News & Insights
COVID-19 pandemic has bewildered the entire globe with a blast. The outbreak which initiated in December 2019 at Wuhan, China, has been reported to have spread across six continents of the world in just a single quarter. The UAE, like many other developed countries of the world, is trying its best to curb any further spread of the novel virus. Some sectors of the society have taken this situation for granted and sought to fulfil their vital interests. In contrast, some others, due to the oblivion of the UAE law got jeopardised. This negligence on the part of several people may turn costly.
THE IMPLEMENTATION OF A FORCE MAJEURE
Force Majeure is a legal term defined as “unforeseeable circumstances that prevent someone from fulfilling a contract”. Although a specific definition of this legal jargon does not occur in the UAE Civil Code, albeit its implementation is regulated through clauses of several articles which allude towards the functioning of force majeure in contractual obligations.
The UAE Civil Law Code is based on the French Civil Law that explains the contractual obligations under the concept of ‘rebus sic stantibus’, which recalls somehow the doctrine of Stare Decisis in English Common Law as well.
The Law of Frustration explained in English common law and Scott’s Law certainly gives credence to the application of the principle; however, the legal doctrine often drags simple matters to the jurisdiction of the courts. As the UAE has been adaptive to the co-existence of mixed jurisdictions, it is inspired by both the English Common Law and the French Civil Law.
Articles 249, 273, 287 and article 893 of the UAE Civil Code explain the implementation of such situations which may apply a force majeure to the contract
These articles give the right clue to practical situations such as construction projects, employment regulations and medical contracts. The jurisdiction of the UAE law establishes a contractual or wrongful infringement of a legal right, as a liability on a multidimensional scale.
Article 273(2) stipulates that in cases where the force majeure event furnishes a part of the obligation which is impossible to perform, only that part of the contract will be rescinded while the other part will be effective as per the agreement.
Furthermore, Article 273(2) permits the Service Provider, in respect of the change in scenario to perform his complete obligation, to terminate the entire contract by providing notice to the recipient. If a contract is terminated or temporarily suspended under the jurisdiction of either clause of Article 273, the parties will revert to a square one position; if through arbitration or circumstantial developments, this becomes difficult or in some cases impossible, the courts will apply compensation to the party which suffered the loss.
In a typical scenario, demurrage payment by shipment in the trade or maritime businesses, damages awarded to an investor by a developer in the real estate or medical liability where a hospital is asked to compensate a patient through the implementation of these clauses, are all remnants of a force majeure implementation.
Although, we will be polite to a fault to evade the legal problems enfaced during such a situation, as Article 249 stipulates:
“If exceptional circumstances of a public nature which could not have been foreseen occur as a result of which the performance of the contractual obligation, even if not impossible, becomes oppressive for the obligor so as to threaten him with grave loss, it shall be permissible for the judge, in accordance with the circumstances and after weighing up the interests of each party, to reduce the oppressive obligation to a reasonable level if justice so requires, and any agreement to the contrary shall be void.”
Indeed, Article 249 brings hope in the sense that the law does acknowledge the concept of an exceptional circumstance, but this may not allude to an epidemic or pandemic. As in the case of Insurance Laws, no insurance covers war, and an insurance company will never be held accountable to claims generated through the destruction caused by war. Yet, the UAE Legal contracts often refer to a term known to legal lexicology as “an act of GOD”, as in the case of many developers, who adopt a safe policy, relinquishing any further liability beyond their scope of work. In the case of employment, unfortunately, such clauses are oblivious to any employment or labour contracts; as such situations have never affected the UAE, since her inception in 1971.
Legal modifications are prescribed through the exponent of another legal term known as an “extraneous cause”, stipulated in Article 287, which does recognise the calamity of a natural disaster or a force majeure to enact in the absence of a formal contract. Article 287 states:
“If a person proves that the loss arose out of an extraneous cause in which he played no part such as a natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering loss, he shall not be bound to make it good in the absence of a legal provision or agreement to the contrary.”
Hence the obligor or the obligee are absolved from any further responsibility as in the case of damages, based upon a case scenario change, evolving due to the prevalent circumstances. Article 287 was a potential legal aid to all those investors, who suffered the turmoil of the 2008 crisis. As the situation had completely changed, many Developers and their respective investors got a bailout, but not necessarily a complete absolvent from their contractual responsibilities. In Real Estate, an Amiri decree, law no. 21 of 2013 enabled both parties a finer judgement, when the projects were cancelled or they were put on hold for further investigations, and /or the investors were absolved not to pay any further for such a project. However, an explicit example of a ratio decidendi related to Article 287 came to prominence in a 2011 case decision by the Dubai Court of Cassation. The court invincibly promulgated unanimously, that the determination of the “extraneous cause” was at the sole prerogative of the court’s discretion, including but not limited to an arbitrary tribunal. The nature of the extraneous cause was determined by the application of the cause-effect scenario by the court. Although, an Employment contract will not fall under the category of a civil contract, as the jurisdiction binding it is the UAE Labour Law 1980 and its respective amendments and modifications.
Nonetheless, schools across the UAE are trying their level best to accommodate the pupil’s academic needs through conducting webinars, engaging teachers through social media platforms and dedicating a perfect schedule of activities for enhancing the student’s abilities to perform well at the academic level. Hitherto, many people thought that the lockdown would legally enable them to claim refund on school fees; this myth is not true at all. On the contrary, some schools of certain Asian curriculums thought they are no longer liable to serve the students; their approach also is equally deplorable. The legal framework obtained through the deployment of the “Education 2020 strategy” by the Ministry of Education, clearly indicated the development of smart learning programs, latest teachers’ codes, licensing, training and performance evaluation standards. Hence, neither the schools nor the students can shy away from their obligations. It is just the code of conduct, which albeit varied, will dictate the course of events during the current outbreak of the pandemic. Hence, education is undergoing a critical analysis, as many other walks of life.
Significantly, even students with special needs or disabilities will be provided fair means of gaining education as stipulated by Federal Law No. 29 of 2006. This law stands out to be the primary enactment in the UAE to protect the rights of people of determination. Article 12 of the law stipulates:
“the country guarantees people with special needs equal opportunities in education within all educational, vocational training, adult education and continuing education institutions in regular classes or special classes with the availability of curriculum in sign language or Braille and or any other methods as appropriate.”
Hence, even children, who do not meet a fitness criterion due to some reasons, are legally bound to receive education of equal stature as any other student in the country. Hence all these arrangements should have been made, but if at all certain loopholes remain, they could be filled up with the due course of time. Therefore legally, every individual in the UAE has a legal right to pursue education. Nonetheless, particular qualms are acting as circumvents for the educational sector at large.
Undoubtedly, the UAE hits centre stage whenever the term construction comes to discussion at the global forums. At this moment in time, Dubai alone possesses 15% of the Worlds’ construction equipment installed in the emirate. Nonetheless, since construction always remained under the purview of International law, hence we are blessed to possess the clause ‘an act of GOD’ in the UAE legal contractual agreements pertaining to the field of construction. The UAE witnessed phenomenal economic growth through the establishment of Freehold Property rights through an Amiri decree in 2002. By the fourth quarter of the fiscal year 2007, property prices had risen to a world record 79% from their actual values. Such profits were, indeed a dream come true for the investors and a source of encouragement for the rest, as no other economy could bring such a fruitful result of a base investment anywhere else in the world. Hitherto, as every matter of life has a node and an antinode to its climax, every investment is subject to a circuit-breaker, often caused due to foreign influence in the globalised world.
The UAE Real Estate also became a victim of the 2008 global financial crisis, and the Markets indefinitely met a down surged bearish trend, as the collapse of Lehman Brothers in New York, caused a ripple effect around the world, affecting many economies in due course of time. But unlike many other countries, the United Arab Emirates had a wonderful course of interaction with its investors. First and foremost the UAE did not let their investors left alone from any of these repercussions and consequently developed a developer-investor caucus; the UAE considerably initiated certain measures which enabled the investor confidence glow even after fallout on real estate prices. Post securing the investors through the establishment of escrow accounts, the Real Estate Regulatory Authority (RERA) in conjunction with the Dubai Land Department (DLD) focused on securing this caucus as an exemplary form of a public-private partnership.
Nonetheless, the legal standings on the concept of a force majeure are actually well defined in all contracts of the developers. Be it Emaar, Nakheel, Damac, HYDRA or Dubai Properties, all developers define this clause amicably in their contracts. Article 273 provides the legal framework for force majeure, but fortunate enough for all the investors that the “Act of God” clause is explained thoroughly through the French Civil law doctrine, repeatedly applicable to disasters, accidents, earthquakes, climatic changes, volcanic eruptions, and unprecedented events which may take over the situation without consent. A pandemic is not necessarily explained in this scenario, but for this matter to commence, the doctrine of precedence will apply. A good example can be of the English Common Law jurisdictions of Asia, like the laws of Far Eastern Countries, for example, the existence of a law on the handling of epidemic situations, such as the infectious diseases act of 1977 in Singapore, Malaysia’s infectious disease Prevention Act 1988 and the pro infectious diseases act 2003 is proof of the legislative to deal with an emergency. In the above-mentioned laws, they are comprehensive details about realty issues, like construction itself, and thus these countries deal with the conditions created by the epidemic, at the level of dealing with affected areas, affected people, emergency situations etc.
Although Article 273 (2) alludes to arbitration and hence, if there is any facet for a renegotiation of the contract, the parties are recommended to subscribe to it immediately. though termination of the contract might be reached, the absolute liability will still cling on to the service provider, obligor and the obligee. Hence developers might be asked to stall projects for a while, but this will be a circumstantial development. They will be obliged to develop the project, once the situation goes back to normal. The investors may be issued Non-Payment orders by the court, but a force majeure, in this case, will be temporary. Once circumstances normalise, the legal bindings will compel all partners to a contractual agreement to complete their legal obligations.
Another major bone of contention is the issue of airline operations. The jurisdictional body responsible for maintaining aviation rules and regulations is known as the International Air Transport Association (IATA) and International Civil Aviation Organization (ICAO). All members have affirmed a set of core principles on consumer protection that aim to strike a balance between protecting passengers while maintaining industry competitiveness and recognising the power of the marketplace. Annexure A explains the core principles, which were developed in conjunction with the Montreal Convention 1999, and its further ratification on the 31st of January 2000. Nonetheless, the UAE is also amongst the 113 members who signed the MC99, as the treaty is officially referred to on official aviation forums. The UAE aviation laws are directed through the issuance of Federal Decree No. 13 of 2000, which was published in the Official Gazette on the 31st of January 2000. According to the Montreal convention, damages up to a maximum claim of USD $ 6, 600/- In the event of delayed baggage airlines are liable to pay for damages of a value approximately USD $ 1,600. However, an airline cannot be held liable for damages/delays where it took all reasonable measures to avoid such a delay or damage, or if it was impossible for the airline to take such measures.
However, MC 99 does not recognise any force majeure instantly for pandemics. Although the latest developments may apply this case scenario, in this case the recent paradigm shift of ICAO is a remarkable event for legal claims. Additionally, ICAO confirmed that a vast majority of the 113 members didn’t notify their disapproval of its claim plan by the 30th of September 2019, hence the revised limits that were implemented from the 28th of December 2019.
Realistically, the increase in the claimed amounts of additional compensation is available of:
- Limiting to US$ 21,642 for death/bodily injury;
- Limiting to US$ 898 for delay claims;
- Limiting to US$ 216 for baggage claims;
- Limiting to US$ 4/kg for cargo claims, compared to the compensation primarily recoverable under MC99.
The four categories may give some credence for an international claim, but the UAE has already been softened on the plight of stranded passengers, and as of the 17th of April 2020, several flights have been flying out with outbound passengers, who were stuck in the UAE. This is certainly an unprecedented situation.
At BBA, we are trying our level best to apprise the general public of the latest developments in various sectors due to the outbreak of the pandemic. Nonetheless, a disclaimer for our clients about these rules and regulations, that may be altered through the process of time.
This article, and any other BBA’s publication, is for general information only and in no case can be considered as legal advice on any specific situation, fact or dispute. This article may not be quoted or mentioned in any other document without BBA’s previous written consent. The mailing and receiving of this article are for informational purposes only and do not create an attorney-client relationship between sender and receiver. The content reflects the personal view of the authors and does not reflect necessarily those of BBA.