IN THE UAE, IS THE SPREAD OF THE CORONAVIRUS CONSIDERED AS A FORCE MAJEURE IN CONSTRUCTION CONTRACTS?
The question which many in the construction industry are asking during this time, is whether the current pandemic can be deemed a force majeure event. If so, what impact does this have on construction contracts? Should parties be in agreement, is it acceptable for them to continue with an existing contract irrespective of the force majeure? It is worth mentioning that this article relates only to the effect of the pandemic on construction contracts, and in the UAE, such contracts are treated differently from others, whose interpretation may take direction from the judiciary. In construction contracts for example, the exemption of liability is considered valid, but considered invalid in transport contracts. WHAT IS FORCE MAJEURE? According to the law of the United Arab Emirates and its established jurisprudence, force majeure is the result of an unexpected public accident or exceptional circumstance, at the time of contracting and it is impossible to prevent its occurrence or stave off its results, therefore, the fulfilment of the obligation of the contract becomes difficult or impossible. Article 273 of the UAE Civil Transaction Code stipulates the following: “In contracts binding both parties, if force majeure supervenes, and 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.) The provisions of the Egyptian Court of Cassation has established that to consider the “sudden accident” or “exceptional circumstances” as a force majeure, two conditions must apply: It cannot be expected, and It is impossible to prevent it. Should one of these two conditions not be met, the status of force majeure shall cease (Appeal No. 4932/Judicial 81 issued on December 22, 2018). CORONAVIRUS IMPACT ON CONSTRUCTION CONTRACTS: Construction contracts are regulated by Articles 872 to 896 of the UAE Civil Transactions Code which provides that in construction contracts, the obligations of each party and the conditions of termination or revocation must be specified terms in the contract. Therefore, in the matter of force majeure where contractual terms have not provided for force majeure, the determination and remedy shall be applied in accordance with the general rules stipulated in this Article 273 of the UAE Civil Transactions Code. Construction contracts, as with all types of contracts, impose rights and obligations on both parties. If any force majeure occurs that makes the fulfilling contractual obligations impossible, the obligation falls away, and the contract is revoked. In such instances, neither party can compel the other for compensation, because the reason of revoking the contract is not due to the default of any of the contracting parties, but rather a result of exceptional circumstances that could neither be anticipated nor prevented at the time of contracting. Notably, up to the point of the force majeure, the obligations that have been fulfilled, or what the contractor has done to date […]Read more