Sources of law
1. What are the sources of Maldivian Contract Law?
The primary source of legislation dealing with contractual rules is the Contract Act of 1991.[1] English common law[2] and Shariah principles[3] are also important sources of law, which have been relied upon by the courts in the interpretation and widening of rules laid down in the Contract Act.
Authority and capacity
2. What are the authority/capacity rules for entering into a contract?
Individuals
As a general rule, only persons of the age 16 years and above can enter into contracts.[4]
Additionally, persons entering into contracts must be of sound mind and be able to give consent freely and voluntarily.[5]
Companies
A company can enter into any contract or transact in its own subject to the limitations determined in its own constitution.[6]
A person executing a contract in the name of the company must possess the legal capacity[7] or be authorized to do so in accordance with the company’s constitution.
Partnerships
As a general partnership is not a separate legal entity in law[8], a general partnership cannot enter into contracts in its own name. For a contract to be legally binding, all the partners in a general partnership will need to enter into the contract in their individual capacities.
A limited liability partnership is a separate legal entity in law[9] and can enter into contracts in its own name.
Sole Proprietorship
Sole proprietorships effectively enter into contracts in their own name.
Formal legal requirements
3. What are the essential requirements to create a legally enforceable contract?
A contract is legally valid and enforceable when the following requirements are met[10]:
- Offer
- Acceptance
- Consideration
- Intention to create legal relations
- Capacity to enter into the contract
- Consent
An invitation to participate in negotiations (“invitation to treat”) does not constitute an offer.[11] Generally, a Request for Proposal (“RFP”) constitutes an invitation to treat.[12] A bid submitted in response to an RFP constitutes an offer.[13]
An offer to be valid, it must be sufficiently certain and precise, and must have been made with the intention to create a legally binding relationship.[14] An offer is completed when it is communicated to the offeree.[15] It is possible to revoke an offer at any time before its acceptance, however, such revocation must be notified to the offeree for the revocation to be valid.[16]
An acceptance of an offer can be made expressly or it can be implied by conduct.[17] An acceptance will be complete once it is communicated to the offeror.[18] If an offer contains conditions, then acceptance will only be completed once the conditions of the offer are met. A condition placed in response to an offer constitutes a counter-offer. For example, an award letter issued pursuant to an unsolicited proposal prescribing conditions to fulfil by the awardee have been held to constitute a counter-offer.[19]
Consideration is the price or some act or a forbearance of an act or right that is bargained for by one party of the contract and received by the other.[20] It is important to recognize that in the Maldives, consideration is recognized as an essential requirement to form a contract by case law and not by statute.[21] Consideration need not be adequate but must be of sufficient value.[22]
4. In what form should a contract be?
Generally, a contract need not be in a specific form unless otherwise provided by a statute.[23] Where an offer is accepted by an offeree, a legally valid consensual contract is formed despite the absence of a written contract.[24] In oral agreements, evidence of common intention is sufficient to form a legally valid and enforceable contract.[25]
Existence of a legally enforceable contract can be evidenced by many factors and need not only by way of a written contract.[26]
5. When are written contracts legally required?
Certain domestic laws and regulations require contracts to be made in writing. Some examples of such contracts are:
- Foreign investment agreements[27]
- Loan agreements and guarantee agreements executed with Banks[28]
- Sale or lease agreements, and mortgage agreements of land under Government Ministries that are not allocated for residential use[29]
- Lease agreements of land, buildings, apartments and rooms leased for residential use for more than six months[30]
- Mortgage agreements of land, buildings or apartments[31]
- Sale and purchase agreements of land, buildings or apartments[32]
- Contracts to procure goods, services or work by all entities that fall within the Public Finance Act[33]
- Lease agreements of land, lagoon or islands for tourism purposes[34]
- Strata agreements relating to lease of villa or rooms in resorts[35]
- Management agreements between strata title owner of villa or rooms in resorts and lessor[36]
- Lease agreements of uninhabited island for purposes other than tourism[37]
- Bill of Exchange[38]
- Promissory Note[39]
- Partnership Agreements[40]
- Equitable distribution of marital property[41]
6. Are there any language requirements for the validity of a contract?
There are no language requirements for the validity of contracts. Contracts that are in a foreign language other than those in English Language, must be translated for use in court proceedings.[42]
7. Does the applicability of a foreign law to a contract affect the validity of a contract?
A contract may be subject to a foreign law under the Contract Act.[43] The burden of proving the applicable rules under the foreign law is on the party relying on it.[44] If a party fails to undertake this onus, the courts will rely on rules followed in well developed jurisdictions in deciding on the issue.[45]
8. What are the factors that affect the validity of a contract?
Factors that affect the validity of a contract include duress[46], undue influence[47], misrepresentation[48] and illegality[49] as to the purpose, type or performance required of the contract.
9. Can contract terms be implied or be inferred by conduct of the parties?
Generally, the courts will imply a term into the contract if it is necessary to give effect to business efficacy to the contract and if it does not contradict with any express terms in the contract.[50]
Courts may also imply terms into the contract based on customary practices of the business or trade provided that such a practice is not expressly excluded from the contract or does not contradict with an express term of the contract.[51]
Other situations in which courts may imply a term are if it is mandated by law or on account of public policy considerations. While contract law provides certain terms that will be implied into contracts, courts can imply mandatory terms to a specific class of contracts that fall within certain other laws such as Consumer Rights Protection Act[52] and Sale of Goods Act[53]. Terms which the courts will imply on account of public policy considerations include the duty to act in good faith in terminating contracts.[54]
Terms may also be inferred from the conduct of the parties but this will be done with caution and depending on the facts of the case.
10. Are contracts in electronic form (email, web-based) legally enforceable?
While the Maldives do not have a specific legislation on electronic transactions, contracts in electronic form may be legally enforceable, subject to the satisfaction of all legal requirements required to form a contract.
Formalities for execution
11. What are the formalities for a validly executed contract?
Under the Contract Act, a contract need not be in a particular form. However, where a law requires a contract to be executed, then such a contract can only be validly executed if it is in writing.
Companies
Companies can execute contracts in writing under the common seal of the company or it can be signed on behalf of the company by an authorized person. A company can also execute a contract orally on behalf of the company by an authorized person.
Individuals
An individual who executes a contract in writing must generally sign the document.
12. Is there a specific requirement on witnesses?
While there is no general witness requirement which is applicable to all written contracts, it is a common practice to have the document signed by 2 witnesses.
However, if a law states that a contract must be signed by witnesses, then such a requirement must be satisfied. An example of such a contract is lease agreements for residential use. The recent Tenancy Act (Residential Use Lease) requires lease agreements to be signed by 2 witnesses.
13. Can contracts be validly executed with an electronic signature?
There are no specific rules on the circumstances and use of electronic signatures to execute a contract. Electronic signatures can be used in place of wet-ink signatures.
14. Can contracts be executed in counterparts?
When a contract is executed in counterparts, each party to the contract will sign separate but identical copies of the contract. The signed copies will together form a single binding contract.
There are no specific rules relating to contracts executed in counterparts. In practice, parties enable counterpart execution by inserting a clause into the contract to this effect.
[1] Law Number: 4/91 (Contract Act)
[2] See for eg: Supreme Court Case Nos. 2013/SC-A/34 (BMC Transport and Projects Pvt Ltd v Coralgate Maldives Pvt Ltd), 2017/SC-A/23 (Export Import Bank of Malaysia Bhd v Sultans of the Seas Pvt Ltd), 2020/SC-A/28 (Hassan AliManik v Ahmed Janah), 2020/SC-A/34 (Maritime Academy v State).
[3] See for eg: Supreme Court Case No. 2019/SC-A/80 (Mariyam Rasheedha v Ahmed Nazim)
[4] Section 3(b), Contract Act
[5] Section 3, Contract Act
[6] Section 15(a), Law Number: 10/96 (Maldives Companies Act)
[7] Section 3(a), Contract Act
[8] See Section 3 of Law Number: 13/2011 (Partnership Act)
[9] See Section 4(a) of Partnership Act
[10] Supreme Court Case No.2016/SC-A/16 (Ibrahim Khaleel v State (Ministry of Housing and Infrastructure))
[11] See Section 6(b), Contract Act
[12] Supreme Court Case No. 2015/SC-A/08 (Abdul Majeed v Male’ City Council)
[13] Ibid.
[14] Section 6(a), Contract Act, See also, High Court Case No. 2013/HC-A/168 (Maldives Industrial Fisheries Company Limited v Employment Bureau Maldives Private Limited)
[15] Section 7(a), Contract Act
[16] Section 7(a) and (b), Contract Act
[17] Section 8(a), Contract Act
[18] Section 9, Contract Act
[19] Supreme Court Case No. 2019/SC-A/81 (Treasure Biz International Private Limited v State)
[20] Supreme Court Case No. 2015/SC-A/24 (Namira Engineering and Trading Pvt Ltd v Jausa Construction Maldives Pvt Ltd)
[21] The Contract Act does not mention consideration or any rules regarding it.
[22] Supra, n. 20
[23] Section 4, Contract Act. See also Supreme Court Case No. 2009/SC-A/30 (Hassan Haleem v Hern Thye Heng Pvt Ltd)
[24] Supreme Court Case No. 2009/SC-A/30 (Hassan Haleem v Hern Thye Heng Pvt Ltd)
[25] Supreme Court Case No. 2019/SC-A/72 (Mariyam Ali v Ahmed Nadheem)
[26] Supra n.20
[27] Law No. 25/79 (Maldives Foreign Investment Act)
[28] Law No. 24/2010 (Maldives Banking Act)
[29] Law No. 1/2002 (Land Act)
[30] Law No. 21/2021 (Tenancy Act)
[31] Regulation on Mortgage of Land, Buildings and Apartments
[32] While there is no explicit provision in law to effect sale and purchase transactions of this kind in the form of a written contract, the Land Act nevertheless requires sale and purchase of land, buildings and apartments to be sanctioned by court and accordingly, the practice is to effect such transactions by way of written contracts.
[33] Public Finance Regulation of 2017
[34] Law No. 2/99 (Maldives Tourism Act)
[35] Ibid.
[36] Ibid.
[37] Law No. 20/98 (Maldives Uninhabited Islands Act)
[38] Law No. 16/95 (Negotiable Instruments Act)
[39] Ibid.
[40] Partnership Act
[41] Equitable distribution of marital property is allowed where it is provided for in a marriage contract formed in accordance with Section 11 of Law No. 11/2000 (Family Act).
[42] The regulation on trial procedures of 2003 requires hearings to be conducted in local language, Dhivehi (Section 33). Usually, courts accept contracts in English language however it is common practice to translate the specific clauses that are relied upon in a claim or defense. For contracts in foreign languages other than English language, a court may require the translation of the entire document.
[43] Section 18(d), Contract Act. See also, Supreme Court Case No. 2017/SC-A/23 (Export Import Bank of Malaysia Bhd v Sultans of the Seas Pvt Ltd)
[44] Supreme Court Case No. 2017/SC-A/23 (Export Import Bank of Malaysia Bhd v Sultans of the Seas Pvt Ltd)
[45] Ibid.
[46] Sections 13 and 14, Contract Act
[47] Section 13 and 15, Contract Act
[48] Section 16, Contract Act
[49] Section 17, Contract Act
[50] High Court Case No. 2017/HC-A/49 (Mohamed Jameel v Sea Retreats Pvt Ltd) and Supreme Court Case No. 2020/SC-A/46 (State (Ministry of Tourism) v Athama Marine International Private Limited)
[51] Supreme Court Case No. 2020/SC-A/46 (State v Athama Marine International Private Limited)
[52] Law Number: 12/2020
[53] Law Number: 6/91
[54] Supreme Court Case No. 2019/SC-A/85 (State v Villa Air Pvt Ltd)
