, it shall not be permissible for either of the  contracting parties to resile from it, or to vary or cancel it, save by mutual  consent or an order of the court, or under a provision of the law.&rdquo; In this  case, the Court decided that the contract between the Developer and the Claimant  was still valid. Any variation or cancellation would have to be sought by way of  a court order.<br /><br />3.&nbsp;On the issue of termination, the contract contained a  clause that mirrored the wording set out under Article 271 of the Civil Code  which provides that &ldquo;it shall be permissible to agree that a contract shall be  regarded as being cancelled spontaneously [automatically] without the need for a  judicial order upon non-performance of the obligations arising thereout, and  such agreement shall not dispense with notice unless the contracting parties  have expressly agreed that it should be dispensed with.&rdquo;&nbsp; Notwithstanding the  parties&rsquo; agreement to dispense with the need for a court order to achieve valid  termination, the court still has the right to hear the Claimant&rsquo;s reasons for  termination and the discretion to rule on whether or not termination is valid on  the facts.<br /><br />4.&nbsp;In addition, Article 243 (2) of the Civil Code, provides  that &ldquo;with regard to the rights (obligations) arising out of the contract, each  of the contracting parties must perform that which the contract obliges him to  do.&rdquo; Accordingly, in order to terminate a binding contract, a claimant seeking  termination must not have neglected his obligations under the contract and the  respondent&rsquo;s breach must be due to the respondent&rsquo;s neglect rather than the  failure to exercise a legal right (Court of Cassation decision numbered 187 of  1999).&nbsp;<br /><br /><strong>Conclusion<br /><br /></strong>The court held that despite  the contract containing an effective and enforceable termination clause under  Article 271, this does not prevent the Court from sitting in judgment to hear  the reasons for termination.<br /><br />In this specific case involving a developer  and purchaser, it was clear that the Developer had defaulted in its delivery  obligation, however, the courts applied its discretion and held that, in the  circumstances of the case, delay was not sufficient to terminate the contract.&nbsp;  The Court also considered the concept of duty of good faith and the Defendant&rsquo;s  performance, noting that the Defendant had done everything he could do to meet  its contractual obligations, and held that as there were specific events beyond  the control of the Developer which hindered the Defendant&rsquo;s performance, he  could not be held liable for the failure to deliver the apartment.<br /><br />In  summary, the Courts will consider each case on its own facts and uphold the  terms of the parties&rsquo; contract, however, the courts will always be free to  exercise its discretion when determining the issue of termination.<br /><br />In  addition, a resolution was issued last year which is consistent with the Courts&rsquo;  approach when determining Developer/purchaser disputes and also helps counter  uncertainty with respect to the type of issues mentioned above. The Government  of Dubai issued Executive Council Resolution 6 of 2010&nbsp; approving the executive  regulation of Law 13 of 2008 concerning the regulation of the Interim Real  Estate Register in the Emirate of Dubai which contains provisions setting out a  list of events where:<br /><br />(a)&nbsp;purchaser may apply to the courts to terminate  its contract with the developer (for example, &ldquo;if the developer materially  changes the agreed specifications&rdquo;);<br />(b)&nbsp;reasons considered to be beyond the  developer&rsquo;s control (for example, &ldquo;if the Master Developer makes any variations  to the site of the project which leads to a change in the boundaries and area of  the project in such a manner that affects the performance by the Sub- developer  of its obligations&rdquo;); and <br />(c)&nbsp;&nbsp;when a developer shall be considered to have  failed or neglected to perform its obligations (For example, &ldquo;delay in obtaining  the written approval of the Master Developer of the plans and designs&rdquo;).</p>