In brief
Recent Middle East conflicts have created significant uncertainty for businesses in the region, leading many companies to invoke force majeure and halt operations. Many clients are asking how these developments may affect their contractual obligations and what legal options may be available if performance becomes difficult or impossible.
This alert provides an overview of important contractual issues under UAE law, such as:
- How force majeure and hardship clauses work
- Rules for contract termination according to the UAE Civil Code
- Payment orders as a simplified way to recover debts that are not in dispute.
In more detail
Force majeure under UAE law
Under UAE law, force majeure is primarily governed by the contract itself. The specific wording of the clause will determine:
- Which events qualify as force majeure (e.g., war, hostilities, government action, disruption of transport routes)
- Whether performance is suspended or excused
- Notice and mitigation obligations
- Whether termination rights arise after a prolonged force majeure event.
In practice, force majeure clauses are often interpreted narrowly, meaning the party invoking the clause must demonstrate that the event falls within its scope and directly prevented performance.
When a contract is subject to UAE law, the Civil Code establishes a statutory framework. According to Article 273 of the Civil Code, if a force majeure event makes performance impossible, the relevant obligation is discharged and the contract shall be automatically terminated. UAE courts recognize force majeure where an event:
- Is unforeseeable
- Is beyond the control of the parties
- Makes performance impossible or objectively unachievable.
Where performance is temporarily prevented, the obligation may instead be suspended for the duration of the event, relieving the affected party from liability for delay.
However, it is important to note that force majeure generally does not excuse payment obligations, meaning parties may still be required to pay outstanding debts even where performance is otherwise affected by a force majeure event. This is especially true when it comes to payment obligations that were already overdue before the force majeure events occurred. Therefore, businesses should carefully review their contractual responsibilities and understand the implications resulting from a force majeure event.
Hardship and renegotiation
UAE law also recognizes the doctrine of exceptional circumstances (hardship), which allows courts or tribunals to adjust contractual obligations if an unforeseeable public event renders performance excessively onerous, even if not impossible.
Practically, businesses should not rely on statutory provisions but should ensure their contracts include well-drafted force majeure and hardship clauses. These clauses should clearly define qualifying events and set out notice requirements. Maintaining records of the event's impact and mitigation efforts is important, as the burden of proof lies with the party invoking force majeure or hardship. Prompt notification and early engagement with the counterparty can help protect contractual rights and reduce the risk of disputes.
Termination of contracts under UAE law
Clients often ask if geopolitical events allow automatic contract termination. Under UAE law, termination happens in three ways:
- By mutual agreement
- Via a contract clause
- Through court order
Termination of contracts under UAE law is not typically automatic, even where the contract contains provisions referring to "automatic termination". Such clauses usually grant a party the right to terminate or cancel, rather than allowing a party to simply walk away from the contract without risk. If the other party disputes the termination, UAE courts or tribunals may review whether the relevant triggering event has actually occurred and whether the contractual procedures for termination have been properly followed. As a result, parties should exercise caution before treating a contract as terminated and ensure that the contractual and legal conditions for termination are clearly satisfied.
Most importantly, given the potential commercial and reputational consequences of termination, parties should proceed carefully and consider formal notices and negotiation strategies before taking steps to terminate.
Payment orders as a mechanism to recover undisputed debts
In parallel with performance issues, many businesses are also concerned about counterparty payment risk.
Under UAE law, payment orders provide a fast-track mechanism for recovering undisputed debts supported by documentary evidence. A payment order allows a creditor to obtain an ex-parte judgment (without hearing the debtor initially) for a monetary claim where the debt is clear and due. To apply for a payment order, (i) the creditor must first serve a demand for payment, (ii) the debtor must be given at least five days to pay, and (iii) the claim must be supported by written evidence of the debt.
If granted, the payment order can be enforced through the UAE execution courts, providing a potentially faster alternative to ordinary litigation. This mechanism can be particularly useful where companies wish to recover uncontested receivables while maintaining commercial relationships.
Practical tips for businesses
The current geopolitical environment in the Middle East highlights the importance of carefully analyzing contractual risk and available remedies under UAE law.
Force majeure and hardship may provide relief in certain circumstances, but they are highly fact-specific and depend heavily on the contractual framework. At the same time, mechanisms such as payment orders may provide practical tools for businesses seeking to manage counterparty risk and recover undisputed outstanding debts.
Businesses should therefore take proactive steps to review contracts, assess operational exposure, and implement appropriate dispute management strategies as the situation continues to evolve.