Force majeure in supply contracts in the UAE: Our perspective considering the Coronavirus pandemic

March 23, 2020

As the world deals with the outbreak of the novel coronavirus and its implications on the economy, there is increased attention from the business and legal community on the application of force majeure on a range of commercial contracts and obligations. While contracting parties may specify remedies and outcomes in the event of a force majeure, in the absence of any such provisions, the Article 273 of the United Arab Emirates Civil Code (Federal Law No. 5 of the Year 1985), shall be applied. In bilateral contracts, if a force majeure arises that makes the performance of the obligation impossible, the corresponding obligation shall be extinguished, and the contract ipso facto(is) rescinded If the impossibility is partial, the consideration for the impossible part shall be extinguished. This shall also apply to the provisional impossibility in continuous contracts. In both instances, the creditor may rescind the contract provided the debtor has knowledge thereof. Contracts of supply, between buyers and sellers or vendors and clients, are likely affected by the coronavirus, and contracting parties may be evaluating the potential applications of force majeure and its relief on their respective agreements. How is the occurrence of force majeure determined? The UAE courts will ultimately determine what constitutes force majeure, its impact on the ability of the contracting parties to perform their contractual obligations, and the determination of fair relief to any aggrieved parties. Therefore, parties in supply contracts must be able to establish how the coronavirus has rendered it impossible for them to either fulfil fully or partially their contractual obligations. Allowing any party to a contract to avoid liability shall be the sole discretion of the court as settled in a 2011 case at the Dubai Court of Cassation. What should I do if I cannot fulfil my obligation under the contract, or where I do not receive the expected goods or services due to the impact of coronavirus (such as borders closing, movement or travel restrictions or event cancellations)? The first step would be to review your existing contract and establish if there are any provisions for relief in the event of a force majeure.  Should you find your contract is silent, the provisions of Article 273 of the UAE Civil Code may apply and the determination of the existence of force majeure, its impact on the parties and the corresponding relief shall be at the sole discretion of the courts. What remedies are available to me where I have paid for goods or services and due to force majeure, I do not receive my goods or services? In the absence of any contractual provisions, above Article 273 (1) and (2) will come into force and the parties will be restored to the position they were in before entering into the contract. In the event that this is not feasible (such as where part of the services or goods have been rendered), then the party which has suffered loss, as a result of being unable to unwind the contract, maybe awarded compensatory damages. Article 287 of the UAE Civil Code provides that if it is proven that a loss arose out […]

Read more