Introduction

In the business world, commercial contracts are the backbone of any clear and binding business relationship. However, in some cases, one of the parties may be forced to terminate the contract, whether due to a breach by the other party or changes in business circumstances.

This raises an important question: How can you deal with termination legally without losing your rights?

What Is Meant by Termination of a Commercial Contract?

Termination is the ending of the contractual relationship before the full performance of the contract, either by agreement of the parties or due to a material breach by one of the parties that justifies ending the contract.

In Saudi Arabia, termination of commercial contracts is governed by the provisions of the Civil Transactions Law and general civil and Sharia principles, in addition to the Commercial Court Law where a dispute arises.

Cases Where Termination Is Legally Permissible

Under Saudi law, a party may request the termination of a contract in the following cases:

• Material breach of one of the essential obligations in the contract.
• Delay in performance without a legitimate justification.
• Refusal of the other party to perform despite notice or warning.
• The presence of an express clause in the contract that allows termination upon the occurrence of a specific event.

– Note: Not every breach justifies termination. It must be material and affect the very purpose of the contract.

Practical Steps to Protect Your Rights When Terminating a Contract

1. Review the contract terms:

Start by carefully reading the contract to determine whether it contains a termination clause or prescribes specific procedures, such as sending a written notice or granting a cure period.

2. Send an official notice to the other party:

It is preferable to send a written legal notice to the other party explaining the reasons for termination and granting them an opportunity to remedy the breach, where possible. This helps demonstrate good faith.

3. Document the breaches:

Collect evidence (documents, correspondence, reports) that proves the breach or damage. Such evidence will be crucial if the dispute is escalated to the courts.

4. Avoid unilateral termination if it is not expressly provided for:

If there is no clear termination clause in the contract, it is advisable to apply to the Commercial Court for a judicial termination of the contract, especially where the dispute is complex or the damage is mutual.

5. Claim compensation (if necessary):

If termination results in material or moral damage, you may claim compensation based on the extent of the damage and the degree of breach, as determined by the judge.

When Is Termination Considered Unlawful?

If termination is carried out without a legal justification or without following the procedures stipulated in the contract or by law, the terminating party may be considered to have committed an unlawful (abusive) termination and may be ordered to compensate the other party for the damages incurred.

The Importance of Legal Advice Before Termination

Termination decisions carry significant legal and financial consequences. It is therefore always recommended to consult a lawyer specialized in commercial contracts before taking any action, to ensure your rights are protected and to avoid any regulatory violations.

Conclusion

Termination in commercial contracts is not always negative; it can sometimes be necessary to protect your interests. However, taking such a step without proper legal understanding may lead to compounded losses.

Understand your contract, document your steps, and seek expert legal advice before making a termination decision.