UAE: One month later – impacts of recent rains and floods on contract performance (part 1)

published on 16 May 2024 | reading time approx. 2 minutes

On 16 April 2024, the UAE have seen the heaviest recorded rainfall for 75 years, causing floods and damages to major infrastructure in the country. This raises the question of how damage caused by such natural disasters should be dealt with legally in the UAE.

In the case of natural disasters such as heavy rainfall, there are various legal bases in contract law that can be applied, depending on the circumstances of the individual case and the applicable laws.

The Concept of Force Majeure under UAE Law

Similar to many international jurisdictions, the concept of force majeure is also recognized under UAE law. While the question of what constitutes a force majeure event is eventually subject to the UAE courts' discretion, according to UAE case law, this applies to any unforeseeable event or circumstance occurring beyond the control of the contractual parties and which, having arisen, the affected party could not reasonably have avoided or overcome. Although the courts have been generally redundant to consider force majeure events, natural disasters may indeed fall under this term.

Once the conditions of a force majeure event are met, pursuant to Article 273 of Federal Law No. 5/1985 (“Civil Code”), the relevant contract is rescinded by operation of law and the contractual parties shall be restored to their precontractual positions. If the performance is only partially or temporarily impossible, such part shall be extinguished, releasing the obliger from its obligations; however, the party claiming force majeure can still terminate the entire contract by giving notice of such to the other party.

Hardship vs. Force Majeure

The concept of 'hardship' under UAE law is regulated in Article 249 of the Civil Code, referring to 'exceptional events of public nature'. Such unforeseen event differs from force majeure under Article 273 (see above), in that it must render performance onerous, not impossible and it does not result in the contract being terminated, rather the court or arbitral tribunal can adjust the contractual obligations to a reasonable level, considering the interests of the parties and the obligations arising from the contract. Hence, Article 249 applies where the economic or operational conditions change unexpectedly, and the performance of the contract becomes significantly more difficult to the obligor or would result in disproportionate losses.

Considerations in Contract Drafting

Parties affected by the recent rains and floods in the UAE are well advised to review their existing and future contracts in light of unforeseen events that may occur during their lifetime. Considerations shall be made regarding a contractual definition of the term force majeure, avoiding any ambiguities as to its interpretation, and any obstacles towards the affected party to serve written notice to the other within a specific timeframe of any unforeseen event possibly affecting performance.

Depending on the individual circumstances and the type of contract, contractually agreed consequence may be either be a burden or benefit and hence, should be considered in contract negotiations.

Conclusion

While the UAE navigates the aftermath and prevention of future rainfall, parties should familiarize themselves of their ongoing contractual obligations, both under any concluded contracts and the law.