1. Introduction
The current security situation in the region has disrupted shipping routes, affected trade flows, and created uncertainty across a range of industries, including tourism and hospitality, construction, logistics, and energy.
For affected businesses, questions have arisen as to whether these circumstances constitute force majeure, or otherwise what legal remedies they may have where contractual performance has become more difficult or more costly. Equally, parties on the receiving end of such claims will want to distinguish between genuine cases of hardship and opportunistic attempts to renegotiate terms.
The legal position under UAE law is more nuanced than is often assumed, and a blanket reliance on force majeure may be misplaced.
This note is intended to provide a general overview of the relevant legal principles under UAE law, to clarify key distinctions that are frequently misunderstood, and to recommend practical steps for evaluation and management of contractual risk exposure in current circumstances.
2. Key Legal Concepts under UAE Law
UAE onshore law draws a clear distinction between two separate doctrines that are often conflated in practice: force majeure and the doctrine of exceptional circumstances or nazariyyat al-zuruf al-tari’a), which is also sometimes referred to as hardship.
Understanding the difference between them is essential.
2.1 Force Majeure (Article 273, Civil Transactions Law)
Force majeure under UAE law is governed by Article 273 of the Civil Transactions Law (Federal Law No. 5 of 1985, as amended). It applies where performance of a contractual obligation has become impossible, not merely more difficult or more expensive.
The requirements for a successful claim of force majeure under Article 273 are:
(a) An extraneous event has occurred that is beyond the control of the obligor.
(b) The event was not foreseeable at the time the contract was entered into.
(c) The event has made performance of the obligation impossible, whether temporarily or permanently.
If a force majeure event makes performance under an agreement impossible, the associated obligations under such agreement will cease and the agreement will automatically terminate.
But if performance is partially or temporarily impossible, that portion of the agreement will be extinguished – the obligor may nevertheless elect to terminate the entire agreement, provided the obligee is given notice of such termination.
The critical point is that force majeure requires impossibility of performance, not merely increased cost or difficulty. A party that is still able to perform, but at a higher cost, may not rely on Article 273.
Where termination does occur, parties should also consider the consequential implications, including the position in respect of downstream or related contracts, performance guarantees and advance payment bonds, and the adequacy of existing insurance arrangements, each of which may require separate consideration.
2.2 Doctrine of Exceptional Circumstances (Article 249, Civil Transactions Law)
Where performance remains possible but has become excessively onerous due to extraordinary circumstances, the relevant doctrine is that of exceptional circumstances under Article 249 of the Civil Transactions Law.
Article 249 provides that where:
(a) Exceptional extraneous events of a general nature have occurred that were not foreseeable at the time of contracting;
(b) Those events render the performance of the obligation, while not impossible, excessively onerous; and
(c) The obligor is threatened with grave loss, then the court may, having regard to the interests of both parties, reduce the onerous obligation to a reasonable level.
The requirement that the event be of a general nature means that it must affect the public at large, or a broad segment thereof, and not be limited to the particular circumstances of the individual obligor. Given the widespread impact of the conflict (including its effects on trade, shipping, and supply chains across the region), it is arguable that the current context would satisfy this requirement in many cases. However, where a party's difficulty is attributable to factors specific to its own operations or supply arrangements rather than to the broader situation, the requirement would arguably not be met.
Article 249 does not entitle the affected party to refuse performance or to unilaterally terminate the contract. It is also not generally understood as a basis for granting extensions of time, but rather for rebalancing obligations. It provides a mechanism for judicial adjustment of the obligation, typically by reducing it to a reasonable level.
The courts have typically set a high threshold for what constitutes a grave loss. In assessing whether this threshold is met, they may consider the alleged hardship in the context of the overall economics of the contract, rather than in isolation.
Whether the conditions of Article 249 are satisfied is a question of fact, to be determined on the evidence. The courts retain broad discretion in assessing such evidence and determining whether, and to what extent, an adjustment would be appropriate.
2.3 Contractual Force Majeure Clauses
Many commercial contracts, including those based on international standard forms (e.g., FIDIC), contain express force majeure clauses that define the events constituting force majeure and specify the consequences (notice requirements, suspension, extension of time, cost allocation, termination rights).
A contractual clause may not affect the statutory rights under Article 273 (if performance is impossible) or Article 249 (if performance is excessively onerous), as they are of mandatory application. However, a contractual force majeure clause may operate alongside or supplement the statutory position.
For instance, the contractual provisions may afford the affected party remedies that the statutory provisions do not, and may do so in circumstances which would not be captured under either of Article 273 or Article 249.
This is particularly relevant in the context of temporary disruption. The Civil Transactions Law does not expressly provide for temporary suspension of performance pending the resolution of a force majeure event; rather, impossibility under Article 273 results either in the termination of the contract or the extinguishment of the affected obligation. Where the parties wish to delay or postpone performance rather than extinguish it, the contractual provisions arguably would need to provide for this.
Such clauses also frequently impose procedural requirements (e.g., notice within a specified number of days) that should in principle be strictly complied with in order to benefit from the remedies provided.
It is therefore essential to examine both the contract and the applicable law to determine the full scope of available remedies.
3. International Contracts and Governing Law
Where a contract is between parties located in different jurisdictions, the governing law of the contract will determine the legal framework applicable to force majeure and hardship claims. The precise requirements, thresholds, and remedies differ from jurisdiction to jurisdiction. Each may produce materially different results.
4. Force Majeure Is Not a One-Size-Fits-All Remedy
Force majeure is not a universal remedy that applies automatically to all contracts affected by the current situation. Whether a party has a valid claim under force majeure, the doctrine of exceptional circumstances, a contractual clause, or some other provision under the applicable law, will depend entirely on the specific facts and the specific contract.
Among the matters that parties will need to consider in each case are:
(a) The governing law of the contract;
(b) The nature of the affected obligation and the extent to which it has been impacted;
(c) The manner in which it has been impacted (whether performance has become impossible, delayed, or merely more costly, and to what extent);
(d) Whether there is a direct causal link between the current events and the impact on the affected obligation;
(e) What the contractual terms provide for by way of relief, and what the applicable law provides for in the absence of express contractual provisions; and
(f) The availability of alternatives, such as alternative shipping routes, alternative suppliers, or alternative methods of performance.
By way of example, a contract for the shipment of goods to a port within the Arabian Gulf, where the vessel is unable to reach its intended destination through the Strait of Hormuz, may raise a genuine question of impossibility. If the contract provides for mechanisms for the redirection of goods to an alternative port (such as Fujairah, which is accessible without transiting the Strait), performance may not be impossible at all, and the question may instead become one of contractual cost allocation for the redirection and onward transport.
By contrast, a contractor engaged on a construction project in the UAE who is experiencing delays in the delivery of imported materials is unlikely to establish impossibility, especially if they are still able to source them through alternative suppliers or routes, even if at a higher cost. The question in that case may instead be whether the contractor may seek an extension of time, or whether the increased cost and delay engage a contractual hardship provision, or whether the threshold for relief under Article 249 has been met.
5. Recommended Steps: Contractual Review
Companies that are, or may be, affected by the current situation should review their active contracts to identify and manage any resulting risk.
This review would typically include:
(a) Identifying the contracts that may be affected;
(b) Reviewing the relevant terms, including force majeure, hardship, or price adjustment provisions;
(c) Assessing the impact on performance, including delay, impossibility, or increased cost;
(d) Determining whether the impact is caused by the current events;
(e) Issuing any required contractual notices within applicable time limits;
(f) Keeping records of delays, disruptions, and additional costs; and
(g) Engaging with counterparties where appropriate to seek practical solutions.
In all cases, an affected party should take reasonable steps to mitigate or minimise any loss resulting from the disruption. Under Article 290 of the Civil Transactions Law, where the affected party has, through its own act or omission, contributed to bringing about or aggravating the loss suffered, the court may reduce the compensation awarded or decline to award compensation altogether. Parties should therefore be prepared to demonstrate that they have acted reasonably to limit the impact of the disruption on their performance and their losses.
Companies should consider obtaining specialised legal advice in connection with any such review and in connection with the assessment and mitigation of potential losses, in particular where a material risk is identified in respect of any contract.
Businesses should consider, when entering into new or renewed contracts, whether their contractual protections remain adequate in light of the current environment. As discussed above, foreseeability should be assessed at the time the contract is entered into. Parties contracting with knowledge of ongoing or past disruptions may face difficulty establishing that such events, or their specific impact, were unforeseeable. If a party cannot demonstrate that events were unforeseeable at that time, the statutory protections discussed above may not be available. It is therefore critical that contracts clearly address and allocate risk through appropriate provisions, including force majeure, hardship, and price adjustment clauses.
6. Conclusion
The current situation presents contractual risks across multiple sectors. The legal analysis is not straightforward, and a generalised reliance on force majeure is neither appropriate nor effective.
Whether a particular contract is affected, and what remedies may be available, will depend on the specific facts, the terms of the contract, and the applicable law.
Businesses are encouraged to take a proactive approach. This includes reviewing active contracts, assessing and mititaging potential risks, and seeking legal advice where appropriate.
**Disclaimer - This note has been prepared for general information purposes only and by way of guidance. It does not constitute legal advice and is not intended to be comprehensive. The contents of this note should not be relied upon as a substitute for specific legal advice in relation to any particular contract, transaction, or dispute. The legal position may differ materially depending on the specific facts, the terms of the relevant contract, and the applicable governing law. Parties are recommended to obtain independent legal advice before taking any action based on the contents of this note.
1. Introduction
The current security situation in the region has disrupted shipping routes, affected trade flows, and created uncertainty across a range of industries, including tourism and hospitality, construction, logistics, and energy.
For affected businesses, questions have arisen as to whether these circumstances constitute force majeure, or otherwise what legal remedies they may have where contractual performance has become more difficult or more costly. Equally, parties on the receiving end of such claims will want to distinguish between genuine cases of hardship and opportunistic attempts to renegotiate terms.
The legal position under UAE law is more nuanced than is often assumed, and a blanket reliance on force majeure may be misplaced.
This note is intended to provide a general overview of the relevant legal principles under UAE law, to clarify key distinctions that are frequently misunderstood, and to recommend practical steps for evaluation and management of contractual risk exposure in current circumstances.
2. Key Legal Concepts under UAE Law
UAE onshore law draws a clear distinction between two separate doctrines that are often conflated in practice: force majeure and the doctrine of exceptional circumstances or nazariyyat al-zuruf al-tari’a), which is also sometimes referred to as hardship.
Understanding the difference between them is essential.
2.1 Force Majeure (Article 273, Civil Transactions Law)
Force majeure under UAE law is governed by Article 273 of the Civil Transactions Law (Federal Law No. 5 of 1985, as amended). It applies where performance of a contractual obligation has become impossible, not merely more difficult or more expensive.
The requirements for a successful claim of force majeure under Article 273 are:
(a) An extraneous event has occurred that is beyond the control of the obligor.
(b) The event was not foreseeable at the time the contract was entered into.
(c) The event has made performance of the obligation impossible, whether temporarily or permanently.
If a force majeure event makes performance under an agreement impossible, the associated obligations under such agreement will cease and the agreement will automatically terminate.
But if performance is partially or temporarily impossible, that portion of the agreement will be extinguished – the obligor may nevertheless elect to terminate the entire agreement, provided the obligee is given notice of such termination.
The critical point is that force majeure requires impossibility of performance, not merely increased cost or difficulty. A party that is still able to perform, but at a higher cost, may not rely on Article 273.
Where termination does occur, parties should also consider the consequential implications, including the position in respect of downstream or related contracts, performance guarantees and advance payment bonds, and the adequacy of existing insurance arrangements, each of which may require separate consideration.
2.2 Doctrine of Exceptional Circumstances (Article 249, Civil Transactions Law)
Where performance remains possible but has become excessively onerous due to extraordinary circumstances, the relevant doctrine is that of exceptional circumstances under Article 249 of the Civil Transactions Law.
Article 249 provides that where:
(a) Exceptional extraneous events of a general nature have occurred that were not foreseeable at the time of contracting;
(b) Those events render the performance of the obligation, while not impossible, excessively onerous; and
(c) The obligor is threatened with grave loss, then the court may, having regard to the interests of both parties, reduce the onerous obligation to a reasonable level.
The requirement that the event be of a general nature means that it must affect the public at large, or a broad segment thereof, and not be limited to the particular circumstances of the individual obligor. Given the widespread impact of the conflict (including its effects on trade, shipping, and supply chains across the region), it is arguable that the current context would satisfy this requirement in many cases. However, where a party's difficulty is attributable to factors specific to its own operations or supply arrangements rather than to the broader situation, the requirement would arguably not be met.
Article 249 does not entitle the affected party to refuse performance or to unilaterally terminate the contract. It is also not generally understood as a basis for granting extensions of time, but rather for rebalancing obligations. It provides a mechanism for judicial adjustment of the obligation, typically by reducing it to a reasonable level.
The courts have typically set a high threshold for what constitutes a grave loss. In assessing whether this threshold is met, they may consider the alleged hardship in the context of the overall economics of the contract, rather than in isolation.
Whether the conditions of Article 249 are satisfied is a question of fact, to be determined on the evidence. The courts retain broad discretion in assessing such evidence and determining whether, and to what extent, an adjustment would be appropriate.
2.3 Contractual Force Majeure Clauses
Many commercial contracts, including those based on international standard forms (e.g., FIDIC), contain express force majeure clauses that define the events constituting force majeure and specify the consequences (notice requirements, suspension, extension of time, cost allocation, termination rights).
A contractual clause may not affect the statutory rights under Article 273 (if performance is impossible) or Article 249 (if performance is excessively onerous), as they are of mandatory application. However, a contractual force majeure clause may operate alongside or supplement the statutory position.
For instance, the contractual provisions may afford the affected party remedies that the statutory provisions do not, and may do so in circumstances which would not be captured under either of Article 273 or Article 249.
This is particularly relevant in the context of temporary disruption. The Civil Transactions Law does not expressly provide for temporary suspension of performance pending the resolution of a force majeure event; rather, impossibility under Article 273 results either in the termination of the contract or the extinguishment of the affected obligation. Where the parties wish to delay or postpone performance rather than extinguish it, the contractual provisions arguably would need to provide for this.
Such clauses also frequently impose procedural requirements (e.g., notice within a specified number of days) that should in principle be strictly complied with in order to benefit from the remedies provided.
It is therefore essential to examine both the contract and the applicable law to determine the full scope of available remedies.
3. International Contracts and Governing Law
Where a contract is between parties located in different jurisdictions, the governing law of the contract will determine the legal framework applicable to force majeure and hardship claims. The precise requirements, thresholds, and remedies differ from jurisdiction to jurisdiction. Each may produce materially different results.
4. Force Majeure Is Not a One-Size-Fits-All Remedy
Force majeure is not a universal remedy that applies automatically to all contracts affected by the current situation. Whether a party has a valid claim under force majeure, the doctrine of exceptional circumstances, a contractual clause, or some other provision under the applicable law, will depend entirely on the specific facts and the specific contract.
Among the matters that parties will need to consider in each case are:
(a) The governing law of the contract;
(b) The nature of the affected obligation and the extent to which it has been impacted;
(c) The manner in which it has been impacted (whether performance has become impossible, delayed, or merely more costly, and to what extent);
(d) Whether there is a direct causal link between the current events and the impact on the affected obligation;
(e) What the contractual terms provide for by way of relief, and what the applicable law provides for in the absence of express contractual provisions; and
(f) The availability of alternatives, such as alternative shipping routes, alternative suppliers, or alternative methods of performance.
By way of example, a contract for the shipment of goods to a port within the Arabian Gulf, where the vessel is unable to reach its intended destination through the Strait of Hormuz, may raise a genuine question of impossibility. If the contract provides for mechanisms for the redirection of goods to an alternative port (such as Fujairah, which is accessible without transiting the Strait), performance may not be impossible at all, and the question may instead become one of contractual cost allocation for the redirection and onward transport.
By contrast, a contractor engaged on a construction project in the UAE who is experiencing delays in the delivery of imported materials is unlikely to establish impossibility, especially if they are still able to source them through alternative suppliers or routes, even if at a higher cost. The question in that case may instead be whether the contractor may seek an extension of time, or whether the increased cost and delay engage a contractual hardship provision, or whether the threshold for relief under Article 249 has been met.
5. Recommended Steps: Contractual Review
Companies that are, or may be, affected by the current situation should review their active contracts to identify and manage any resulting risk.
This review would typically include:
(a) Identifying the contracts that may be affected;
(b) Reviewing the relevant terms, including force majeure, hardship, or price adjustment provisions;
(c) Assessing the impact on performance, including delay, impossibility, or increased cost;
(d) Determining whether the impact is caused by the current events;
(e) Issuing any required contractual notices within applicable time limits;
(f) Keeping records of delays, disruptions, and additional costs; and
(g) Engaging with counterparties where appropriate to seek practical solutions.
In all cases, an affected party should take reasonable steps to mitigate or minimise any loss resulting from the disruption. Under Article 290 of the Civil Transactions Law, where the affected party has, through its own act or omission, contributed to bringing about or aggravating the loss suffered, the court may reduce the compensation awarded or decline to award compensation altogether. Parties should therefore be prepared to demonstrate that they have acted reasonably to limit the impact of the disruption on their performance and their losses.
Companies should consider obtaining specialised legal advice in connection with any such review and in connection with the assessment and mitigation of potential losses, in particular where a material risk is identified in respect of any contract.
Businesses should consider, when entering into new or renewed contracts, whether their contractual protections remain adequate in light of the current environment. As discussed above, foreseeability should be assessed at the time the contract is entered into. Parties contracting with knowledge of ongoing or past disruptions may face difficulty establishing that such events, or their specific impact, were unforeseeable. If a party cannot demonstrate that events were unforeseeable at that time, the statutory protections discussed above may not be available. It is therefore critical that contracts clearly address and allocate risk through appropriate provisions, including force majeure, hardship, and price adjustment clauses.
6. Conclusion
The current situation presents contractual risks across multiple sectors. The legal analysis is not straightforward, and a generalised reliance on force majeure is neither appropriate nor effective.
Whether a particular contract is affected, and what remedies may be available, will depend on the specific facts, the terms of the contract, and the applicable law.
Businesses are encouraged to take a proactive approach. This includes reviewing active contracts, assessing and mititaging potential risks, and seeking legal advice where appropriate.
**Disclaimer - This note has been prepared for general information purposes only and by way of guidance. It does not constitute legal advice and is not intended to be comprehensive. The contents of this note should not be relied upon as a substitute for specific legal advice in relation to any particular contract, transaction, or dispute. The legal position may differ materially depending on the specific facts, the terms of the relevant contract, and the applicable governing law. Parties are recommended to obtain independent legal advice before taking any action based on the contents of this note.
