Recent Dubai Court Judgments - Force majeure claims post-pandemic and during war outbreaks
Dispute Resolution / UAE
Force majeure is an important legal doctrine that provides relief to parties unable to fulfil contractual obligations due to extraordinary and unforeseeable events.
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Richard BellPartner,Dispute Resolution
Ahmed AbdelnabiAssociate,Dispute Resolution
Zane AnaniSenior PSL,Dispute Resolution
Force majeure is an important legal doctrine that provides relief to parties unable to fulfil contractual obligations due to extraordinary and unforeseeable events. The courts have consistently applied established principles when dealing with claims of force majeure. This article will consider recent judgments (Dubai Court of Cassation judgment 174 of 2023, Dubai Court of Cassation judgment 1 of 2024 and Dubai Court of Cassation judgment 480 of 2024) post COVID-19 pandemic/ Russia-Ukraine war in the context of corporate and real estate disputes.
Force majeure, a term derived from French law meaning "superior force," refers to unforeseeable circumstances that prevent someone from fulfilling a contract. It is a legal doctrine used in civil law jurisdictions
to address situations where contractual obligations cannot be performed due to events beyond the control of the parties. These events are typically extraordinary and unavoidable, such as natural disasters, wars, or pandemics.
Force majeure is characterized by several key conditions:
Externality: The event must be beyond the control of the obligor. It should be an external cause that does not arise out of the obligor's acts or omissions.
Unforeseeability: The event could not have been reasonably foreseen at the time the contract was executed.
Unavoidability: The effects of the event could not be avoided by appropriate measures.
Causal Link: There must be a direct causal link between the event and the non-performance of the obligation.
Mitigation Efforts: The affected party must take reasonable steps to mitigate or reduce the impact of the force majeure event on their obligations.
These conditions ensure that force majeure is not invoked lightly and is reserved for truly exceptional circumstances.
In the UAE, the concept of force majeure is found in Article 273 of the UAE Civil Code which provides that if force majeure makes the performance of an obligation impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled. Article 273 also addresses partial and temporary impossibility, allowing for the extinguishment of the impossible part of the contract or the suspension of obligations in continuing contracts.
Dubai Court of Cassation judgment 174 of 2023In Dubai Court of Cassation judgment 174 of 2023, the Court of Cassation dealt with a real estate dispute where the appellant claimed force majeure due to the COVID-19 pandemic. The appellant argued that the pandemic constituted a force majeure event that should excuse their delay in completing a real estate project.
The court, however, rejected this argument, emphasizing that for force majeure to be applicable, the event must be extraordinary, unforeseeable, and unavoidable. The court noted that the appellant failed to prove that the pandemic directly caused the delay in fulfilling their contractual obligations.
The court further highlighted that the appellant did not provide sufficient evidence to show that the pandemic had a significant impact on their financial capabilities or their ability to complete the project. As a result, the court upheld the previous ruling, rejecting the force majeure defence and ordering the appellant to pay the respondent. The court stated that:
"It is required for the application of the force majeure doctrine that the delay in fulfilling the obligation is not due to the debtor's fault. If the delay is due to the debtor's fault, they cannot benefit from the force majeure defence."
In Dubai Court of Cassation judgment 1 of 2024, the court addressed a commercial dispute involving shipping delays due to the outbreak of war between Russia and Ukraine. The claimant sought compensation for damages resulting from the failure of the defendants to fulfil their contractual obligations.
The defendants argued that the war outbreak constituted a force majeure event that made it impossible to execute the contract. The court acknowledged that war can be considered a force majeure event if it meets the criteria of being extraordinary, unforeseeable, and unavoidable.
Indeed, the Court of First Instance in this case accepted that argument following a determination by the appointed expert, who concluded that the sole reason for the delayed shipping was the outbreak of the Russia-Ukraine war and that if it wasn’t for the war, the shipment would have arrived without any trouble. A finding which was later upheld by the Court of Appeal and the Court of Cassation in favour of the defendant. This is a case that demonstrates that although a force majeure argument is hard to establish, it will be recognized and succeed if the circumstances are apparent to the court.
The courts have emphasized the need for clear evidence when claiming force majeure and the significance of timely and accurate performance of contractual duties
In a matter that concerned a construction project dispute where the claimant claimed damages for delays and non-completion, the Dubai Court of Cassation in judgment 480 of 2024 highlighted the importance of expert reports in determining the cause of delays and the applicability of force majeure. The court found that the delays were not solely attributable to force majeure but also to the actions of the contractors. The court upheld the lower court's decision, which found that the appellant was responsible for the delays and was liable for the contractual penalties and damages claimed by the respondent. The court emphasized that even in the presence of a force majeure clause, the party claiming it must still fulfil any remaining obligations that are not affected by the force majeure event.
As can be seen from the judgments above, the Dubai courts have applied the principle of force majeure sparingly. The courts have emphasized that for an event to qualify as force majeure, it must be exceptional, unforeseeable, and unavoidable at the time of contract formation. The event must also make the performance of the contractual obligation impossible, not merely more difficult or expensive.
In our experience, force majeure is often argued as a last resort by contracting parties who wish to be relieved of their contractual obligations but have no real defence under the contract. However, as the cases discussed in this article demonstrate, the Dubai Courts will strictly apply the conditions for force majeure and will not grant relief if those conditions are not met.
The Dubai Courts have upheld the doctrine from time to time and the COVID-19 pandemic is a case in point. The Dubai Court of Cassation has recognized that exceptional and unavoidable circumstances related to the COVID-19 outbreak have the characteristics of force majeure but have only applied the doctrine where the conditions of externality, un-foreseeability, unavoidability and a causal nexus are made out. In the cases discussed in this article, COVID-19 was argued as a force majeure event in the real estate dispute only (Dubai Court of Cassation judgment 174 of 2024) and was not accepted by the court because of the lack of evidence to support the claim of force majeure. COVID-19 was not considered a valid force majeure event in this particular case.
The courts have emphasized the need for clear evidence when claiming force majeure and the significance of timely and accurate performance of contractual duties. In the above judgments, the courts also evaluated whether the parties had taken reasonable steps to mitigate the impact of unforeseen events or delays on their contractual obligations. The judgments reflect an expectation that parties must actively seek to minimize the adverse effects of such events to avoid liability for non-performance or delays.
For further information,please contact Richard Bell, Ahmed Abdelnabi and Zane Anani.
Published in December 2024
