This article identifies how Promissory Contracts such as memoranda of understanding, letters of intent or heads of terms may be enforceable under Qatar law.
Qatar law recognises that documents such as memoranda of understanding, letters of intent, notices of acceptance, letters of award and heads of terms can have legal effect as Promissory Contracts. This article identifies how Promissory Contracts may be enforceable under Qatar law. It is almost always preferable to have a fully executed contract before works commence, however, for various reasons that is often not possible.
Under Qatar law it is possible for a "Promissory Contract" to come into force. Promissory Contracts are known variously as Memoranda of Understanding, Letters of Intent, Notices to Proceed, Letters of Acceptance, Letters of Award, Heads of Terms and the like.
Articles 96 to 99 of the Civil Code (Law No. 22 of 2004) are the relevant provisions which give effect to such Promissory Contracts. In particular Art. 96 provides:
“A contract whereby both contracting parties or one of them promises to conclude a specific contract in the future will only come into being if all essential elements of the contract intended to be concluded and the period in which it must be concluded are specified therein…”
In essence these provisions of the Civil Code give legal effect to interim, headline terms pending the conclusion of the substantive agreement.
Consequently, in principle, should a contract not be formally executed, parties may be able to rely on the Promissory Contract and any additional terms that are implied into contracts by Qatar law. For example, a contractor would be entitled to claim payments in accordance with the terms of the Promissory Contract. Indeed, if the payment terms are unclear, the terms of the contract (although not formally entered into) are likely to apply.
There are two ways which the Civil Code deals with this issue:
- Firstly, Article 256 requires that a party must fulfil its obligations (in this case, the obligation to pay), failing which damages must be paid. This provision also applies to Promissory Contracts. A Qatari court is likely to approach its calculation of the level of compensation by reference to the rates and/or prices in the draft contract – ie applying contractual value.
Secondly and alternatively, if the court does not find a Promissory Contract to have been made, a claim for loses arising from unjust enrichment pursuant to Art. 220 of the Civil Code could be made. The measure of damages here is the direct loss that has been suffered. Arguably this means actual costs, but it is likely that the court would simply determine compensation by reference to contract value (which would include an element for overheads and profit).
Further, if a party to a Promissory Contract refuses to sign the future contract, the Civil Code provides a remedy for the counterparty at Article 99, which provides:
“1. If one of the parties to a promissory contract fails to fulfil his obligation to conclude the promised contract, the other party may, if he has not breached his obligations, seek a judgment against him for the validation and enforcement of the promissory contract.
2. The judgment for validation and enforcement of a promissory contract will replace he promissory contract…”
This article is based on our translation of the legislation and not the official legislation, which is only issued in Arabic.