Whether the effects of the Coronavirus would constitute force majeure will need to be assessed under the applicable construction contract as well as under the laws of the UAE.
If there is a reference to "pandemic" or "epidemic" in the force majeure clause in a contract, the affected party may be excused performance of its obligations upon giving notice to the other party for so long as the force majeure event prevents or delays performance. Generally, the remedy available is an extension of time and, in some limited circumstances, additional costs.
If there is no contractual force majeure provision, whether COVID-19 constitutes a force majeure event entitling a party to some form of relief, is to be assessed in accordance with UAE law. Article 273 or Article 249 of the UAE Civil Code may apply.
- Article 273 of the UAE Civil Code provides that if a force majeure event renders performance of a contract impossible, all contractual obligations will cease and the contract will be cancelled. Any party claiming force majeure will have to show that COVID-19 renders the performance of the contract impossible. It is insufficient that COVID-19 causes general hardship or additional financial burden or that it causes a period of delay. If a contract is cancelled under Article 273 of the UAE Civil Code, the parties are restored to the position they were in before they entered into the contract.
- Article 249 of the UAE Civil Code provides the UAE Courts a wide discretionary power to reduce a party’s obligations under exceptional circumstances to a reasonable level if justice requires it. Contrary to Article 273 where performance of the contract may be found impossible, Article 249 does not result in the termination of a contract but instead, a modification of a party’s original obligations.
If a project is delayed due to government regulations to curb the virus and/or a critical supplier of the project is located in another country under lockdown, Article 249 may be useful for the affected party in arguing for an extension of time, increased costs and relief from liability for liquidated damages for delay. However, ultimately, a court is required to “weigh the interest of both parties” which questions whether the court would allocate all of the risk of COVID-19 to an employer.
The muqawala provisions (which apply to employers and contractors) of the UAE Civil Code may also be relied upon:
- Article 893 of the UAE Civil Code provides that if any cause arises that prevents performance or the completion of a contract, any of the parties may seek an order from the court to terminate the contract.
- In addition, Article 894 of the UAE Civil Code provides that if a contractor becomes incapable of performing a muqawala contract due to an external cause beyond the contractor’s control, the contractor shall be entitled to the value of the work done and any expenses incurred for the execution of the works, up to the amount of value that the employer has benefited from the contractor’s performance.
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