Mohamed El Hawawy Joint Managing Partner, Dubai
Coronavirus: Force Majeure event under UAE law?
We have previously considered the legal issues and impact of COVID-19 on international trade and transportation, the relationship between Force Majeure COVID-19 in the context of English law, Chinese law and certain standard form contracts and whether ports in the UK can refuse entry to vessels on the basis that the passengers or crew have, or are suspected to have, contracted COVID-19.
COVID-19 is spreading globally and, with more cases being confirmed in the Middle East, we consider below how the doctrine of force majeure may be treated in UAE law governed contracts.
Force majeure is a civil law concept, which literally means “greater force”. How the risk is allocated and what the remedies are if such an event occurs is usually dealt with by specific force majeure clauses in commercial contracts.
If the contract is governed by common law, such as English law, in order to be able to rely on the force majeure provision the parties must come within the express wording of the clause. In the absence of an express force majeure provision the courts would not simply imply one into the contract and the parties’ only option would be to consider whether they could rely on the narrow doctrine of frustration.
Civil law jurisdictions, such as the People’s Republic of China and UAE for example, on the other hand, treat the concept of force majeure differently. Whilst many commercial contracts contain a force majeure clause which specifies which events fall under it and what their effect on the contract is, in addition, if the contract is governed by UAE law the doctrine of Force Majeure is also recognised at law and parties would be able to rely on it if the contract itself is silent on this aspect.
In the UAE, the doctrine of Force Majeure is generally dealt with in the Civil Transactions Law (Federal Law No 5 of 1985) (the “UAE Civil Code”). Article 273 of the UAE Civil Code provides:-
- In contracts binding on both parties, if force majeure supervenes which makes the performance of the contract impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled.
- In the case of partial impossibility, that part of the contract which is impossible shall be extinguished, and the same shall apply to temporary impossibility in continuing contracts, and in those two cases it shall be permissible for the obligor to cancel the contract provided that the obligee is so aware.
Whilst the UAE Civil Code does not contain a definition of what constitutes a “force majeure” event it is generally accepted that they are limited to “unforeseeable events”, in particular natural disasters and occasionally also extend to war, civil unrest and political disturbance. Whether or not the COVID-19 outbreak would be considered a “force majeure event” remains to be seen and would depend on the particular circumstances of the case, but there is definitely potential to argue that in certain circumstances the outbreak could be considered a force majeure event.
It can be seen that UAE law allows for both total and partial extinguishing of obligations depending on the circumstances and in addition, permits a judge or an arbitrator to vary contractual obligations to a “reasonable level” in exceptional circumstances by virtue of Article 249 of the UAE Civil Code, which provides:-
If exceptional circumstances of a public nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void.
The difference between the effect of the two articles is that application of Article 273 results in termination of the obligation, whilst application of Article 249 allows the contractual obligations to be modified.
The UAE Civil Code, pursuant to Article 287, also allows parties to be exempt from making good a loss another party has suffered if that loss was caused by force majeure unless there is a legal agreement to the contrary or a particular legal provision provides otherwise.
In addition, in the maritime context, there are various provisions in the UAE Maritime Law (Federal Law No 26 of 1981) which set out in some detail how Force Majeure events impact maritime activities. In addition to the provisions discussed above, there are other provisions dealing with force majeure events in specific contexts, which are outside the scope of this article.
The starting point for contracts governed by the UAE law, and any contract for that matter, would be to carefully consider the force majeure provision in the contract. In the absence of the same, the above provisions could apply to regulate the allocation of risk and the consequences of a force majeure event.
The above does not constitute legal advice on force majeure, nor is a complete list of issues dealt with by various provisions relating to force majeure under UAE law. Should you have any queries, please do not hesitate to contact the authors of this article or your usual contact at Ince.