Navigating Force Majeure, Impossibility and Frustration under UAE Law During the Current Crisis

Global media are dominated by news of the violence both sides of the Gulf, which has forced millions to stay at home, caused the cancellation of tens of thousands of flights and blocked ships from transiting the Straits of Hormuz. There have been substantial consequences for parties with contractual obligations in the region, in some cases making performance of such obligations impossible. In this article, we look at the laws of force majeure, frustration and impossibility that apply in the United Arab Emirates, one of the countries most seriously impacted by recent events.

The civil law of the UAE

Under UAE law, the concepts of frustration, impossibility, and force majeure are primarily governed by the UAE Civil Transactions Code (Federal Law No. 5 of 1985), with distinct provisions addressing different scenarios where contractual performance is affected by unforeseen events.

Force majeure and impossibility (Article 273)

Force majeure under Article 273 of the UAE Civil Code refers to an unforeseen event that renders contractual performance impossible. For force majeure to apply, three essential conditions must be satisfied:

• Unforeseeable: The event must have been unforeseeable at the time the contract was formed. Examples of such events are  pandemics, earthquakes, or terrorism; routine or anticipated risks like market fluctuations do not qualify. 
• Unavoidable: The consequences of the event must have been unavoidable despite reasonable efforts and mitigation measures. 
• Impossible to perform: The event must render performance of the contractual obligation absolutely impossible, not merely more costly, or inconvenient. 

Article 273(1) of the UAE Civil Code provides that in bilateral contracts, if a force majeure event supervenes which makes performance of the contract impossible, the corresponding obligation ceases and the contract is automatically terminated. The parties are discharged from their obligations and generally returned to their pre-contractual positions. 

Article 273(2) addresses partial or temporary impossibility: in such cases, only the impossible part of the contract is extinguished, and the remaining obligations continue to be enforceable. For continuous contracts, if the impossibility is temporary, the contract may be suspended, and the creditor may cancel the contract provided the debtor is made aware. 

In addition to contract termination, force majeure can serve as a defence to liability. Article 287 of the UAE Civil Code states that a person is not liable for damages if they can prove that the harm was caused by factors beyond their control, such as natural disasters, unforeseen circumstances, force majeure, the act of a third party, or the fault of the injured party. This provision reinforces the principle that liability should not be imposed when the harm resulted from causes entirely outside the party's control.

Doctrine of exceptional circumstances or hardship (Article 249)

A critical distinction under UAE law is between true force majeure (impossibility) and exceptional circumstances (hardship), which are governed by Article 249 of the UAE Civil Code. This provision applies where performance is not impossible but has become excessively onerous due to unforeseen events. Article 249 states:

"If exceptional events of a general nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes onerous 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 onerous obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void." 

Unlike Article 273, Article 249 does not terminate the contract but grants the court discretion to adjust the obligations to restore a reasonable balance between the parties. 

Relationship with Contractual Force Majeure Clauses

Where a contract contains a force majeure clause, those provisions generally supersede the default statutory provisions under Article 287 of the Civil Code. However, even in the absence of a contractual force majeure clause, parties can rely on the statutory provisions of Article 273 to excuse performance. UAE Courts interpret force majeure clauses similarly to other contractual terms: the wording is given its plain and simple meaning, and if ambiguous, the intention of the parties when drafting the clause will be considered. Any contractual notice provisions must be applied strictly and followed. 

Practical Considerations

The burden of proof lies with the party invoking force majeure, who must demonstrate that non-performance was directly caused by the force majeure event. If negligence is found, the debtor cannot rely on force majeure as a defence. UAE courts adopt a case-by-case approach, considering the contract terms, the nature of the disruption, and efforts made by the affected party to mitigate losses. Parties are expected to act in good faith and take reasonable steps to reduce their losses, including providing timely notice to the other party.

The common law of the ADGM and DIFC

Force Majeure, Impossibility and Frustration Under DIFC and ADGM Law

The Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) are financial free zones within the UAE that operate under independent common law-based legal frameworks. Both jurisdictions have legal systems modelled on English common law principles. Under the ADGM Application of English Law Regulations 2015, English law applies on an "evergreen" basis. The position in the DIFC is largely the same, with DIFC Courts applying common law doctrines subject to modification as circumstances require. Consequently, parties can generally expect the same legal treatment of force majeure, impossibility and frustration as would apply under English common law.

Force Majeure Under DIFC and ADGM Law

Unlike civil law jurisdictions, there is no statutory or common law definition of force majeure under English law, and the same principle applies in the ADGM. Force majeure is purely a contractual concept; it exists only where the parties have expressly provided for it in their agreement. Save for the provisions discussed below, there is no statutory ‘fallback position’ as there is under UAE law. A typical force majeure provision defines a force majeure event as one beyond the reasonable control of the affected party, preventing or rendering impossible that party's performance. Common examples include acts of God, natural disasters, epidemics, wars, strikes, and terrorism. For a party relying on force majeure, several requirements must be satisfied. The party must demonstrate the event falls within the clause's scope, with courts likely to interpret provisions restrictively. The affected party must establish that the event "prevented" performance — meaning performance must be legally and physically impossible, not merely more difficult, or unprofitable. Courts will also consider whether the force majeure event was the sole cause of non-performance.

Impossibility of Performance

Where a contract lacks a force majeure clause, parties may seek relief under the common law doctrine of impossibility. The doctrine applies where: (i) an unexpected intervening event occurred; (ii) the parties assumed such an event would not occur; and (iii) the event made performance impossible. Performance must be objectively impossible for any similarly situated party. Increased difficulty or expense will generally not suffice, and economic hardship does not excuse performance.

Frustration of Purpose

Frustration of purpose provides an alternative ground for excusing performance when the fundamental reason for/purpose of the contract has been frustrated by an unanticipated event beyond the parties' control. Under English common law, "impossibility" is treated as one example of a general category called "frustration". The frustration must be near total and significantly change the nature of outstanding contractual obligations. Partial frustration or mere changes in market conditions are generally insufficient.

DIFC Law

The DIFC Contract Law (DIFC Law No.6 of 2004) effectively implies a force majeure term into DIFC law governed contracts at Article 82(1):

‘Except with respect to a mere obligation to pay, non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.’

Article 82(1) follows the requirements of force majeure clauses listed above: the force majeure event is not reasonably foreseen and is beyond the parties’ control. The key exception to this clause is in respect of an obligation to pay.

Summary

Although military action of the type we have seen in recent days, is likely to engage force majeure provisions, contractual parties need to consider the position carefully. It is open to debate whether the current crisis was itself an unforeseen circumstance or hardship, but principally the main issue is whether there is a causal link between the event claimed as force majeure and the hindrance on the party preventing performance.