Covid-19 and force majeure issues in construction and engineering projects in the UAE and beyond – Part 3
The world changed in just a few weeks. Most of the planet seems to be under restrictions of some sort and each day the conditions change.
In construction and engineering projects governments are trying to maintain normality but delays and disruption are arising as a result of the Covid-19 virus and the emergency measures taken to restrict its' progress. What holds good today may be different tomorrow. In 3 instalments I will address:
1. Introduction to the problem of Covid-19 and construction and engineering projects and suggested action areas in existing projects
2. Force majeure provisions in construction and engineering contracts and related project agreements and interface with Covid-19 events
3. UAE law concerning force majeure in the context of construction and engineering projects and its' interface with Covid-19 events
UAE law concerning force majeure in the context of construction and engineering projects and its' interface with Covid-19 events
The law of the contract and if different, the law of the location of the project (lex situs) must be considered in establishing whether Covid-19 and events arising from it can qualify for relief in the circumstances of the particular project.
In projects within the UAE, the parties should first look at their contract and at the relief provisions it contains. In the earlier instalment I analysed force majeure clauses. Now I turn to UAE law.
UAE law is derived in part from the Islamic Sharia and in part from Roman Law via the Code Napoleon and Egypt. The general concept of Force Majeure is common to these legal systems as well of course as English common law with which I am more familiar.
In the UAE, Law No 5 of 1985, the Civil Transactions Code has articles of relevance to this concept. Each of Articles 249, 273, 287, 893 and 894 of the Civil Code should be viewed against the circumstances of the matter concerned.
By Article 249 a judge (or arbitrator) could reduce an onerous obligation in a contract to a reasonable level in the case of exceptional circumstances of a public nature not reasonably foreseen and there is a threat of grave loss to a party beyond its' control. Article 273 (1) creates the possibility of automatic termination of a contract that has become impossible to perform. Article 273 (2) extinguishes a part of a contract that has become impossible to perform and adds that such a contract may be cancelled by a party if it makes the other aware of this. Article 287 relieves a party of liability for loss arising from unforeseen circumstances beyond his control, including force majeure, in the absence of another provision of law, or contract, to the contrary. Articles 893 and 894 provide the opportunity for a party to cancel a contract if a cause arises that makes it impossible to perform and for the contractor to be paid for the value derived to the date of cancellation.
If the contract is subject to UAE law because the project is performed in the UAE, then UAE law cannot be excluded. These articles need to be considered.
It seems probable that a judge or arbitrator considering the application of the UAE Civil Code is likely to conclude that the occurrence of Covid-19 was not to be reasonably foreseen and is an exceptional circumstance that was beyond the control of the parties. That is of course only part way to a claim. It will be necessary for the parties to consider the facts of the matter complained of; their effect on contractual performance; whether they have rendered any element of the contract impossible to perform, or extremely onerous and created a loss. The detail of the relevant contract terms will be vital and particularly if Article 249 is the basis of claim, the judge or arbitrator will have regard to exactly what the parties intended and provided, all subject to a duty of good faith.