By: Advocate Bashar Ibrahem Amosh 

22/8/2021

I. Background

Lawyers and legal consultants engaged in the process of reviewing and drafting commercial agreements will almost certainly stumble upon or add clauses related to indemnity, liability, compensation and the circumstance that need to be fulfilled for damages to be granted by the breaching party to the other party in almost all types of agreements. This is due to the fact that lawyers acting on behalf of their clients will always want to guarantee first-rate commitment to the terms and conditions agreed upon by the parties. Thus, what better way to guarantee such commitment if not through ‘consensual compensation’ and care for not being financially penalized by the other party for any losses incurred due to bad performance or shortcomings in performing certain obligations. Many business people, especially those who are not aware of local laws, tend to think that the enforceability of such clauses is a matter of fact and that the mere explicit expression of such clauses, de facto leads to enforceability and implementation.

II. Enforceability

It is a bit more complicated than that. In order to enforce such clauses, certain conditions must be met in accordance with local legislation and well-established judicial precedents laid down by the Court of Cassation, which is the highest judicial authority in Jordan and when we say the highest it means that decisions issued by the same are final and cannot be appealed. In this article, we shall examine the existence of mutually agreed consensual compensations in light of the relevant provisions of the law and verdicts issued by the Court of Cassation to spread legal awareness amongst the Jordanian legal community and business fields which require the incorporation of similar clauses in their commercial dealings.

III. Key Business Requirement

As referenced in our introduction, indemnity clauses are crucial to any business relationship governed by specific terms and conditions. A talented and skilled lawyer will, without exception, always ensure the incorporation of an indemnity clause to protect the legal and financial interests of the party he or she is representing. If invoked, indemnity clauses will allocate the risk for claims of losses or damages between the contracting parties. To further clarify and by way of example, if one of the contracting parties incurs losses or damages due to a breach, commission, omission or an act of negligence by the other party, said party is legally and contractually bound to reimburse the party suffering from such loss or damage. Surely, there are different drafting approaches which a legal counsel may opt to choose from when drafting an indemnity clause, such an approach would be chosen based on common and well-known legal practice in a specific commercial sector, such as by way of example, construction, whereby indemnity clauses are carefully drafted and inserted to ensure full compliance from the contractor’s side and in some cases even its sub-contractors.

IV. Drafting an Indemnity Clause

To further emphasise, top-notch legal drafting of indemnity clauses would be very precise and specific as to what the reimbursement from the breaching party would include to the other party. For example, the parties may agree to hold each other harmless against all claims, losses, damages, lines, judgments, penalties, fines, legal or consultancy fees and in general against all liabilities arising out, involving or in connection with the breach, negligence or wilful misconduct of the party in breach of its obligations. In some commercial agreements (specifically service provision-oriented agreements), the parties choose to incorporate a limitation of liability clause, where the breaching party will only be liable to other party to a certain amount of material compensation. Hence, for example, the parties may agree to limit the liability of one another to the actual value of paid services pursuant to the agreement or it could be the agreement price/value itself (e.g., a USD1,000,000 agreement price in return for specific services, would be the limit of compensation the breaching party will be contractually bound to pay to the other party; subject always to being proven). In other agreements, the parties agree to incorporate a consensual compensation amount in the events of default or breach. In this case, the compensation required from the breaching party will be assumed and specified regardless of the actual damages that were incurred by the other party.

V. Jordanian Laws and the Court of Cassation

The above-mentioned information is extremely important and every legal counsel should be aware of, but what is more important is the enforceability of such clauses in court and in this case in light of the applicable laws and regulations of Jordan. The Jordanian Civil Code No. 43 of 1976 was clear and explicit regarding the basis on which compensation is granted to the damaged party; Article 364(1) of the Civil Code states that “subject to the provisions of the law, the contracting parties shall have the right to specify the amount of compensation by expressing the same under the contract or in a later agreed upon agreement”. Furthermore, Article 364(2) further states that “in all cases the court shall have the right, based on either party’s request, to amend such compensation and equating it to the damage incurred; any agreement contrary to that shall be deemed null and void”. Hence, we can comfortably say that it is up to the courts to decide on the actual damages incurred regardless of the compensation amount originally agreed upon by the contracting parties (although the law did allow it, but within the courts’ discretion). This is evident and consolidated by numerous judicial precents issued by the Court of Cassation.

In Case No. 4310/2017, the claimant and respondent entered into an employment contract that contained a provision which states that “if the respondent did not start working for the claimant in the specified time or has left his employment prior to contract’s expiry, then he shall be obliged to reimburse the claimant with half a month salary for each month of the remaining contract term”. Based on said provision, the claimant (the employer in this case) filed a civil lawsuit claiming compensation from the respondent (the employee), since he left his employment prior to the contract’s expiry.

The Court of Cassation held and established that said provision “is considered a consensual compensation clause in accordance with Article (364) of the Civil Code and the contractual liability elements must be established” prior to granting any compensation. To clarify the claimant should prove (i) the existence of negligence on part of the respondent (ii) the damage suffered by the claimant, (iii) the causation between the negligence and the damage, (iv) the claimant must also show that he notified the respondent to cure the breach (unless both parties dispense with such notice in an express clause in the contract).

The Court further held that damages are not assumed and predicted, otherwise the Court will not be able to asses the damages. It stresses that the Court may resort to experts to quantify the damages incurred by the suffering party. Therefore, we can understand from this decision that predicting the compensation amount without resorting to experts in a specific field will unlikely be accepted by the court.

In Case No. 5966/2019, the Court of Cassation held that “the penalty clause mentioned in the agreement is considered as consensual compensation in accordance with Article (364) of the Civil Code, which requires proving the elements of contractual liability from negligence, damage suffered, causation between negligence and damage”. It further reiterated that the damage is not assumed (i.e., a specific amount cannot be expressed in a contract) and evidence must be submitted to prove it. Therefore, and in this case, the Court held that if the claimant did not prove the damage incurred due to the respondent’s refusal to perform the obligations under the agreement, the Court might resort to experts to quantify the damages.

In another employment case No. 6316/2020, the Court of Cassation held that “contractual liability shall arise when an act was performed and that such performance has caused the damage. Hence, since the claimant did not provide any evidence that damages incurred were due to the respondent’s desertion of employment”. The Court further held that as long as no legal evidence was submitted then the occurrence of damages due to the employee’s desertion cannot be assumed but rather proven.

Similarly, the Court of Cassation stressed on the same principle applied previous precedents in Cases No. 6041/2020 and No. 233/2021. Accordingly, one can confidently say that judicial precedents established by the Court of Cassation have a consistent doctrine when deciding whether to grant compensation to the suffering party in contractual relationships. To make a summary of the above-mentioned, compensation is given based on actual damages incurred as proven by the claimant and subject always to the Courts discretion (not the parties assumed consensual compensation) as clearly expressed under Article (363) and Article (364) of the Jordanian Civil Code No. 43 of 1946. Please note that such principles are implemented by the Courts in Jordan and the parties may opt to enforce the indemnity clauses without resorting to courts on amicable and agreeable basis. But if contested, the Courts will most likely look at it from the perspective detailed in this article.

Within the same sphere of indemnification under commercial agreements, I would like to briefly pinpoint how the Courts deal with delay penalties, which are key to any construction agreements or indeed any agreement that contains milestones and completion dates. Although one can argue that delay penalties are considered consensual compensation for the purposes of Article (363) and Article (364) of the Civil Code, the Court of Cassation did a draw a distinction between them and the standard indemnity clauses. In Case No. 447/2016, the Court held that delay penalties may be granted to the suffering party if (i) the work has been completed without any defects and (ii) submitted to the other party by the contractor after the completion date. Contrarily, the quantification of the damages incurred will be up to the Court by equating it to the actual damage and loss incurred by the suffering party (reference Article 364 of the Civil Code). The Court of Cassation also reiterated that these elements must be sufficed to allow delay penalties in Case No. 3736/2018, where it held that “the owner shall not be entitled to delay penalties, unless the contractor completed all the works agreed upon after the lapse of period agreed upon to complete the works”.

Adv. Bashar Ibrahem Amosh is a member of the Jordan Bar Association since 2018, holds an LLB in Law and Master’s Degree in International Business Law from the United Kingdom and is currently working as a Supervising Associate at Amosh Legal Services & Arbitration in the Corporate/Commercial Division.

Dr. Ibrahem Amosh

April 15, 2020

Pursuant to the Defence Law No. (13) of 1992, the Prime Minister of Jordan issued Defence Order No. 6 on April 9, 2020. This new Order presented several rules to govern, among others, the rights and obligations of the parties in employment contracts. Defence Order no. 6 reads as follows:

“First: a- All employees in private sector entities and establishments or any other entity subject to the Labor Law deserve to receive their wages for the period from March 18 to March 31, provided that employees in the sectors excluded from the Council of Ministers' suspension decision don't have the right to ask for additional pay, unless they are assigned to work overtime in accordance with Article (59) of Labor Law No. (8) for the year 1996.

b- For the purposes of applying paragraph (a) above, paragraph (b) of Article (59) of Labor Law No. (8) of 1996 shall be suspended in relation to legal provisions related to work on official holidays only.

Second: …..Third: …..

Fourth: As of April 1, 2020, the wages of employees in private sector establishments and institutions and in any other entity subject to the Labor Law are determined as follows: a- …b-…c-… d-…e- [Private sector entities] …..who are not authorized to work (forced to close during the curfew) , have the right to submit a request to the Minister of Labor to allow them to pay at least 50% of the agreed on wage for their employees, provided that wage to be paid shall not be below the minimum wage; f- The foundations and conditions according to which employers are allowed to pay no less than 50% of the agreed on wage are determined according to instructions to be issued by the Minister of Labor”; h- …”.

Despite the fact that the curfew started on March 20, 2020, the Defence Order no.6 obligated the employers, whose businesses affected by the curfew, to pay the wages of their employees in full up until the end of March 2020. While, as for the period following April 1st,  subject to certain conditions, the employers (whose businesses are closed due to the curfew) have the right to apply to the Minister of Labour to allow them to pay not less than 50% of the wages provided that the wage to be paid is not less than the minimum monthly wages which is JOD220.

This clearly means that Defence Order No. 6 has excluded employment contracts from the scope of application of Article 11 of the Defence Law, which reads as follows: “if it impossible to execute any contract or obligation due to compliance with this law or any order, designation and/or instructions issued accordingly, the person associated with this contract shall  not be considered to be in breach of  contract and the contract shall be deemed suspended  to the extent that the implementation of the contract is impossible.

Such suspension shall be deemed as a valid defence in any suit that has been or is instituted against that person or any measures taken against him as a result of his failure to not perform his contractual obligations”. The provision of Article 11 is clear. All contracts affected by the Defence Orders (e.g., the lockdown and curfew) shall be deemed suspended “to the extent that the implementation of the contract is impossible”.

Defence Orders are issued pursuant to the Defence Law and must not conflict with its provisions. Excluding employment contracts from the scope of application of Art. 11, without the legal capacity to do so, might lead to question the legality of the Defence Order No. 6.

Dr. Ibrahem Amosh is the founder and managing partner of Amosh Legal Services & Arbitration, former Minister of Justice in Jordan and a holder of PhD in commercial law from the University of Edinburgh. 

Dr. Ibrahim Amosh

April, 6, 2020

Introduction

Due to the outbreak of Covid-19 also known as the Coronavirus, some companies worldwide will potentially attempt to invoke force majeure clauses to curb their contractual liability in the face of the difficulties they are experiencing in performing their contractual obligations. In some countries, such as China, France and Iraq, the concerned authorities issued “Force Majeure Certificates” which recognize Covid-19 as a case of force majeure for companies who engage in contractual relationships.

The announcement of the French Minister of Economy made on February 28, 2020, whereby he considered Covid-19 as a force majeure event, has limited its application to contracts signed between private entities and the State’s public bodies. In light of the aforementioned, one could argue that applying such announcement on contracts between private sector entities is a matter that could only be decided by courts on case-by-case basis within the French jurisdiction.

The Chinese Council for the Promotion of International Trade issued a large number of force majeure “certificates” to local companies whose businesses were adversely affected, in response to the implications resulting from measures taken by the Chinese government to control and contain the spread of Covid-19.

The Iraqi government issued an order declaring the period of Covid-19 crisis as a force majeure circumstance for all projects and contracts as of February 20, 2020. The wording of the order may be interpreted (on the face of it) to include contracts signed with public bodies as well as those between private entities.

While those “force majeure” declarations, certificates or orders are most likely going to be recognized within the borders of the issuing State, they might not be recognized in disputes arising between local and foreign companies/states, where disputes are going to be heard in jurisdictions other than the courts of the issuing States.

In Jordan, no legal provisions are found that grant the Government the power to issue “force majeure certificates/declarations/orders. In our view, considering Covid-19 and/or the measures taken by the Government of Jordan to contain it, will be solely left for the courts to decide on

case-by-case basis. When tested before the courts, the latter will take into consideration the application of force majeure provisions found in the Civil Code No. 43 of 1976, provisions pertaining to the legal status of contracts under the Defence Law No. 13 of 1992 and the provisions pertaining to force majeure events usually set forth in contracts.

Relevant Laws & Judicial Decisions (Jordan)

• Civil Code No. 43 of 1976

• Article 205: If general exceptional events occur which could not have been expected and make the performance of contractual obligation, even if not impossible, onerous for the debtor so that it threatens him with heavy loss, the court has the power, in light of the circumstances and taking into consideration the balance between the interest of both contracting parties, to reduce the obligation to a reasonable extent if justice so requires. Any agreement to the contrary shall be deemed void.
• Article 247: In contracts binding on both parties, if a force majeure has occurred that makes the performance of a contractual obligation impossible, the corresponding obligation of the other contracting party shall cease, and the contract shall be deemed rescinded. If the impossibility is partial, the corresponding obligation of the other contracting party shall cease. Same applies in case of temporary impossibility in continuing contracts, and in both cases the party affected by the force majeure may revoke the contract provided that the other party is notified”.

• Defence Law No. 13 of 1992

• Article 11: If it impossible to execute any contract or obligation due to compliance with this law or any order, designation and/or instructions issued accordingly, the person associated with this contract shall  not be considered to be in breach of  contract and the contract shall be deemed suspended  to the extent that the implementation of the contract is impossible. Such suspension shall be deemed as a valid defence in any suit that has been or is instituted against that person or any measures taken against him as a result of his failure to not perform his contractual obligations.

• Court of Cassation Decision No. 805/2019

• The Court emphasized, “force majeure in accordance with Article 247 of the Civil Code is an incident which could not have been foreseen and avoided”. Accordingly, it was held that an act of theft is not a force majeure event, as it could have been foreseen and avoided.

• Court of Cassation Decision No. 1473/2016

• The Court reiterated the principle referred to above (in 805/2019) and further established government orders are considered force majeure events that justify the application of Article 247.

Implementation of Art. 205 and 247 in the Absence of the Defence Law

In order to implement Article 205 of the Civil Code, the following conditions must be met: (i) the contract must be binding on both parties, (ii) the contract must have been entered into prior to the occurrence of the exceptional event and (iii) the exceptional event has to be general and not limited to the obligor (individual events do not invoke the application of this article; please see Court of Cassation Decision No. 805/2019), cannot be avoided, could not have been reasonably foreseen at the time of entering into the contract, makes the performance of the obligation burdensome for the obligor but not impossible and threatens the obligor with a heavy loss.

If the above conditions are met, the court has the power to  reduce the obligation to a reasonable extent if justice so requires, provided that the Court should take into consideration the special circumstances of the case and strikes a balance between the interest of the contracting parties.  It has to be noted that any agreement to the contrary is deemed void.

In order to implement Article 247 of the Civil Code, the following conditions must be met: (i) the contract has to be binding on both parties, (ii) the contract must have been entered into prior to the occurrence of the force majeure event, (iii) the force majeure event must make the performance of the contractual obligation impossible (i.e, there has to be a link between the event and the non-performance) and could not have been foreseen at the time of the conclusion of the contract, and (iv) the effects of the force majeure event cannot be avoided by appropriate measures.

If the above conditions are met:

1. [Total Impossibility]: both parties will, by virtue of law, be released from their mutual obligations and the contract deemed rescinded.
2. [Partial or Temporary Impossibility]: the affected party’s obligation that the performance of which became partially or temporarily impossible will, by virtue of law, cease and  the corresponding obligation of the other party will cease too. It has to be noted that any agreement to the contrary is deemed void.

The Defence Law

Due to the spread of Covid-19, the Defence Law No. 13 of 1992 came into force pursuant to a Royal Decree.  Article 2/a of the said law provides that “if something necessitates the defence of the homeland in the event of an emergency threatening national security or public safety in the Kingdom or any part thereof …. due to a war, … the spread of …. a pandemic, the implementation of this law shall be declared by a Royal Decree upon the decision of the Council of Ministers”. The Defence Law vested in the Prime Minister a wide range of powers including, but not limited to, issuing Defence Orders imposing curfew, closing schools, universities, factories, shops and restaurants.

As for contracts, Article 11 of the Defence Law makes it clear that if the performance of a contract or a contractual obligation becomes impossible due to compliance with the Defence Law or any order, designation and/or instructions issued thereunder, the affected contracting party shall not be considered to be in breach of contract and the contract shall be deemed suspended. The suspension, as per the said article, shall be to the extent that the implementation of the contract is impossible. Such suspension shall be deemed as a valid defence in any lawsuit that has been or is instituted against that person or any measures taken against him as a result of his failure to not perform his contractual obligation.

The Defence law is a special law. Its provision apply in the extraordinary circumstances set forth in Article 2/a thereof. Consequently, its provisions supersede and prevail over those of the Civil Code.  Therefore, we strongly believe that the court will tend to apply Article 11 of the Defence Law (on all contracts affected by the Orders and instructions issued by the Prime Minster) rather than Article 205 or 247 in the Civil Code. 

Conclusions

The Government has no power to issue force majeure certificates/declarations/announcements that Covid-19 is a force majeure event. Covid-19 (though declared a pandemic by the World Health Organization) has not adversely affected all businesses. To the contrary, some businesses have made and are still making a good fortune as of the spread of this virus (such as the masks and hygiene producing companies, the food and medicine delivery companies).

In principle, one could say that the mere outbreak of Covid-19 is not enough to invoke neither Article 205 nor 247. However, prior to the issuance of the Defence Orders, the courts will, one would say, tend to apply Articles 205 and 247 only on contracts affected by Covid-19. After the issuance of Defence Orders (imposition of curfew, self-isolation, closing of a wide range of businesses) the court shall apply Article 11 of the Defence Law being a special law.

The conditions of each one of those Articles must be met in order to be applied. The burden of proving the availability of those conditions is on the party affected by Covid-19, if it is to be considered, by the competent court, a general exceptional event under Article 205 or the force majeure event under Article 247. The government’s orders are deemed force majeure events pursuant to the Court of Cassation decision No. 1473/2016 and, thus, entitle the affected contracting party to invoke Article 247. But, one could argue that, this decision applies only in the absence of a Defence Law and Defence Orders.

Loan agreements, for instance, do not usually include force majeure clauses. Therefore, for all loan agreements, which are governed by, construed in accordance with the laws of Jordan, and entered into prior to the issuance of the Defence Orders due to the outbreak of Covid-19, the debtors may invoke Article 205 or 247 of the Civil Code to justify their non-performance. 

While, after the issuance of the Defence Orders, the debtors will seek the application of Article 11 of the Defence Law to justify their non-performance.  In loan agreements for example, as in any other agreements or contracts, the party affected by the Defence Order (e.g. curfew) has to establish that his obligation to perform the contract is adversely affected by the Order and that his performance has become impossible.

Basically, the obligation of the borrower is to repay the loan. But, if he managed to establish that his business has been hit by the Defence Orders (due to compulsory shut-down or the employees’ self-isolation or the curfew), and that his inability to generate income was due to those Orders, the courts will, most likely, decide that the loan agreement is suspended during the period between the date of the Curfew Order or the compulsory shutdown Order (as the case may be) until the date of its cancellation.

Dr. Ibrahim Amosh is the founder and managing partner of Amosh Legal Services & Arbitration, former Minister of Justice in Jordan and a holder of PhD in commercial law from the University of Edinburgh. 

According to Jordanian Bar Association Law No.11 of 2019 (“Law”), lawyers in Jordan are deemed as individuals who provide judicial and legal assistance for those who need for specific consideration. Lawyers’ services include representing and defending others before all different levels of courts, arbitrators, public prosecution departments, governors, notaries, administrative bodies and entities (public or private). Practice under the Law can be performed through regulating contracts and providing legal advice.

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