In Brunei Darussalam, parties are generally free to choose the applicable law to govern their commercial contract, adhering to the principle of party autonomy. However, this choice must not conflict with mandatory local laws.

The legal system draws primarily from the following.

• English law: The common law of England, doctrines of equity and statutes of general application in force in England as of 25 April 1951 are applicable. This is conditional on no other provision being made by local written law and is subject to “such qualifications as local circumstances and customs render necessary”.
• The Brunei Contracts Act (Chapter 106): This is the primary legislation for contracts and is substantively based on the Indian Contracts Act.
• The Brunei Sale of Goods Act (Chapter 170) (1994): This Act, which governs the sale of goods, is substantially similar to the UK’s Sale of Goods Act 1979.
• The Unfair Contract Terms Act (UCTA) (Chapter 171).
• Other statutes: The Brunei Specific Relief Act (Chapter 108) and the Bill of Exchange Act 1994 also play important roles.

A critical limitation is that parties cannot contract out of overriding local statutes; for example, competition law, mandatory workplace health and safety laws for construction in Brunei are always enforced, regardless of a foreign governing law.

A commercial contract does not require a specific form, instead following the common law principle that agreements can be oral, electronic or in parts to be legally binding. Validity rests on fulfilling essential elements under the Contracts Act or common law, such as an offer, absolute acceptance, lawful consideration, capacity and free consent.

Exceptions requiring specific formalities include:

• immovable property – contracts for the sale or disposition of immovable property require a handwritten (wet-ink) signature and are excluded from electronic transaction laws;
• deeds and formal instruments – documents like powers of attorney and declarations of trust typically require writing and formal execution;
• employment contracts – the Employment Order mandates that key particulars of the contract of service must be provided in writing; and
• agreements without consideration – these are void unless they are expressly in writing and registered, or fall under specific statutory exceptions.

Written documentation, though generally not mandatory, is considered best practice for evidential purposes in complex or high-value contracts.

Local legislation forming the foundational framework for commercial contracts rests on the Contracts Act (Chapter 106) (general principles), the Sale of Goods Act 1994 (governing sale contracts), the Specific Relief Act (Chapter 108) (equitable remedies), and the Application of Laws Act (Chapter 2) (incorporating English common law). Specialised laws like the Companies Act and Employment Order apply to specific sectors.

Brunei’s local sales law, the Sale of Goods Act, is based on the UK’s Sale of Goods Act 1979, thus differing from the United Nations Convention on Contracts for the International Sale of Goods (CISG). However, Brunei is not a contracting state to the CISG. The difference between the local law and the CISG represents well-trodden ground in many academic writings available online, and is thus not reiterated here.

Local law imposes mandatory rules for specific contracts primarily in areas protecting vulnerable parties or public interests.

• Employment contracts: The Employment Order (2009) dictates numerous statutory minimum terms and conditions (T&Cs) that override any contrary contractual clause. These mandatory rules are put in place to protect the employee, who is considered the weaker party. Key mandatory terms include minimum standards for working hours, rest days, holidays and minimum notice periods required for termination based on the employee’s length of service. Any clause in an employment contract that attempts to provide less favourable terms to the employee than those set out in the Employment Order will be considered void and unenforceable.
• Sale of goods (B2C): Contracts that fall under the Sale of Goods Act 1994 have mandatory implied terms that a commercial contract cannot entirely contract out of, particularly in the context of B2C transactions. For example, the goods sold must correspond with their description, be fit for purpose and be of satisfactory quality. Clauses seeking to completely exclude liability for these core implied conditions are likely to be deemed unenforceable.
• Public contracts and government procurement: Counter parties in these contracts must bear in mind the General Order and Financial Regulations. The General Order includes personal and governmental dealings. The Financial Regulations contain procedural compliance requirements in financial dealings with the Brunei government, and these tend to be adhered to and followed by government-linked companies (GLCs) and the statutory bodies. Mandatory standards for public works are governed by the overarching employment and safety legislation. Specifically, the Employment Order (2009) and the Workplace Safety and Health Order, 2009 apply to government contractors and their employees. These laws ensure that labour standards and safety compliance are enforced across government projects, binding even principals and contractors to certain labour liabilities and safety duties to uphold public interest.
• Absence of specific regulation: Brunei does not currently have specific, mandatory statutory frameworks governing arrangements such as franchise agreements, distribution agreements or commercial agency contracts. Therefore, the formation and operation of these contracts are largely governed by the general principles of the Contracts Act (Chapter 106) and the parties’ negotiated terms, subject only to general public policy constraints.

Significant activity has centred on regulatory reform and modernising dispute mechanisms.

Significant Legal Developments in the Past Three Years

The key developments affecting the enforcement and interpretation of commercial agreements stem from the phased implementation of modern regulatory frameworks.

• Enhanced competition law enforcement: The Competition Order, 2015 is being enforced in phases, with key prohibitions on the abuse of a dominant position and anti-competitive mergers (Sections 21 and 23) becoming effective by 1 August 2025. This directly impacts clauses that leverage market power, such as predatory pricing.
• Introduction of personal data protection: The forthcoming Personal Data Protection Order (PDPO) 2025 imposes mandatory obligations for handling personal data in the private sector. Commercial contracts in sectors like information and communications technology (ICT) and finance must now incorporate stringent data processing and security clauses.
• Modernisation of arbitration law: The Arbitration Act (Chapter 173) and the International Arbitration Act (Chapter 279) were updated in late 2024. The latter maintains a mandatory stay of court proceedings in favour of international arbitration, reinforcing party autonomy in dispute resolution.
• Modernisation of workplace safety liability: The implementation and enforcement of the Workplace Safety and Health Order, 2009 has strengthened liability for all commercial and construction projects. This Order imposes non-delegable statutory duties on the principal, occupier and contractor to ensure a safe work environment. This legal development means that, in a commercial project, a principal cannot contractually shift full accountability for safety breaches to a subcontractor, establishing a firm layer of strict liability.

Notable Trends in the Last 12 Months

The most notable trends in the commercial contract landscape over the last year relate to shifts in regulatory compliance and economic activity.

• Focus on contractual risk in data and AI: There is a rising need to draft contracts managing the risks of using AI tools and complying with the impending PDPO, specifically concerning client confidentiality and vendor due diligence for AI service providers.
• Expansion of mandatory employment compliance: The phased expansion of the Minimum Wage Order to several new industries (eg, banking, ICT) requires commercial entities to audit employment and service contracts to ensure compliance with new mandatory wage floors.
• Increased focus on large-scale project and procurement contracts: Sustained government investment focus on infrastructure and economic diversification means a higher volume of complex, high-value design procurement services and engineering contracts are being executed, necessitating specialist legal attention to risk allocation.

The fundamental rule is party autonomy, allowing parties to expressly choose any governing law for their commercial contract. Specific rules for the express choice of law include:

• upholding the clause – local courts will uphold an express choice of law provided it is clear and unequivocal; and
• limitations – the chosen foreign law remains subject to the mandatory local laws of Brunei Darussalam and must not violate local public policy; this is particularly true for laws protecting a weaker party, such as labour or competition regulations.

Applicable Law If No Choice Is Made

If the contract is silent in a cross-border contract, local state courts would apply the law of the jurisdiction of the contracting parties that has the closest and most real connection to the contract, following common law conflict of laws rules. This involves a judicial balancing exercise considering:

• the place of performance of the principal obligations;
• the location of the parties and the subject matter; and
• the law governing related documents or the designated seat of arbitration.

For wholly domestic contracts, the law defaults to the substantive laws of Brunei, primarily the Contracts Act (Chapter 106).

Local courts will not hesitate to apply overriding mandatory local laws even if a foreign law is chosen, specifically to protect public interests and prevent circumvention of domestic statutes enacted to protect the local inhabitants.

The overriding principles are as follows.

• Local mandatory rules: These are specific statutory provisions deemed crucial for safeguarding Brunei’s public policy, social order or economic structure, including competition law (prohibiting anti-competitive agreements) and employment law (statutory minimum protections).
• Public policy exception: Courts reserve the right to refuse to apply a foreign law if its provisions are contrary to the fundamental public policy of Brunei Darussalam. This “negative function” excludes foreign law that is offensive to local ethical or legal norms.

Cases for Application

This override is typically invoked when:

• the contract’s performance occurs in Brunei, and application of foreign law would violate local statutes enacted to protect local consumers;
• the contract is essentially domestic in nature, and the choice of foreign law is seen as an attempt to circumvent mandatory local laws passed to protect local interest;
• the object or consideration of the contract is unlawful in Brunei, such as those involving criminal activity or corruption; or
• the underlying contract or its enforcement is found to be contrary to the national interest of Brunei, such that recognition and enforcement of a foreign court judgment can be set aside.

In line with the principle of freedom of contract, commercial parties are generally permitted to choose a foreign jurisdiction to hear and resolve their disputes, irrespective of the parties’ domicile.

If one party is from Brunei, a foreign jurisdiction clause can be chosen. Local courts respect and uphold an exclusive foreign jurisdiction clause as a matter of contractual principle, assuming the contract was freely entered into. If a Brunei party sues locally in breach of such a clause, the local court will typically grant a stay of proceedings in favour of the chosen foreign court.

If both parties are from Brunei, they can still choose a foreign jurisdiction, but the choice receives greater scrutiny if the contract is entirely domestic in performance.

• Domestic scrutiny: If a dispute is filed locally, the court may conduct a balancing exercise under the forum non conveniens doctrine to determine if Brunei is the clearly more appropriate forum. If the choice of law is foreign and not just jurisdiction, then the choice of a foreign court may be viewed as an attempt to circumvent local law. But if both contracting parties are foreign but are situated or domiciled in Brunei, the choice of foreign law and jurisdiction would have a stronger likelihood of being upheld.
• Exception: The local court retains the right to refuse to enforce the foreign jurisdiction clause if it is satisfied that enforcing it would be unreasonable, unjust or contrary to local public policy. For purely domestic disputes, if one party is the Brunei government, a Brunei statutory authority or a GLC, arbitration with a foreign seat is often preferred over foreign litigation by the other non-governmental party.

Parties to a commercial contract can freely agree to arbitrate instead of leaving it to the default position of ending up in court, even if one or both parties are from Brunei Darussalam.

Statutory Framework

The framework for dispute resolution is governed by a dual statutory system. For domestic arbitration, the governing law is the Arbitration Act (Chapter 173), whereas for international commercial disputes, the governing law is the International Arbitration Act (Chapter 279). This Act is largely based on the internationally recognised UNCITRAL Model Law.

The arbitration agreement must be in writing and clearly express the parties’ intention to resolve disputes through arbitration. All commercial disputes are generally considered arbitrable, though matters of public law, such as the winding up of companies, are excluded.

Effect of a Valid Arbitration Clause on Court Proceedings

The choice of arbitration generally prevents a party from successfully pursuing a complaint in a local court concerning the matter needing to be resolved. But if there is no dispute in law and fact on a claim, the agreement to arbitrate will not stop an unpaid claimant from successfully pursuing their claim in court.

• Mandatory stay (New York Convention Article II(3)): Brunei is a contracting state to the New York Convention. The local court must grant a mandatory stay of court proceedings (referring the matter to arbitration) at the request of a party, unless the court finds that the arbitration agreement is null, void, inoperative or incapable of being performed, or that there is no defence to the claim.
• Refusal of enforcement (New York Convention Article V(2)): Conversely, the High Court may refuse to recognise or enforce a foreign arbitral award (Article V(2)) if the subject matter is not capable of settlement by arbitration under Brunei law, or if enforcement would be contrary to the public policy of Brunei Darussalam.

Application of Mandatory Local Laws

Mandatory local laws for the protection of a national contract party can and will be applied in specific circumstances.

• Public policy override: This principle ensures that a contract’s chosen foreign law or arbitral outcome cannot be used to circumvent crucial domestic statutes that embody a fundamental public policy.
• Statutory protections: Any mandatory local law establishing minimum non-waivable standards – such as minimum wage or certain safety regulations in the Employment Order – would likely be enforced by an arbitral tribunal if the non-compliance occurred within the jurisdiction. An award attempting to override such fundamental protections would be challenged by the High Court on public policy grounds.

In most commercial matters, no specific form is required for a contract to be legally effective and binding. Validity rests on the presence of essential contractual elements (offer, acceptance, capacity, lawful object and consideration).

Possible forms of contract include:

• oral/verbal agreement: generally valid and legally enforceable if its terms and essential elements can be proven;
• written document: the preferred form for evidential clarity, and necessary for complex or high-value contracts.
• implied/conduct-based contract: arises entirely from the conduct of the parties where actions demonstrate a mutual intention to be bound; and
• electronic/digital form: agreements via an exchange of electronic communications (eg, email, DocuSign) are recognised and can be legally binding.

Use of International Standard Forms

The use of international standard forms, such as FIDIC (Federation Internationale des Ingenieurs-Conseils) for construction and BIMCO (Baltic and International Maritime Council) for maritime and shipping, falls under the category of a written document.

• Customisation is key: These forms, while recognised globally, are international templates that are not adjusted to local law. For use in Brunei, they require careful customisation via particular conditions to ensure compliance with local mandatory laws and specific project requirements.
• Enforceability: Such documents are highly detailed and clear, providing a solid contractual basis for complex projects. Their terms (including those related to dispute resolution, liability and risk allocation) are generally enforced upon, subject only to Brunei’s overriding mandatory laws.

The common law of Brunei Darussalam does not formally acknowledge the continental concept of culpa in contrahendo, a freestanding duty to negotiate in good faith. UK common law covered the misrepresentation lacunae with the Misrepresentation Act of 1967 (“MA1967”); although it is a statute of general application, having been passed after 1951, it does not have the force of law in Brunei. It should be noted that much of the essence of the MA1967 can be found in Sections 10, 11 and 12 of the UCTA. The law prefers the principle of freedom from contract, allowing parties to walk away from negotiations without liability.

Relevant claims and remedies (substitutes for culpa in contrahendo) include the following.

• Sections 17 and 18 of the Contracts Act cover, to a large extent, fraudulent and innocent misrepresentation inducing a contract to be entered into.
• Misrepresentation claims: This is the primary basis for pre-contractual liability, arising when a false statement of fact induces the other party to contract.
• Remedies depend on the degree of fault (fraudulent, negligent or innocent), ranging from rescission (unwinding the contract) to damages (compensating loss).
• Statutory vitiating factors: The Contracts Act (Chapter 106) allows the innocent party to avoid the voidable contract if consent was caused by fraud, coercion, undue influence or innocent misrepresentation. One of the remedies is rescission, which includes the obligation to restore any foreseeable non-remote direct damage caused.
• Collateral contract or estoppel: Liability may be imposed if a representation is proven to be a binding collateral contract, or if the equitable doctrine of proprietary estoppel is engaged due to detrimental reliance on an assurance.

If no contract was allegedly formed after say, the battle of the forms, unless the party walking away has clearly marked their offered terms with wording along the lines that negotiations are “subject to contract”, the counter-party may be successful in seeking specific performance of an agreement based on the last negotiated terms. Such success has been achieved in Brunei court, at least in respect of real estate sales.

Standard T&Cs are incorporated into a commercial contract through the common law doctrine of incorporation, which requires the party being bound to have received sufficient notice of the terms.

Methods of incorporation are as follows.

• By signature: Signing a document that expressly references and incorporates the T&Cs makes them generally binding, regardless of whether they were read.
• By reference: T&Cs contained in a separate document (eg, on a website) can be incorporated by explicit reference in the main contract. The other party must be given a clear and accessible route to access these external terms.
• By course of dealing: Terms repeatedly used in numerous prior transactions between the parties may be impliedly incorporated into the new contract.

Onerous/Unusual Terms

If a standard term is particularly onerous or unusual, the party seeking to rely on it must take extra, positive steps to ensure the term is fairly and reasonably brought to the other party’s attention. Simple incorporation by reference may not be enough for a clause imposing severe financial penalties, under the “Red Hand” principle.

Local law regulates standard terms primarily through the UCTA, to constrain the exclusion of liability, as follows.

• Application to business-to-business (B2B) contracts:
1. when it applies – the UCTA governs B2B contracts when one party deals on the other’s written standard terms of business; and
2. mechanism – the UCTA introduces the requirement of reasonableness, and exclusion or limitation clauses (including those attempting to exclude liability for the party’s own breach or demanding substantially different performance) are only valid if they satisfy the reasonableness test. Clauses relating to non-injury negligence and the implied terms of the Sale of Goods Act are subject to this test.
• Application to B2C contracts:
1. mandatory prohibition – for B2C transactions, the Consumer Protection (Fair Trading) Order (CPFTO) and the UCTA apply stricter rules, and exclusion of liability for core implied terms regarding the quality and fitness of goods against a consumer is unenforceable and often void; and
2. review – the CPFTO protects consumers from unfair practices and terms that are excessively one-sided.

Standard form terms can be invalidated due to unreasonable disadvantage through the statutory application of the reasonableness test.

Mechanisms for Invalidation

The clear possibility for invalidation is rooted in both statutory law and common law principles.

• The UCTA reasonableness test (B2B/B2C): For standard terms, the UCTA invalidates clauses that restrict core liabilities (like those for negligence or breach of implied terms) if they fail to meet the “fair and reasonable” requirement. A key factor is whether the clause permits a party to render a performance substantially different from what was reasonably expected, or to render no performance at all.
• Judicial scrutiny and lack of remedy: Courts will scrutinise standard clauses imposed on a “take-it-or-leave-it” basis, especially if they reflect a severe inequality of bargaining power. A key factor in this scrutiny is whether the disadvantaged party was represented or advised by a solicitor; if a party received legal advice, the argument for invalidation on grounds of unreasonableness becomes substantially weaker, as the party is presumed to have understood and accepted the commercial risks.
• Lack of remedy: A term that leaves the disadvantaged party with no meaningful remedy for a serious breach is unlikely to be held as reasonable and may be struck down.
• Consumer protection (B2C): The CPFTO specifically targets standard terms that create a significant imbalance in rights and obligations to the detriment of the consumer, deeming them unfair and potentially unenforceable.
• Equitable relief and statutory protection: The Specific Relief Act (Chapter 109) grants the court discretion to refuse to enforce a contract by way of specific performance if enforcing it would be unduly harsh on or inequitable for the defendant. Furthermore, the CPFTO specifically targets standard terms that create a significant imbalance in rights and obligations to the detriment of the consumer, deeming them unfair and potentially unenforceable.

The result of a “battle of forms”, where both parties trade using conflicting standard terms, is decided by applying the classic common law rule of offer and acceptance.

The “Last-Shot” Doctrine (Prevailing Rule)

The primary method for resolving the conflict is the “last-shot doctrine”:

• mechanism – the final document containing standard terms sent by one party and subsequently acted upon (accepted by conduct) by the other party without objection generally dictates the terms of the contract; and
• process – each exchange of conflicting terms is treated as a counter-offer, thereby rejecting the immediately preceding offer, and the party deemed to have fired the last accepted counter-offer wins the battle.

Deviation and Failure

Deviation by conduct

Although the “last shot” is the default, courts may look at the overall objective conduct and intention of the parties to displace this rule. For instance, a long-term master agreement that clearly stipulates its primacy, and is signed by both parties, may prevail over a later unsigned purchase order containing contradictory standard terms (with the “first shot” winning).

Void for uncertainty

Critically, if the court cannot resolve the conflict using the “last-shot” rule or by inferring clear intention, the agreement, or at least the conflicting terms, will be deemed void for uncertainty. The Contracts Act (Chapter 106) provides that agreements whose meaning is not certain or capable of being made certain are void (Section 30).

Wet-Ink/Notarial Requirements

Brunei law does not generally require an original signature or a notarial deed for a commercial contract to be valid. However, formality is mandatory for:

• immovable property – contracts for the sale or disposition of immovable property, including transfers and title documents;
• formal instruments – documents such as wills, deeds, powers of attorney and declarations of trust; and
• notarial deeds – required when a document must be authenticated for use in a foreign country.

Electronic Signatures (e-Signatures)

A contract can be effectively concluded via an electronic signature (eg, DocuSign) for most commercial transactions:

• legal basis – the Electronic Transactions Act (ETA) (Chapter 196) confirms that contracts cannot be denied enforceability solely because they are electronic; and
• evidential weight – secure electronic signatures (which use reliable security procedures) are recognised and benefit from a presumption of authenticity in court.

Official registration of commercial contracts is not generally necessary for validity or enforceability. However, registration or filing is mandatory in specific areas to obtain legal effect or meet regulatory compliance.

Regarding mandatory registration/filing:

• land and immovable property – all transfers and leases of property rights must be officially registered with the Land Department to gain legal effect and protect title;
• corporate security interests – agreements creating a charge or mortgage over a company’s assets must be registered with the Registry of Companies and Business Names (ROCBN) to be valid against third parties; and
• company formation – a company’s constitutional documents must be filed and formally registered with the ROCBN to incorporate the business.

Mandatory Stamping

Documents listed under the Stamp Act (Chapter 34) (eg, tenancy agreements, bills of exchange) must be “duly stamped”. An instrument that is not duly stamped is inadmissible in court as evidence in a civil proceeding, making stamping practically necessary for legal enforcement.

There are several fundamental requirements besides mutual consent that must be present for a commercial contract to be deemed valid and enforceable under Brunei law. These essential elements are derived from the Contracts Act (Chapter 106).

Essential Elements for Validity

An agreement becomes a legally binding contract only if it satisfies the following key statutory and common law pillars.

• Capacity to contract: All parties must be legally competent (of age of majority and sound mind).
• Lawful consideration: There must be an exchange of value; an agreement without consideration is void, unless it meets specific statutory exceptions (eg, being in writing and registered).
• Lawful object: The contract’s purpose must be lawful; agreements with objectives that are forbidden by law, fraudulent or defeat the provisions of any law are unlawful and void. This explicitly includes agreements that are voided by the Competition Order, 2015 (eg, agreements to fix prices or share markets).
• Free consent: The mutual consent must be genuine and free (ie, not caused by coercion, fraud or misrepresentation).
• Certainty of terms: The essential terms of the contract must be clear, definite and capable of being made certain; vague contracts are void.
• Intention to create legal relations: The parties must possess a common intention that their agreement should be legally enforceable.

Subject Matter Requirements

For specific types of commercial activities, additional mandatory requirements must be met before a contract is finalised:

• regulated industries – the transacting party must hold the necessary operational licences or registration related to the business activity (eg, licensed contractors or financial service providers);
• employment – contract terms cannot be less favourable than the minimum statutory conditions stipulated in the Employment Order; and
• possibility of performance – an agreement to perform an act that is inherently impossible to perform is void from the outset.

The fundamental difference in the legal framework for commercial contracts in Brunei Darussalam lies in the degree of mandatory protection afforded to the parties.

Governing Law and Scope

The governing law for B2C contracts (purchases for personal consumption) is strictly regulated by the CPFTO and the application of mandatory minimums under the UCTA. In contrast, B2B contracts are primarily governed by the Contracts Act (Chapter 106) and common law default rules, which presume equal bargaining power. This scope distinction means B2C laws are limited to purchases for personal consumption, while B2B laws extend to high-value transactions, procurement and general commercial activities.

Liability and Unfair Term Review

The treatment of exclusion clauses differs sharply. In B2C contracts, a business generally cannot exclude liability for implied terms regarding the quality, fitness or safety of goods. Any term causing a significant imbalance to the consumer is subject to specific enforcement action under the CPFTO.

For B2B contracts, while parties can generally negotiate and exclude or cap most liabilities, liability clauses are controlled by the UCTA. These B2B terms are primarily subjected to a reasonableness test in court, but only when one party deals on the other’s written standard terms, making the review far narrower than in the consumer context.

The main consumer rights are established by the CPFTO, Sale of Goods Act, and UCTA.

• Right to fair dealing and information:
1. protected against unfair practices, including misleading advertising, false claims and the use of small print to conceal material facts; and
2. entitled to clear, truthful and accurate information on price, quality, quantity and risk.
• Mandatory quality and fitness guarantees:
1. the Sale of Goods Act implies non-excludable terms that goods must be of satisfactory quality and reasonably fit for purpose; and
2. the UCTA generally prohibits a supplier from limiting or excluding liability for these implied terms against a consumer.
• Remedies and redress:
1. consumers are entitled to a remedy for defective or substandard goods/services, including compensation, refunds, repair or replacement;
2. the CPFTO specifically protects against unfair or excessively one-sided contract terms that limit a consumer’s ability to seek redress; and
3. a statutory right to cancel exists for specific transactions, such as certain direct sales contracts.

The core concept of liability in Brunei Darussalam is established by the fundamental distinction between the origin of the legal duty: duties voluntarily assumed through contract and duties imposed by law. The framework can be broadly laid out as follows.

Contractual Liability (Duty Fixed by Agreement)

The principal concept of commercial liability arises from breach of contract:

• source of duty – arises from the breach of a duty voluntarily fixed by the parties through their contract;
• aim of remedy – to award compensatory damages to place the injured party in the economic position they would have enjoyed had the contract been properly performed (loss of expectation), and where remedies are governed by the Contracts Act (Chapter 106) and the Specific Relief Act (Chapter 109); and
• concept of fault – established primarily by proving the breach of a contractual term.

Tortious Liability and Statutory Liability (Duty Fixed by Law)

This category covers obligations imposed universally by the legal system, independent of any agreement between the parties.

• Source of duty: This liability arises from the breach of a duty imposed by law towards persons generally (eg, the duty of care in negligence), which includes both general common law duties (tort) and specific statutory obligations.
• Categories of statutory obligation: These legally imposed duties are highly relevant in the commercial sphere and often create mandatory, non-waivable obligations. Examples include:
1. breach of statutory duty – non-compliance with laws like the Workplace Safety and Health Order, 2009, which imposes duties on principals and occupiers to ensure safety; and
2. consumer protection – duties imposed on sellers regarding product quality and fairness under the Sale of Goods Act and the UCTA.
• Aim of remedy: To compensate for the harm suffered by the injured party (eg, for negligence or trespass).
• Overlapping duties: A single act (eg, a negligent installation) can constitute both a breach of contract and a breach of statutory duty or a tort (negligence).

In summary, liability in Brunei hinges on whether the obligation originated from the parties’ agreement or was imposed by law (via common law or statute).

Punitive Damages

Brunei law does not generally provide for punitive damages (exemplary damages) for a mere breach of commercial contract. Contractual liability is limited to compensatory damages, which seek to restore the injured party to the position they expected to be in. Punitive awards are reserved for exceptional cases, typically involving tortious acts or oppressive government conduct, or are provided by statute such as the Competition Act.

Maximum Liability

Local law does not impose a statutory monetary cap on compensatory damages, including categories like loss of profit.

• Recoverability: Loss of profit is recoverable provided it is not too remote and was foreseeable at the time the contract was made (the common law principle of foreseeability).
• Contractual caps: Commercial parties are free to contractually agree on their own caps on liability for losses. Any such clause must be tested for reasonableness under the UCTA.
• Statutory prohibition: Liability for death or personal injury resulting from negligence cannot be excluded or restricted by contract and is statutorily void.
• Statutory provision on punitive or exemplary damages: The Competition Act provides penalties of up to 10% of the annual income for up to three years of a company for breach of their statutory duty under the Act.

Brunei law provides for liability without fault (strict liability) in specific statutory and common law categories.

Categories of strict liability are as follows.

• Workplace safety and health (non-delegable duties): The Workplace Safety and Health Order, 2009 imposes broad, non-delegable duties on the occupier, principal and contractor to ensure a safe work environment. This creates a form of liability without personal fault, as the principal remains strictly accountable for safety breaches (eg, in building operation or engineering construction), even if the work was performed by an independent contractor. The law is intended to bind all persons engaged to provide services, including to the government.
• Implied statutory warranties in sale of goods (B2C): A seller is held strictly liable for a breach of the implied condition of satisfactory quality and fitness for purpose under the Sale of Goods Act. Liability is established simply by the non-conforming product, irrespective of seller negligence. For consumers, liability for these essential terms cannot be excluded.
• Workmen’s compensation: The Workmen’s Compensation Act, 1957, imposes no-fault liability on employers to compensate employees for loss of earning capacity due to injuries sustained in the course of employment.
• Hazardous activities/materials: The common law doctrine of Rylands v Fletcher imposes strict liability for harm caused by the escape of anything dangerous brought onto land. Modern environmental laws regulating hazardous waste also impose stringent controls that create high accountability.
• Motor vehicle third-party risks: The legislation governing motor vehicle third-party risks – ie, Motor Vehicle Insurance (Third Party Risks) (Chapter 90) – imposes a strict requirement that the user of a vehicle on a road must have a policy of insurance in force to cover any liability incurred for bodily injury to any third party.

Brunei law generally permits contractual limitation of liability as a fundamental expression of the principle of freedom of contract. However, this permission is strictly controlled and regulated by the UCTA (Chapter 171), with the stringency of the control depending on the nature of the clause.

Extent of Allowed Limitation and Statutory Hurdles

The ability to limit liability is subject to specific statutory prohibitions, regardless of negotiation.

• Void exclusions (the unwaivable limit): Liability for death or personal injury resulting from negligence is statutorily void and cannot be excluded or restricted under any circumstances.
• Controlling the remedy: A limitation clause must leave the innocent party with a meaningful remedy. A clause that is so broad that it effectively reduces the contractual obligations to a mere statement of intent, or leaves the other party without any redress for a serious breach, is highly vulnerable to being struck down at common law.

Difference Between Standard and Individually Negotiated Terms

The critical legal difference lies in the application of the Reasonableness Test.

• Written standard terms: Where a contract is made based on one party’s written standard terms of business (in a B2B context), clauses that restrict or exclude liability are fully subject to the UCTA’s reasonableness test. The party relying on the clause bears the legal burden of proving the term was fair and reasonable under the circumstances contemplated at the time the contract was made. Due to the presumption of unequal bargaining power in standard form contracts, these clauses face greater judicial scrutiny and are highly vulnerable to invalidation.
• Individually negotiated clauses: Clauses that are genuinely individually negotiated are not subject to the same UCTA reasonableness test. Courts are generally reluctant to interfere with the commercial judgement of parties who actively negotiated the terms. Such clauses have a higher likelihood of enforcement, provided they do not violate the absolute prohibitions on excluding liability for death or personal injury.

Local law provides relief from performance in the absence of a specific force majeure clause through the common law and statutory doctrine of frustration of contract.

Prerequisites for Relief (Frustration)

Relief is granted when an unforeseen event terminates the contract because performance is either impossible or radically different from what was contemplated. The party claiming frustration must prove:

• a supervening event occurred after the contract’s formation;
• the event was unforeseen and not provided for in the contract;
• the event occurred through no fault of the party relying on the doctrine (it must not be self-induced); and
• the event caused a radical change to the contractual obligation (mere difficulty or increased expense is insufficient).

Requirements of the Affected Party (Mitigation)

These include:

• mitigation of losses – the party has a legal duty to minimise or mitigate the losses flowing from the non-performance;
• avoiding default – the party must actively avoid any action that could be interpreted as contributing to the inability to perform, and failure to explore viable substitute performances may preclude relief; and
• statutory obligation to restore – if the contract is found to be frustrated, the Contracts Act obliges the party who received an advantage to restore it or provide compensation to prevent unjust enrichment.

It is standard and highly recommended practice to include a specific force majeure clause in commercial contracts in Brunei Darussalam.

Rationale for Standard Practice

Parties use these clauses to contractually define the trigger events and remedies to achieve certainty and allocate risk more flexibly than default law allows. A force majeure clause typically allows for suspension or extension of deadlines, whereas frustration only allows for termination.

Effect of Absence

The absence of a contractual force majeure clause does not prevent a party from claiming relief under local law. However, the following should be noted.

• Primary recourse (frustration): The party’s only recourse is the rigid doctrine of frustration of contract. The threshold for frustration is significantly higher (impossibility or radical change) than for most contractual force majeure events, requiring proof that performance is impossible or radically different from the original obligation.
• Automatic termination: Successful reliance on frustration leads to the automatic termination of the contract, discharging all future obligations. This is often a harsher and less flexible result than suspension, which may be undesirable for both parties.
• Equitable Relief (Specific Relief Act): If the contract is not frustrated, a party in breach may still explore equitable defences under the Specific Relief Act (Chapter 109). This Act grants the court discretion to refuse to enforce the contract by way of specific performance if enforcing it would cause undue hardship or inequity to the defendant. Thus, the Act provides a limited judicial safety valve against purely technical or harsh enforcement.

Local law, rooted in the common law tradition, does not provide a general legal principle granting a party a right to contract amendment or renegotiation due to substantial hardship.

Regarding the legal position, the following applies.

• Sanctity of contract: The principle of pacta sunt servanda dictates that commercial parties are bound by the terms of their bargain.
• Hardship is not frustration: Hardship – where performance becomes unusually onerous, uneconomic or substantially less profitable – is not recognised as a ground for discharge. The legal doctrine of frustration only applies when performance is impossible or radically different.
• No judicial power to rewrite: Courts generally will not intervene to adjust or amend a contract’s economic balance merely because the circumstances have changed to favour one party.

Equitable and Dynamic Considerations

While there is no automatic right to amendment, two routes for relief are recognised.

• Equitable relief: The Specific Relief Act (Chapter 109) provides an avenue for relief if the enforcement of a contract by way of specific performance would be unduly harsh on or inequitable for the defendant. This is typically a defence against the innocent party’s claim but does not grant a positive right to amend the contract.
• Dynamic common law: The common law system is dynamic, meaning it constantly evolves through judicial precedent. However, absent an express contractual clause, obtaining a judgment that compels amendment or grants a right to renegotiation based purely on economic hardship would require a fundamental shift in established common law principles.

A formal right to renegotiation in the event of substantial hardship must therefore be explicitly created by parties through an express hardship clause inserted into the contract at the outset.

Hardship clauses are now considered standard practice in sophisticated, long-term commercial and international contracts to deal with economic risk not covered by default law post-COVID-19

Hardship clauses (standard practice) address a legal gap, remedying the fact that local law does not recognise hardship as a ground for relief:

• mechanism – address situations where performance is possible but the economic equilibrium is fundamentally altered (eg, drastically increased costs); and
• obligation to renegotiate – typically impose an obligation on the parties to renegotiate the terms to maintain a commercially viable balance, rather than forcing termination.

Effect of Absence

The absence of a contractual hardship clause will prevent a party from claiming a right to contract amendment or renegotiation.

• No right to judicial amendment: Local law will not intervene to compel renegotiation or adjust the contract terms, even if the hardship is severe.
• Discharge is only via frustration: The affected party’s only recourse against a breach claim is the doctrine of frustration. If the economic imbalance is severe enough to cause a radical change to the contract’s nature, the contract is automatically discharged entirely.
• Risk assumption: The law presumes the disadvantaged party accepted the risk of that financial hardship when the contract was concluded.

If a party does not fulfil their commercial contract obligations, the Brunei laws afford the aggrieved contracting party remedies such as the liberty to rescind the contract, terminate the contract, and claim for losses and damages. The aggrieved party may obtain such remedies through the courts of Brunei, or through arbitration in Brunei or elsewhere. The framework for these obligations and remedies is established by the Contracts Act (Chapter 106) and the Sale of Goods Act (Chapter 170).

Main Implied Warranties (Sales)

In a contract for the sale of goods, the law implies core terms known as conditions (fundamental) and warranties (secondary).

• Implied conditions (fundamental terms): These include the seller having the title and right to sell the goods. They also ensure that goods are of satisfactory quality and reasonably fit for purpose, and that goods correspond with their description or sample.
• Implied warranties (secondary terms): The main warranty is the quiet possession of the goods, meaning the buyer shall enjoy undisturbed possession.

Remedies for Non-Fulfilment, Late Fulfilment and Breach

The availability of termination versus simple damages depends entirely on the contractual classification of the breached term.

• Breach of condition (repudiatory breach): When there is a non-fulfilment of a fundamental term, the breach entitles the innocent party to terminate or rescind the contract immediately. The primary remedy is compensation for loss of expectation, which aims to place the party in the economic position they would have been in had the contract been properly performed.
• Breach of warranty (late/defective fulfilment): For a failure to perform a secondary term, there is no automatic right to terminate the contract; the contract continues in force. The remedy is limited to damages only for the financial loss caused by that specific breach.
• Remedy for late fulfilment (delay): If the contract does not specify that time is “of the essence”, a delay is considered a breach, but it does not permit termination. In this situation, the injured party can claim damages for the loss caused by the delay. However, the party can serve a formal notice to the other side to make a new deadline “of the essence”, with failure to meet this new deadline then potentially allowing for termination.

Other Remedies

Other remedies available include specific performance, where the court orders the performance of the exact contractual obligation (limited to cases where damages are inadequate). An injunction may be granted as a court order to prevent a party from breaching a negative obligation. Finally, a contractually stipulated liquidated damages sum will be awarded if it is deemed a genuine pre-estimate of loss and not a penalty.

Commercial parties generally possess the freedom to deviate from the main warranties and remedies provided by local law. This ability to allocate risk is controlled by the UCTA (Chapter 171).

Contractual Deviation Mechanisms

Parties can deviate from standard statutory rights in the following ways.

• Exclusion of warranties and liability: In a B2B contract, implied terms for quality/fitness under the Sale of Goods Act and liability for breach can be restricted or excluded, but only if the term satisfies the requirement of reasonableness under the UCTA. However, any term that excludes or restricts liability for death or personal injury resulting from negligence is statutorily void.
• Deviation by agreement or conduct: Deviation is not limited to initial written agreement. Deviation may be recognised under Brunei laws if there was conduct or circumstances for the Brunei courts to rule that there was estoppel by conduct or a variation of the main warranty or remedy, especially when both parties are independently represented by separate lawyers.
• Exclusive remedies: Parties frequently establish exclusive remedy provisions (eg, limiting remedy solely to repair, replacement or a specific monetary cap), thereby waiving the right to other default remedies like rescission or loss of profit.
• Equitable relief (Specific Relief Act, Chapter 108): Even if the initial written commercial agreement had spelled out that any change or variation must be agreed in writing, an aggrieved party ought to explore relief in the Specific Relief Act, Chapter 108. This Act provides non-monetary relief like specific performance and injunctions.

Limits on Deviation (B2C)

In contracts where one party deals as a consumer, the law restricts deviation:

• a business cannot exclude or restrict liability for fundamental implied conditions concerning the goods’ correspondence with description or sample, or their quality and fitness for purpose; and
• any contract term seeking to exclude or restrict these core implied liabilities against a consumer is void and unenforceable.