CONTRACT LAW

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CONTRACTS

Rental/lease contract ‘the contract by which one of the parties

undertakes the obligation to allow the other to temporarily use a certain good, against payment’ (Sec. 969 CC)

Rental/lease contract

• Key sequence: – Contract is agreed – Good is handed to the lessee – During the contract, the lessee has the obligation

to pay the rent – The good leased must be kept in good condition – The good must be returned at the end of the

contract

Rental/lease contract

• For property (houses, offices, business premises): – Landlord and tenant – Very detailed regulation

• The law is protective of the tenant: there is a closed list of causes of rescission of the contract by the landlord – See Section 1034 CC

Landlord’s Obligations

• To hand over the Property to the Tenant • To ensure that the Tenant can benefit from the

Property for its stated use • If the Property is defective which affects the

Tenant use of the Property, Landlord has breached its obligation. (Exceptions are stated in Sec. 979 which include when Tenant has knowledge of the defect or the defect is caused by the Tenant). Sec. 977 + Sec.978

Tenant’s Obligations

• Include the normal obligations e.g. to pay rent, to allow the Tenant to inspect the Property and to use the Property only for the specified purpose

• Rights of the Tenant cannot be assigned unless there is Landlord’s prior consent or if it is permitted under the law

• Tenant is not allowed to receive rent from the sub-tenant for more than 20% of the Tenant’s rent payable to the Landlord Sec. 983 & 1010

Tenancy Expenses

• Borne by the Landlord generally unless specified otherwise by the law or in the TA

• The amount of outgoings to be paid by the Tenant should be specified in the TA, but can be adjusted in the future (the formula/the method of calculating need to be specified also). Sec.984-986

Lease of business premises

• Rendered easier by the law: – The transfer of the position of tenant does not

require permission of the landlord, provided that the same business is carried out

– Sec. 1047 and 1049

Lease Term

• Although the reference term of a tenancy is one year (Section 974/1 of MCC), it should be noted that under Section 1038/2 of MCC the landlord is not entitled to terminate the tenancy agreement before two years have elapsed since the start of tenancy

• But how shorter could be the term of a tenancy ? The law does not say….

Adjustment of rent

Rent can be adjusted in the following circumstances: i) as specified in the TA or by supplemental agreement

between the parties; or ii) when there are special maintenance works/

improvement works as required by the orders of the management body.

If the formula/mechanism for adjusting the rent is unreasonable, Tenant may go to the Court for a order to amend such formula/mechanism (Sec. 999)

Reduction of rent

• Unless otherwise agreed, if Tenant cannot benefit from the Property or the level of enjoyment is reduced not due to things done by the Tenant or its relatives, then the rent can be reduced pro rata to the rateable enjoyment of the Property.

• "Relatives" are defined as spouses or cohabitants, or full-blood relatives, relatives-in-law, cohabitants or domestic helpers who live together with the Sec.998/1

Eviction for Non-Payment • In case of breach, Landlord has to go through the

Court for an eviction order • Tenant can get relieve from those evictions orders (e.g.

under Section no. 996 and 997 of Civil Code) by paying the outstanding rents and necessary penalties to avoid eviction

• If Tenant makes a deposit of the rental arrears and the damages into Court and informs the LL within 5 days, that will constitute as a payment to the LL

• Furthermore the eviction could be withheld by the Tenant for health reasons (under 937 of Civil Procedure Code the eviction)

Revocation by agreement

Under Section no. 1016 Macau Civil Code

(MCC), both parties can agree at any time to revoke the tenancy agreement by written agreement

* Even without such written agreement, revocation will take place validly if Tenant returns the property and the Landlord accepts it back

Surrender of Property

• If Tenant abandons or surrenders the property voluntarily, the Landlord can repossess the same at once and such repossession will be taken as an acceptance of the tenant’s unilateral termination

• It will only be necessary to resort to the Courts if any dispute remains between the parties of the tenancy (eg. rents left outstanding by Tenant)

• But Landlord must take care with hidden liabilities...

Repossession of Premises

• Possession is usually sought and obtained once a decision has been made on the tenancy action (though it may also be an incidental request in the main tenancy action)

• As it takes place once the matter has been decided by the Courts (and even if such award is not final and is still pending for appeal section 934 of Civil Procedure Code) it usually will not take more than 3 months

Termination of Leases

• for commercial tenancies the tenant is not entitled to serve a notice of early termination

• for residential tenancies the tenant is granted with such freedom, being allowed to unilaterally revoking the tenancy (regardless of any breach by the landlord) at any time upon service of a 90 days prior notice (or shorter one, if foreseen in the tenancy agreement)

• In these cases tenant will only be subject to payment of a one month of rental as compensation (to a maximum of two months being agreeable in the tenancy)

Time for unilateral notice of non-renewal

• Applicable to both parties • The minimum period of written prior notice varies in

accordance with the term of the TA a) 180 days for a tenancy term of 6 years or more b) 90 days for a tenancy term equal or exceeding 1 year

( up to 6 years) c) 30 days for a tenancy term equal or exceeding 3

months (up to 1 year) d)1/3 of the tenancy term for a tenancy term of less

than 3 months (Sec. 1039)

Timing of notice Understanding as prevailing until 2007 The Courts in Macau where systematically deciding that the

notice of non-renewal (or unilateral termination) could not be served by the Landlord before a term of 2 years had elapsed in the tenancy agreement – as ruled by Section 1038. This meant that all the tenancy agreements had a minimum term of 3 years.

Understanding after 2007 In this year the Court of Appeal (TUI) made a ruling (Case no.

50/2007) clarifying that the understanding prevailing until then was not correct and Section 1038 was only applicable to the use of the right, not to the service of a notice. This meant that the notice could be served within the 2 years original term of the agreement (to be effective from its expiry) and that agreements only have now a minimum term of 2 years….

Specific grounds for termination by Landlord • Section 1034 (Civil Code)

• a) subject to application of s.1019, non-payment of rent at the appropriate time and location, as well as not making any deposit or guarantee for the late payment.

• b) using or allowing other people to use the Property for purposes/business activities not stated in the TA.

• c) repeatedly/frequently using the Property for illegal purposes.

• d) making structural works to the external/internal Property without the LL's consent and the said works cannot be regarded as reasonable according to s.987 or s.1025/1.

Specific grounds for termination by Landlord • Section 1034 (Civil Code)

• e) unless otherwise agreed, providing accommodation to more than 3 people if the TA is for non-residential use.

• f) subletting or assigning the contractual rights illegally except as stated in s.1020.

• g) receiving rent from the sub-tenant in excess of the limit mentioned in s.1010 (i.e.20% more than the T’s rent).

• h) not providing the personal services to the owner/ LL which was provided in the TA.

• i) if the TA is for commercial use and the Property is closed for more than one year, or more than two years if it is due to force majeure events/when the T is forced to leave the Property.

Illegal Accommodation

• The provision of Section 1034, paragraph e) and Section 1041 no. 1 paragraph b) clearly allow for the tenant - unless there is any prohibition clause in the tenancy agreement - to have guests in the property;

• Under Law no. 3/2010, enacted back in July 2010 as a measure to fight the proliferation of illegal inns, changed this understanding and considerably reduced the scope of this exception;

Illegal Accommodation • Under Section 2 (“Provision of Illegal

Accommodation”) of Law 3/2010 is defined as: • “For the purposes of this law, it is illegal provision

of accommodation, the business of providing accommodation to the public, without holding a hotel license, in building or unit not suitable to be licensed as an hotel and similar use, whose occupant is not a resident of the Macao Special Administrative Region (SAR), which was not granted special permission to stay or residence permit for non-resident workers,

• except verifying one of the following situations:

Illegal Accommodation i) The person who provides accommodation has a

stable relationship with the guest and before the investigation, delivered the property tax form on this relationship lease, to the Tax Department; ii) The person providing accommodation and the guest already knew each other well before the establishment for having either a family, professional, study or other personal relationship, and because of this relationship free accommodation is provided to the guest.”

Section 2 (“Provision of Illegal Accommodation”)

Tenancy Expiration

• Under Sections 1022 & 1023 MCC, the tenancy is deemed as expired in the following circumstances:

• a) When the contractual term expirees and is not renewed; • b) When the expiry event set by parties occurs; • c) When the contractual or management rights, under which

the tenancy was celebrated, are terminated or forfeited; • d) When the tenant passes away or, if a corporation, is wound

up; • e) Occurring destruction or loss of the premises; • e) When the premises are requested by the government for

public use

Case 1 • In March 2006 Lock It Ltd. rented a huge warehouse in

the old part of town to package and store coffee. The agreement was signed for a one year term, renewable, and the place was in full operation by April 2006. The business expanded very quickly, with several dozens workers in full time at the warehouse and at least 10 trucks every day to discharge or carry packages.

• The Landlord, Mr. Zhang, started to become very concerned with this use of the property and at his last inspection (on February 10, 2007), he wanted to confirm if the workers were also sleeping there and refused to leave.

Case 1 • Manuel, the foreman, claimed that Mr. Zhang had no

right to stay there and could only inspect the property being now used by Lock It Ltd.. Manuel had to push him though the door and lock him outside. Of course, Mr. Zhang become very angry and said that his rights to use the property were being infringed and that the warehouse was now being used as a residence to workers and not as a warehouse.

• As a result, a letter was received the next day at the head office of Lock It Ltd., signed by the lawyer of Mr. Zhang, explaining that for those same reasons the agreement was being terminated and the warehouse would have to be vacant by the 1st day of March 2008.

• What can Lock It Ltd. do?

Case 2 • Last January 2010 Cheng rented a flat in Taipa for a one

year term. The unit was located on the 10th floor or a building with twenty five floors and was served by three lifts. The rent agreed was MOP$8,000 per month and Cheng rented it because it was close to his office and he could walk to work every morning.

• Problems started when Cheng noticed signs being put at the entrance hall and lifts, explaining that the existing lifts would be replaced within the months of April and May – and the building would be without any lift service for two months (April and May).

• When Cheng realized that he had to walk up every day he became very frustrated. He considered to either terminate the tenancy agreement or to ask for a substantial discount and called the Landlord, Mr. Tran.

Case 2 • However, Mr. Tran was even angrier and replied that

because of the lifts problem he was now required to pay the triple of the management fees to support the lifts replacement. Therefore, Mr. Tran had decided to increase the rent in 50% from April onwards to cover for this extra costs.

• With this stalemate the relationship between Cheng and Mr. Tran became very sour. When Cheng stopped paying the rent to force Mr. Tran to pay compensation, it became even worst. Please explain to each of Mr. Tran and Cheng the rights they have on this matter and whether or not hey could terminate the agreement, under which consequences and what other options they have to adjust the tenancy agreement.

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CONTRACT LAW

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Power-of-Attorney and Mandate

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Representation

• There are many instances where there is a need for a person to be represented by another; cases of representation arise not only in relation to business contracts but, more generally, in connection with all legal acts, even of a personal nature.

• The person represented is designated as a ‘principal’, while the person acting on behalf of the principal is the ‘attorney’ / ‘agent’ .

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Representation

• “A legal transaction concluded by a representative in the name of the principal, within the limits of his powers, produces its effects in the legal sphere of the latter.”

• Section 251 • This legal effect occurs automatically and

immediately, without the need for other circumstances at events.

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Representation

• (Transaction with himself) • 1. A legal transaction concluded by the

representative with himself, either in his own name or as a representative or a third party, is voidable, unless the principal has specifically consented to the transaction, or unless the transaction by its nature excludes the possibility of a conflict of interests. (Section 254)

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Power-of-Attorney

• 1. A power of attorney is the act by which a person voluntarily grants powers of representation to another.

• 2. Unless there is a legal provision to the contrary, a power of attorney shall have the form required for the transaction that the representative is to conclude.

• 3. The powers of attorney that require the intervention of a notary shall be formalized in accordance with the respective legislation. Section 255

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Form of Power-of-Attorney

• PoA granted to the benefit of the attorney or a third party;

• PoA with a clause of irrevocability; - must be executed as a Notary instrument • PoA with general powers of administration, civil or

commercial; • PoA with powers over titles or currency; • PoA with powers of confess, waive or settle Court

proceedings; • PoA to be used in the execution of a deed or similar; - must be executed as a Notary instrument OR executed in

the presence of the Notary Section 128, Notary Code

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PoA and Mandate

Civil Code separates clearly between the power of attorney as a source of powers of representation, and the mandate contract.

While a power of attorney is an unilateral

act, a mandate contract is a service contract which may or may not involve representation.

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Mandate Agreement

• Governed by Sections 1083º-1110º • Section 1082º: provides that all the provisions

(of the mandate) are applicable, on a subsidiary basis, to all the service agreements not specifically regulated in the Law

• Civil Code only regulates three types of service contracts – mandate, deposit and construction contract

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Mandate

• (Concept) • A mandate is contract by which one of the

parties undertakes the obligation to execute one or more legal acts in the interest of the other party.

• Section 1083

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Revocability of Mandate

• (Revocability of mandate) • 1. A mandate is freely revocable by any of

the parties, regardless of agreement to the contrary or renunciation to the right of revocation.

• Section 1096

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Mandate – Onerous or Gratuitous

• There is a presumption the same is gratuitous; except if the same covers actions that are part of the attorney’s profession (being onerous then)

• The parties may agree the mandate is onerous and the remuneration for for the same or the criteria for its calculation (Section 1086)

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Joint Mandate

• If two or more persons are appointed as

attorneys, the same should carry the mandate separately and not jointly

• a mandate to be exercised jointly must be specified by the Principal (Section 1086º)

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Delegation of powers

• Subrogation or delegation is advisable only if provided or implied in the mandate agreement (Sect: 257º ex vi 1091º)

• Sub delegation does not necessarily imply that the Attorney is dismissed; instead, the same may remain under the mandate (unless specifically excluded – “sem reserva” – Section 257, nº2)

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Attorney’s Accountability and Duties

• To perform the mandate as per the instructions received;

• Provide any information requested by the Principle;

• To report the completion of the made instructions or, if not, to explain why it was not carried out;

• To submit accounts, once the mandate is completed or the Principal requests;

• To refund to the Principal any unused sums. • (Section 1087º)

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Business with himself This clause overcomes the general prohibition of

Sec. 254 (above) - If the PoA is granted in the interest of the Attorney

then it may not be freely revoked – Sec. 258.3 and 1096/3

CC - If PoA is granted in the interest of Attorney then

even the death of Grantor will not expiry it (Sec. 1101) In any case

- The PoA may always be revoked in case of fair cause

- The Grantor may always use the powers granted in the PoA

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Mandate Revocability • Mandate is freely revocable, even if there is a

clause excluding it out or if the Principal waived to his / her revocation rights.

• If the mandate was granted to the benefit of the Attorney or a third party the revocation requires his/her agreement, except if there is fair cause;

• The statement or clause, in the mandate, that the same is granted to the benefit of the Attorney only creates a presumption – which could be removed (Section 1096º)

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Mandate Revocability

• Civil Code provisions on revocability require the Principal to prove fair cause for the revocation of a mandate and

• The intervention of the Courts to review such fair cause allegation and to hear the Attorney’s standing on such benefit and its revocation.

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Mandate Revocability

• The procedures for the revocation of the mandate give the Attorney to oppose the same, to argue that there is no “fair cause” and to seek a compensation from the Principal for any losses reflected; (Section 1098º)

• Such procedures means eventually that it will be necessary not only to review the mandate but eventually the transaction underlying the same

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CONSTRUCTION CONTRACT

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Macau Construction Law – its sources and framework

• Building Contract Rules – Sections 1133 to 1156 of the Civil Code

• Public Building Contract Ordinance – Decree-Law nr. 74/99/M

• Urban Construction Ordinance - Decree-Law nr. 79/85/M

• No Court decisions of relevance (civil law tradition)

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Macau Construction Law – its sources and framework

• Building Contract Rules – Sections 1133 to 1156 of the Civil Code • Public Building Contract

Ordinance – Decree-Law nr. 74/99/M • Urban Construction Ordinance Decree-Law nr. 79/85/M • No Court decisions of relevance

(civil law tradition)

Fisherman’s Wharf

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3- 3.1. Types of Construction Contract used in Macau Traditionally categories refer to the management of works: • Set Cost or Lump Sum Employer and contractor only agree on a global price for the works specified in the Agreement. The Contractor will perform all the agreed works, providing materials and workers and all ancillary resources, against the payment of the agreed price (adjusted, if necessary) by the Employer. • Direct Management of Owner The Owner provides for all the required materials and deals directly with its acquisition, supply and subcontractors, if required; the Contractor is only in charge of the means necessary to perform the works (namely workers)

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• 3.2. Types of Construction Contract Private Construction Agreements • Private agreements are subject to the parties freedom of agreement. • Most common model is the traditional one • Contractual freedom led to foreign models being adopted, namely ones inspired by Hong Kong laws or laws from other jurisdictions. • Management contracting and construction management are formats only recently being put into practice (last 2 to 3 years) and for private developments only • Design and build model has been used for certain private developments (vg. Nova Taipa Development – Phase I)

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3.3. Types of Construction Contract used in Macau Public or Government Construction Agreements

• standard model is usually adopted, with

short contents and several crossed-references to other annexes

(namely Bills of Quantities) and to the above described PBCO

• There are basically two types of contracts: - by global price - by series of prices • There are also contracts with a

combination of both, for projects where part of the work is difficult to

measure (vg. foundations) • For global price contracts one may also

have traditional agreements (construction only) or design and build.

Sai Wan Bridge

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3.4. Types of Construction Contract used in Macau

Public or Government Construction Agreements • Management construction or direct management models

have not been used • Often the Government retains design and supervision of the works separately (through agreement with architects) • PBCO is a statutory set of rules, with detailed procedures

not subject to contractual arrangements - compliance is supervised by Government legal departments and Courts

• Deviation from PBCO procedures on tenders, formation of contracts and performance of the same are often used by unsuccessful tender applicants to challenge the same in

Court.

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4 - 4.1. Variations to works – BCR

Building Contract Rules [BCR] • Variation of works requested by Contractor without Owner authorization qualifies as defect (Section 1140) • Variation of works determined by defective design or statutory rules and their consequences on price and time shall be decided by Courts if parties fail to agree (Section 1141) • Variation of works requested by Employer should be performed provided that (i) the increase of costs should not exceed 20% of the price agreed originally (ii) there is no change to nature of works (Section 1142)

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4.2. Variations to works - Public Building Contracts Ordinance [PBCO]

• Variation of works requested by Employer is admissible if (i) within the nature of the project, (ii) required for its completion or (iii) determined by defective design (Section 26) • If additional costs involved exceed 25% of the initial price (50% for international tenders under Section 65), the Contractor may opt to terminate the Agreement (Section 31) • Contractor may also terminate the Agreement if allegedly has no workers or machinery to perform the additional works (Section 26 nr. 4) • Variation Additional works always require the execution of an addendum to the Construction Agreement (Section 26 nr. 7) • Variation of works requested by Contractor must be agreed with Owner for the additional costs involved (Section 30)

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5. Appointment of Sub Contractors Building Contract Rules [BCR] ● Allowed in general at the Contractor’s risk (domestic sub

contractor) [Section 1139, Civil Code] ● Liability of the Contractor (vis-a-vis Employer), for the actions of

the Sub contractors, will only be excluded if the Employer specifically approved Sub contractor and authorized sub contracting [CC, Section 257]

Public Building Contracts Ordinance [PBCO] ● Contains no rules for the appointment and liabilities of sub

contractors ● In practice for Government construction there is no contractual relationship between the Employer and the sub contractors (only domestic)

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6. Time extensions Building Contract Rules [BCR] • No specific provisions for time extension of the contract Public Building Contracts Ordinance [PBCO] • Multiples causes extensions of time are foreseen, in case of force majeure,

delay in payments (exceeding 90 days), lack of technical guidance from architect, safety requirements, etc (Sections 159 and following)

• If Contractor is not liable for the delay, extension of time is acceptable and

does not imply fines (Section 168) • If otherwise, fines will be applied to each day of delay in completion of the

project: i) 1 per thousand of the Contract value for each day of delay (up to 1/10 of

contract term); thereafter ii) an increase of 5 per thousand of the fine per day up to 5 per thousand of

Contract value.

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7. Defective design Building Contract Rules [BCR] • No specific provisions for liability for

defective design; treated as any other construction deficiencies: if known by or

timely reported to Employer, Contractors liability is dismissed (Sections 1145 &

1146, CC) Public Building Contracts Ordinance [PBCO] • Correction is to be born by the party that

submitted design (either Employer or Contractor) [Section 38, PBCO] • If Contractor’s design deficiency was

induced by wrong data or technical guidance of the Employer, then the latter

is exclusively liable [Section 38 nr. 2 PBCO] • The party (Contractor or Employer) liable

for the design deficiency will support correction costs, as well as for losses

and damages of the counter-party and third parties (Section 40, PBCO]

Oceanus

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8.1 Liquidated Damages – Clauses qualification

Criteria for its applicability • In doubt the clause shall be deemed

to have the nature of “liquidated damages clause”.

• Parties may validly stipulate clauses of both types in their contracts, as well as they may insert separate clauses of the same type for specifically determined damages.

• If a liquidated damages clause is used, its sum fixed shall be the exact measure of the damages for the breach, whether it exceeds or falls short of the actual damages, thus permitting the parties to cap their liability.

Fisherman’s Wharf

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8.2. Liquidated Damages - Statutory restrictions

• 1. Unless provided for under contract,

when the actual damages are significantly higher than the liquidated damages, the obligee may claim the actual damage

• 2. The Court may on the basis of equity reduce the amounts payable under the penalty clause when the amounts fixed as liquidated damages or as penalty are deemed “manifestly excessive”.

Old Pier 16

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9. Defects Liability -Limitation periods

• Under Macau law no distinction of

contracts executed under hand or under seal contracts

• As a general criteria, limitation period for commencement of action for breach of contracts varies in accordance to the subject of the contract

• General limitation period is 15 years [Civil Code, Section 302°]

• Liability under tort has another time bar: 3 years [Civil Code,Section 491° n°. 1]

Waldo Casino

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9.1 Limitation periods construction agreements

• BCR – Rules that liability for defective construction of property stand for 5 years from possession by the Owner (Section 1151), provided that defects are reported within 1 year [of being known to the Owner]

• BCR – Contractor will only be allowed to re-claim such defects from the sub-contractors if serves notice of the Owner claim, to the sub contractors within 60 days from the date of the notice of the Owner (Section 1151 nr. 2)

• UCO – Liability of contractors, engineers and architects for the safety and solid of any construction stands for 5 years from the use license date (Section 12 nr 2)

• PBCO – A defects liability period will take typically one year from the provisory acceptance of works by Employer (193) until definitive acceptance of works (upon amendment of defects by the Contractor –Section 201)

• PBCO – Employer is obliged to release any guarantees of the contractor within a two years term from completion date, though the Contractor liability out lasts such 2 years (Section 200)