In a recent E-Live webinar hosted by Construction Business News Middle East and in partnership with du, Andrew MacKenzie, Partner at Baker McKenzie Habib Al Mulla, discussed the issue of Force Majeure in light of the current COVID-19 pandemic.
(VIDEO: E-Live Webinar Recap: Legal Challenges in Construction)
Andrew said: “Construction contracts, including the FIDIC standard forms prevalent in the UAE, typically contain a Force Majeure clause. Whether or not COVID-19 amounts to an event of Force Majeure will depend on the specific wording of the clause. Clear drafting is therefore crucial to determining whether or not Force Majeure can be invoked pursuant to a particular event.
In the absence of a Force Majeure provision, Article 273 of the Civil Code provides that Force Majeure can be established subject to the event in question meeting the following three criteria:
(a) it was unforeseeable at the time of entering into the contract;
(b) it was unavoidable in terms of occurrence or impact; and
(c) most importantly, it rendered the performance of the relevant obligation impossible. (Article 273 UAE Civil Code)
Parties entering into contracts in the midst of the COVID-19 pandemic may have limited recourse to invoking Force Majeure provisions due to the need to establish unforeseeability of the event. This criteria is required at law and, in most cases, where the Force Majeure is contractual. Given the pandemic is ongoing, parties are unlikely to be able to demonstrate that it amounts to a Force Majeure event in and of itself. However, parties may wish to tailor the definition of a Force Majeure event in future contracts so as to allow, for example, the unforeseeable spread of the pandemic as at a certain point in time to amount to a Force Majeure event, rather than COVID-19 itself.”
Andrew concluded by saying: “As governments continue to implement new legislation and directives in response to the spread of the pandemic, parties are having to continuously monitor the impact this is having on their rights and obligations in ongoing contracts. In addition or as an alternative to Force Majeure claims, this includes considering whether claims for extensions of time and additional costs can be made under construction contracts. In this context, it is important to determine what amounts to a change in law under the contract.
For future contracts, similarly to the Force Majeure provisions, parties may wish to consider what to include in the definition of change of law – for example, whether governmental recommendations and guidance, which are generally issued on a more frequent basis than legislation, should fall under such a definition or be expressly excluded to avoid any possible dispute over their impact on the parties obligations under the contract. Such drafting considerations would ensure that parties have greater contractual recourse even where no change of legislation has taken place.”
The webinar revolved around how contractors are dealing with COVID-19 pandemic from a legal point of view. COVID-19 has disrupted almost every industry and with projects being delayed due to a variety of reasons due to COVID-19, how do current contracts give reprieve to contractors and what may future contracts look like to ensure that contractors are protected in the future.
Other speakers included Joanne Strain, Partner at King & Wood Mallesons Dubai and Gurmeet Kaur Partner at Pinsent Masons.
