Force Majeure – does the pandemic qualify for this act?

April, 14,2020
By Abdulla Galadari

The world is currently navigating unprecedented events with the seismic impact of COVID-19 being felt across industries and businesses. Whilst scal stimulus has been introduced around the world to support business leaders to maintain continuity, there will be circumstances when contractual obligations will be reviewed in order to streamline and exit obligations which cannot be fullled or may impend the operation of a business. In such circumstances, leaders turn to ‘force majeure’.

There is substantial jurisprudence on force majeure clauses in contracts and their interpretation within varied fact-based scenarios and events, however as the current pandemic is unique and unforeseen, little to no contract will make specic reference to this event.

We therefore explore whether Covid-19 and the pandemic can be taken recourse to as force majeure event and absolve party(s) from fullling their contractual obligations, specically as the World Health Organization (“WHO”) has declared Covid-19 as a pandemic.

There is a probability that the word ‘pandemic’ has been specically incorporated in force majeure clauses, which in correlation to the WHO notication maybe used as a defense of force majeure by a party. However, in scenarios where neither the terms Covid-19 or pandemic are incorporated in a force majeure clause, can parties rely on other typical clause terms? That is, can it be argued that the pandemic is an unforeseeable event or an act of god?

Interestingly, China Council for the Promotion of International Trade has released a statement conrming that China is oering force majeure certicates to local companies unable to full their international contractual obligations due to the virus outbreak. Therefore, courts in China will be able to rely on the certication and render a contract invalid for a force majeure event.

However, in international supply contracts, where one of the contracting parties is Chinese and other being a UAE company and the contract dispute resolution being subject to UAE Courts, will the courts recognize the certication issued in China? Further even if a UAE court issues a judgment against the Chinese company, executing the judgement may raise a plethora of legal issues.

Under UAE law the force majeure equivalent can be found in the provisions relating to impossibility and partial impossibility in the UAE Civil Code 1985.

Article 273 of UAE Code permit relief for nancial hardship and performance obligations. In the event of impossibility, the courts can declare the contract is cancelled and the obligations of the parties shall cease. However, in cases of partial impossibility only that part of the contract which becomes impossible to perform is extinguished.

Courts in the UAE will investigate the facts of the case to determine impossibility or partial impossibility, in particular:

a. Has the pandemic and ensuing governmental regulations made the performance of the contract impossible.

b. Is there scope for renegotiating the terms and timing of the performance obligations.

Each contractual obligation and commitment will be unique to the parties involved and should therefore be reviewed on a case-by-case basis. Whilst organisations may experience challenges in fullling contractual obligations, it is essential to consider the legal ramications of using the pandemic as a justication for non-performance, therefore we recommend that a thorough case and contract analysis is conducted before aiming to exit under the force majeure clause.