The construction industry remains one of the most important industries to the UAE generally and the Emirate of Dubai in particular. The arrival of COVID-19 in the UAE impacted contractors differently. Some felt the effects much earlier than others when their supply chains from China were affected. Others did not feel the impact until the UAE government enforced mandatory lockdowns that restricted labor mobility throughout the country.
As both the disease, COVID-19, and its impact reached the UAE, contractors throughout the country reflexively reached for their construction agreements. Most contractors breathed a sigh of relief after confirming the standard force majeure clauses in their agreements, which they, no doubt, believed would shield them from the resultant delay claims to their projects.
The diligent contractors immediately transmitted force majeure notices to their employers or master developers. Believing that the contractual formalities were behind them, the contractors began the harder task of diligently recording the impact of COVID-19 to their projects as well as trying to mitigate the delays caused by the global pandemic. The comfort that UAE contractors derived from their force majeure clauses may very likely prove illusory because all contractors, without realizing it, have been undermining their force majeure claims through mitigation.
What many contractors failed to realize is that mitigation efforts are viewed differently by the UAE courts, in the context of force majeure. UAE courts’ view of force majeure is much closer to the doctrine of impossibility. In order to satisfy a claim for force majeure, three criteria must be satisfied under Article 273 of the UAE Civil Code: (a) the event is unexpected; (b) the event is beyond the parties’ control; and (c) the event makes performance impossible.
Applying this test to the COVID-19 situation, a UAE court would conclude criteria (a) and (b) are satisfied. That is, the COVID-19 pandemic was certainly unexpected and outside any party’s control. However, criteria (c) would likely cause a UAE court to reject a contractor’s defense for delay due to force majeure, unless the force majeure event made performance impossible. Said otherwise, in order to claim force majeure, the construction project would likely have to come to a complete halt with no likelihood of further performance.
What this means is that if a construction project were to continue through mitigation efforts, no matter how slowly, the project would not have stopped. And if the project did not stop, performance would not have been impossible. Accordingly, force majeure would not apply. In this regard, the UAE cases after the Global Financial Crisis are illustrative. In cases addressing force majeure after that global event, UAE courts consistently ruled that while performance was difficult, it was not impossible. Hence, UAE courts consistently rejected a finding of force majeure in all situations where a party’s performance was not completely stopped and where some performance was possible.
The approach of UAE courts to force majeure appears to be completely overlooked in the current situation. No doubt most contractors are focused on keeping their projects going and not contemplating when their claims will likely be litigated. But just as with the Global Financial Crisis, the COVID-19 force majeure cases will eventually have to be litigated. And when these cases are litigated, contractors may have the unpleasant surprise that their current mitigation efforts may be the very reason their force majeure claims are rejected.
By: Ishaak Meeran and Amal Qattan