Eric Teo – Head of International Practice and Special Projects, United Advocates
“Force Majeure” is a buzzword in these uncertain times that we face the COVID-19 outbreak. I have received several questions about it in relation to construction contracts in the UAE. This article provides a general guideline that I would like to share.
In respect of contractual obligations, there must be an element of “impossibility” to carry out the obligations before the affected party can rely on Force Majeuere under UAE law to either terminate its obligations under the contract or seek other kinds of reliefs. By practice, the elements of “unavoidable” and “unforeseeable” have also come into play. The most relevant legal provision is Article 273 of the UAE Civil Code (Federal Law No.5 of 1985). There are other provisions in the code dealing with the consequences of a Force Majeure event and provide reliefs in a variety of situations, for example, Articles 287, 386, 424 and 472.
However, most construction contracts contain clauses to deal with the possibility of a Force Majeure event occurring. These clauses would typically prescribe the circumstances in which an event can be classified as a Force Majeure event. In the standard 1999 FIDIC Red Book, Sub-Clause 19.1 provides a definition for Force Majeure which generally contains the three elements mentioned above.
Bespoke construction contracts may well have a wider or narrower definition for Force Majeure. Hence, before issuing any notice concerning Force Majeure, it is important to check the Force Majeure clauses in the contract to assess if the event at hand falls within the contractual definition. If it does, the contractual regime on how to deal with the event and what would be the ensuing rights and obligations of the parties will become applicable (so long as it does not violate any mandatory principles of UAE law). Otherwise, the general regime under UAE law will apply.
Most construction contracts will also prescribe what the affected party must do before it can seek relief from the Force Majeure event. For instance, under Clause 19 of the standard 1999 FIDIC Red Book contract, when such an event occurs the affected party must give notice of the event to the other party within a specific time frame. If the contractor is the affected party and it intends to claim for additional time and/or cost to complete the works, the requirements of Sub-Clauses 8.4 (Extension of time) and 20.1 (Contractor’s claim) will need to be satisfied (subject to the conditions in Sub-Clause 19.4). It should be noted that under the standard 1999 FIDIC contracts, a Force Majeure event does not excuse either party from making due payment to the other party under the contract (Sub-Clause 19.2).
For an ongoing construction project, the most affected party is likely to be the contractor given its extensive obligations to complete the works on time and on budget. As Force Majeure requires the element of “impossibility”, the contractor should describe and give evidence in its notices and claims on why it is impossible to carry out all or certain aspects of its obligations.
The COVID-19 outbreak may not be a Force Majeure event by itself, but its effect could give rise to such an event. For example, the non-availability of specific construction materials due to the closure of factories and supply chains, or the issuance of a nationwide stop-work order from the relevant authority to curb the outbreak. So, getting into specifics is important including establishing the causal connection between the event and the delay (and/or cost increase).
Force Majeure does not arise if the contractor has alternative means to carry out its obligations. If the alternative means are going to be very onerous, time-consuming or costly to implement, the contractor should consider if it is justifiable to claim for additional cost and time by treating the event as a “variation” under the contract (Sub-Clause 13.1, 1999 FIDIC Red Book). Otherwise, can the event be a ground for time and/or cost adjustment due to: a change in the laws which has affected the carrying out of the works (Sub-Clause 13.7); or a substantial increase in the costs of carrying out the works (Sub-Clause 13.8)? Whether a claim can succeed under one of these provisions in Clause 13 will largely depend on the allocation of risks of the respective party under the contract. Another possible avenue is for the contractor to seek relief from the court under Article 249 of the UAE Civil Code due to “exceptional circumstances of a public nature” which has made the carrying out of the obligations “oppressive”.
There are other legal provisions applicable to construction contracts that may apply when a Force Majeure event arises, for example, Articles 893 and 894 of the UAE Civil Code could be invoked to enable the contractor to stop work and claim for the value of the completed work. However, one should be careful when relying on general provisions of the law so that they do not contradict the contract which might already have comprehensive provisions to deal with Force Majeure events and the associated rights and obligations of the parties.
If you require future assistance on the matter, please do not hesitate to contact us at United Advocates.