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This article is written by Zainab Sirhindya, pursuing Certificate Course in Advanced Civil Litigation: Practice, Procedure and Drafting from LawSikho.com.

Introduction

The term “force majeure” has gained a lot of importance in the commercial world in today’s day and age after the sudden outbreak of the COVID-19. Many businesses were affected during the pandemic and faced great repercussions because of the inability of the contracting parties to perform its obligations under the contract. The Impact of COVID 19 on commerce and trade has reinforced the importance of force majeure clause in a contractual perspective. 

What is the force majeure clause?

The term force majeure originates from French civil law and is derived from the Latin expression ‘Vis Major’ meaning ‘Superior Force’. The term ‘Force Majeure’ has been defined in Black’s Law Dictionary, as an event or effect that can neither be anticipated or controlled. It is a contractual provision allocating the risk of loss if performance becomes impossible or impractical, especially as a result of an event that the parties could not have anticipated or controlled. In essence for a force majeure clause to be applicable the force majeure event must be unforeseeable and unavoidable. These could be events that are wide-ranging like flood, war, pandemic, earthquake etc. 

Force majeure clauses are seen in commercial contracts often in the form of a boilerplate clause. There is no unified approach to drafting a force majeure clause but its applicability depends on the language used to draft the clause in each contract. The parties are at liberty to draft the clause after negotiations provided, they are not contrary to the law. 

A force majeure clause in a contract deals with the consequences of a force majeure event. A force majeure clause typically allows the parties to either cancel, suspend or allow an extension of time for performance of the contract, in whole or in part during the occurrence of a force majeure event. If the performance of an obligation under a contract becomes impossible due to a force majeure event, the force majeure clause relieves the parties from performing their obligations as long as the force majeure event continues. The failure to perform the obligation must be because of the force majeure event and there must not be any alternative method to perform such obligation only then the parties will be dispensed with their obligations under the contract. Whether or not a particular event qualifies as a force majeure event depends drastically on the language used to draft the clause. 

Force majeure contracts in India

The term force majeure or a definition of the term or a description as to the happening of what specific events constitutes a force majeure clause cannot be found in the Indian statutes. Some reference to it can be found in section 32 and section 56 of the Indian Contract Act. In the absence of a force majeure contract the parties must rely on these laws to discharge themselves from the consequences of a force majeure event. Section 32 states that “if a contract is contingent on the happening of an event which becomes impossible, then the contract becomes impossible”. Section 56 which deals with frustration of a contract says that “any act which was to be performed after the contract is made becomes unlawful or impossible to perform and which the promisor could not prevent, then such act which becomes impossible or unlawful will become void”. 

Force majeure contracts in the UAE

The UAE statutes also does not define the term. But the UAE Civil Code Federal Law No 8 of 1985, recognizes and specifically deals with the concept of force majeure. It contains provisions that deal with the concept and outcomes of force majeure. 

In case the contract between the parties does not contain a force majeure clause the parties can still depend on force majeure under the UAE Laws to excuse themselves from the obligations under the contract until the force majeure event continues. Article 273 of the UAE Civil Code provides that:

(1)In contracts binding on both parties, if force majeure supervenes which makes the performance of the contract impossible, the corresponding obligation shall cease, and the contract shall be automatically cancelled.

(2) In the case of partial impossibility, that part of the contract which is impossible shall be extinguished, and the same shall apply to temporary impossibility in continuing contracts, and in those two cases it shall be permissible for the obligee to cancel the contract provided that the obligor is made aware

Article 273 deals with two kinds of impossibilities of performance due to a force majeure event, wholly impossible and partially impossible. 273(1) deals with the circumstances and consequences where the performance of the entire contract becomes wholly impossible. It goes to say that in such a case the obligations are no longer needed to be performed and the contract stands cancelled, meaning that the parties will go back to their pre contractual positions. 273(2) deals with partial impossibility of performance in standard contracts and continuing contracts. It states that in a standard contract where the force majeure event only renders a part of the contract performable then that part of the contract the performance of which is impossible shall be extinguished. Similarly in a continuing contract the part of the contract that is already been performed before the occurrence of the force majeure event remains enforceable. Article 273(2) provides that only the unperformable part shall be extinguished and the performable part shall remain enforceable.

The UAE Law also differentiates between situations wherein the performance of the contract is difficult and when the performance impossible or impractical due to force majeure events. In the event Article 273 is not applicable to a particular contract Article 249 of the Civil Code which deals with the “Doctrine of Exceptional Circumstances” may be applied. It provides for situations wherein the performance of obligations becomes onerous because of unforeseen events. It says:

“If exceptional events of a general nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes onerous for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the onerous obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void”.

Article 287 of the UAE Civil Code deals with release of contractual liability because of a force majeure event. It says that “If a person proves that the loss arose out of an extraneous cause in which he played no part such as a natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering loss, he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary“.

Force majeure contracts in the DIFC and ADGM

The position for contracts governed by the Dubai international Financial Centre (DIFC) free zone is different as the DIFC has its own contract law- DIFC Contract Law (DIFC Law No.6 of 2004).

Article 82(1) of the DIFC Contact Law provides: “Except with respect to a mere obligation to pay, non-performance by a party is excused if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences”.

As per sec 82(1) a party may be excused from performance of his obligations under a contract if the party proves that: 

  1. Non-performance was due to an obstacle.
  2. The impediment was beyond its control.
  3. The party could not reasonably have anticipated the impediment or it’s consequences at the time of entering into the contract.

Article 82(2) provides for the period during which the excuse for performance provided in Article 82(1) would last. It says “non-performance is excused for such period as is reasonable, having regard to the effect of the impediment on performance of the contract”.

Article 82(3) of the DIFC Contract Law provides that the party affected by force majeure must give notice to the other party of the event and the inability of the party to perform its obligation. 

English common law is followed in the Abu Dhabi Global Market (ADGM) free zone. The Force Majeure clauses are interpreted restrictively in the English courts. Hence it is important for parties to carefully list the impediments that come under the force majeure clause in their contract so parties can rely on the clause to be excused from performance of their obligation during a force majeure event.

Conclusion

A well drafted force majeure clause can save the parties from loss of money and time. The important points about force majeure clause in the UAE are that Articles 273,287 and 472 of the UAE Civil Code is attracted as a defence to non-performance due to a force majeure event when the agreement does not have a force majeure clause in it.

References

  1. https://www.pinsentmasons.com/out-law/guides/force-majeure-uae#:~:text=There%20is%20no%20specific%20definition,Civil%20Code%20(Federal%20Law%20No.&text=Whether%20or%20not%20there%20is,Code%20will%20come%20into%20play.
  2. lexology.com/library/detail.aspx?g=a30747cf-c381-44b7-bc07-7af29793691e
  3. https://economictimes.indiatimes.com/small-biz/legal/what-is-force-majeure-the-legal-term-everyone-should-know-during-covid-19-crisis/articleshow/75152196.cms

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