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April 12, 2020
Cancellation of all events, temporary closure of most business units, mandatory lockdown and restrictions on local and international travel, not exactly how we all were presuming 2020 to be!
The aftermath of coronavirus outbreak is devastating and its impact on businesses and global economy is now easily discerned as catastrophic.
Nonetheless, a common question, which is being raised among legal intellects, is that whether the impact of coronavirus will be considered as a Force Majeure event?
Although most legal practitioners do not recognize outbreak of coronavirus as a force majeure event and do not see it as a reason for effecting any contractual commitments, however, I sincerely disagree with them and have laid down my reasons in the following paragraphs.
Force Majeure- Literally
Legally expressing, force majeure clauses are generally mentioned in commercial contracts, which can be invoked in specific circumstances preventing the performance of contractual obligations by either party. Wherein, such circumstances are beyond the control of individuals or are governed by act of god or such event is considered as unforeseen like a natural calamity.
Upon happening of such unforeseen events, whether or not the exact situation is mentioned in the contract, it is usual that such clause highlights the rights and remedies of the parties and precautions to mitigate the impact of such event on the performance of contractual duties. Federal Law Number 5 of 1985 regarding Civil Transactions Law discuss about force majeure events in two specific articles that Article 249 and 273 as follows:
Article 249: In any event if any exceptional and unpredictable circumstance arises and happening of such event has made the execution of a contractual obligation impossible or burdensome in a manner causing serious threat of significant loss, the judge may, bearing in mind the circumstances and comparing the interests of both the parties may reduce the burdensome obligation to a certain limit and any agreement in opposition will be considered as null and void.
(1)In a contract, if an event of force majeure supervenes making the performance of the contract completely impossible, the corresponding obligation shall cease and contract will be deemed terminated
(2) In the case of partial impossibility of performing obligation; the part of the contract, which is impossible to undertake, shall be removed and the same shall apply to temporary impossibilities in the continuing contracts. Importantly, in those two cases, it shall be permitted to the obligor to seek termination of the contract, subjected that the obligee is so aware of the situation.
In addition, UAE Civil code does not have an exhaustive list of events to be considered as force majeure, however, they are circumstantial, majorly following under two broad categories natural or legal impossibilities. As the term suggest, natural impossibility is more or less an act of god beyond human control. On the other hand, legal impossibility would be amendment in the laws.
COVID-19- A Force Majeure Event in UAE
The judges of superior courts in the country mostly determine categories of force majeure events, which are not declared in the Law. In furtherance, apart from two major categories (impracticability and illegality), it is vital for any force majeure event to be unforeseen or unpredictable, preventing either or both parties to foresee the future change of events resulting in failure to perform their obligations under the contract with good intentions.
In such circumstances, if either party has failed to mitigate the damages due to an unforeseen event, it may invoke the force majeure clause as an excuse for failing to perform its contractual obligations and may seek assistance of the courts to either restore their position prior to the contract or may award compensation, if relevant.
Analyzing the present set of events, coronavirus is confirmed as a pandemic/epidemic by World health Organization propelling all countries to go under complete lockdown to prevent the further spread of the virus, bearing in mind the deterioration it has already caused.
In our point of view, outbreak of coronavirus is indeed a force majeure event not only because it has prevented many businesses to temporarily shut their activities (as per government rules and regulations), but also for how long this situation will continue is what makes it unforeseen and unpredictable.
Since the outbreak of coronavirus and its future impact cant be predicted and the current situation cant be avoided, it has made it impossible for many service providers to perform their job such as aviation sector, gyms, parlors, nightclubs, malls and cinemas will be closed until further notice for preventing the further spread of the virus.
In such event these business units may legally argue that force majeure is the factor that has impacted their liabilities as it prevented them to normally operate.
It is quite apparent that such outbreak is to be qualified as a force majeure event especially for aviation industry or other businesses in the country, as they are prohibited by the Law to conduct their activities until any further notice issued by the government, resulting in an unforeseen event. Additionally, this infectious disease is no less than a natural calamity or an act of god, as prevention of its spread requires individual or businesses to not perform their regular activities and avoid human contact, causing havoc in the market.
Other service industry such as restaurants that are only allowed to deliver food and not to accept any clients in their premises, these service providers may claim that although the situation did not create a force majeure, however, it made the execution of their obligations very burdensome by referring to Article 249 of the Civil Transaction Law.
More specifically, the Courts of Cassation of Abu Dhabi in an old judgment number 16 of the year 2010, where one party referred to force majeure event, the court opined that under a general principle, it is not permitted for either party of the contract to revoke or amend it except by a mutual consent of the contracting parties or if the situation is qualified as the one mentioned in Article 249 of the Civil Transactions Law and the judge intervened to reduce the commitment to a reasonable extent, if there were general exceptional incidents that could not be foreseen at the time of signing the contract.
Importantly, the occurrence of such event has impacted the implementation of the contractual commitment and that of it has become impossible or it is exhausting for the obligor that it threatens a heavy loss to establish a form of balance between the interests of the two parties. The court further stated that the Court of first Instance have the right to understand the facts of the case from the documents submitted during the hearing, without the supervision of the Courts of Cassation.
Generally the most common points which are used in determining the force majeure event is primarily the change in regulations issued by the government, which is some what applicable in the present scenario and secondly that such event is an act of God and with no doubt, coronavirus outbreak can be argued as an act of God.
At present, the situation of coronavirus and the length at which it will disrupt the society is very unpredictable; therefore, we may witness huge number of claims for invoking force majeure provision in light of the restrictions caused by the government to prevent the spread of virus. In such situation, it is always advisable to seek legal assistance from Top Lawyers of Dubai to determine the probable solutions.
On an international level, several courts around the world are already witnessing force majeure claims due to coronavirus pandemic. For instance, the recent judgment issued by the Court of Appeal in Colmar, France on 12 March 2020 wherein the court considered corona pandemic in the ranks of force majeure. The case is regarding a Senegalese national, who sought asylum in Spain as the exceptional circumstances prevented him to be presented in the court, thus the court authorities placed the situation within the framework of force majeure, specifying its features as insurmountable as its beyond the control of human being and is unpredictable.
China Council of Promotion of International Trade has lately confirmed the issuance of approximately 4800 force majeure certificates due to this pandemic for local and international contracts worth billions of dollars. The government affirms that such documents will assist Chinese local markets to prevent filing cases against each other as default in the performance of duties was due to force majeure, however, the veracity of such certificate in international market is yet to discovered.
In addition, Government of India has issued a recent circular clarifying the disruption of supply chain due to the widespread of coronavirus in China and other countries will be considered as a natural calamity and a force majeure clause can be invoked, whenever it is deem necessary.
Although, keeping in mind the foregoing situation, it has to be noted that the application of the new circumstances of COVID 19 will have different impact on each sector and the court holds a discretionary power in deciding whether to accept COVID-19 situation as force majeure in the concerned sector or not.
We are of the opinion that regardless of what unfolds in future due to the outbreak of coronavirus, either party in a commercial contract signed before the declaration of this pandemic who has been prevented or is restricted to perform its duties under the contract may have the right to invoke force majeure clause, depending upon the impact on their sector and their impossibility to perform their obligations.
Nevertheless, it is pertinent for all our readers to note that the forgoing information does not have to be necessarily true to all extent as it is a personal point of view, which may or may not be accepted by the courts and does not necessarily has to be followed as every situation is unique and has different circumstances and consequences. Therefore, it is strongly recommended to not directly act on the above opinion, but to seek legal advice from Legal Consultants in Dubai.