Navigating Unforeseen Events in Commercial Agreements: Force Majeure and Frustration of Contract in the UAE

Force majeure means any ‘superior force’. It is frequently used as a clause in commercial contracts to be later taken as a defence against obligation to perform one’s duties as per the contractual relationship. The scope of force majeure can vary and therefore it is important that the term is defined in the contracts to explicitly mark the territory of its application, depending on the industry or nature of contact on which it is to be applied. Example: natural disasters.

In UAE Law, like many other countries, does not define force majeure. It may include any enforceable and unavoidable events, which are expressly included in the contract.  Therefore, it is very important that the contract explicitly mentions the possible categories of events that can render performance of contract impossible.  Although this concept is backed by Article 273 of the UAE Civil Code, which says:

“(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 obligor to cancel the contract provided that the obligee is so aware.”

Further Article 287 removes the liability to make good any loss if arose out of force majeure, among other things and Article 472, extinguishes the right of aggrieved to claim anything against a loss caused because of impossibility of performance due to extraneous cause.

Frustration of contract is a legal doctrine that says that if any unforeseen event occurs which makes it almost impossible for the parties to carry out their part of contractual obligations or to carry out the obligations in a substantially different way than what was agreed to under the contract. The maxim “Les non cogit ad impossibilia” is the basis of this doctrine and it means that the law cannot compel a person to do what he cannot possibly perform.

Article 249 of the UAE Civil Code reflects it under the name of ‘exceptional circumstances. It says that ‘If general exceptional circumstances of a public nature occur, and the performance of a contract becomes oppressive (but not impossible), the judge may reduce the obligation to a reasonable level.’

The doctrine of frustration is only applicable where performance is still technically possible, but would impose an unreasonable burden on one party. For example: A sudden currency collapse makes it grossly unfair for a supplier to fulfil a fixed-price international contract.

Comparison with other jurisdictions

As per the civil code of UAE, the effect of frustration of a contract is not rendering of the contract as automatically void but rather, reduction in the obligor’s liabilities to the extent they can be performed or cancellation/termination of the contract. However, in India, a contract becomes void if the doctrine of frustration is applied (including the cases of force majeure) and these contracts are taken to not exist after frustration.

The Indian Contract Act perceives frustration only in cases of impossibility or illegality, and not on mere hardship. But the UAE law Covers not only impossibility but excessive hardship (economic hardship, force majeure).

The UAE law gives there courts a lot of power in the contractual relationships. The courts may revise or reduce obligations to maintain fairness (under Art. 249 of the Civil Code). But in India, courts do not modify the terms of the contract; they may only declare the contract void, if frustration is proved.