This article elucidates the general meaning, concept, and scope of the legal doctrine of ‘force majeure’. It deals briefly with the concept and application of force majeure in the United Arab Emirates and addresses specifically whether, and if so, and when economic recession can amount to a force majeure excuse. Furthermore, the article also explains the application and impact of the ‘catch-all’ phrases that are used to define force majeure in many prevailing agreements, which are the subject matter of disputes today.
What is Force Majeure?
Force majeure is a civil law concept and equivalent counterpart of frustra- tion in contracts under common law. Although the origin of the concept is Roman, it was adopted by civil law countries and is most notably found today in the French Civil Code (the Napoleonic Code) dating back to 1804.1 A force-majeure event, when it occurs, excuses performance of the contract in spite of its express provisions obligating the parties to perform. It is one of the several other exceptions that excuse the parties from the performance of the contract.2
French law requires no less than three criteria to be satisfied before an event can be considered one of force majeure: (a) unpredictable, (b) uncontrollable and (c) external.
(a) Unpredictability
If the event could be foreseen at the time of entering into the con- tract, it should have been provided for in the contract and the rely- ing party is expected to have prepared for it or insert such event in the definition of force majeure under the contract. A party’s failure to specify a foreseeable risk gives an assumption that the party intended to take such risk at the time of entering into the contract.
(b) Externality
The event must not be attributable to the fault of the relying party and the relying party must have had nothing to do with its occurrence.
(c) Irresistibility
The event must be insurmountable and the relying party could not have done anything to mitigate it or avoid its occurrence. Financial difficulty or economic hardship does not excuse non-performance as contracting par- ties are expected to have reasonable business acumen and are expected to have calculated the economic risks of entering into particular contractual obligations.
In other words the courts must be satisfied that the performance of the contract has become impossible by reason of an event that could not have been foreseen by the parties at the time of making the contract. The performance must be absolutely impossible and not merely onerous or impractical. The French courts until 1914 were extremely reluctant to accept an event as force majeure and safeguarded the principle of the sanctity of the contract. Owing to World War I in 1914, one could observe a general trend in French courts to put an end to contracts and end obligations. However, the French Court of Cassation has never openly accepted relaxation of the principle and maintained its intent to protect the sanctity of contracts.3
Force-Majeure Clauses and Catch-All Phrases
A force-majeure clause is purely a creation of a contract, thereby entailing an application of the general principles of contractual interpretation.
A typical definition of a force-majeure clause contains catch-all phrases to extend the exemption of liability. Examples of such catch-all phrases are “including but not limited to” and “any other event beyond the reasonable control of parties”. As appealing as these phrases seem to a party relying on it, it is ultimately an example of poor drafting by lawyers for the reasons mentioned below. Courts require specificity in the list of events if they ought to exempt the parties from the liability.4
Pursuant to the doctrine of ejusdem generis which literally means ‘of the same class’, in some circumstances the use of catch-all phrases might actually prevent a party from relying on an event which in the absence of the ‘catch-all’ phrase could have successfully amounted to a force-majeure event.
[W]here general words follow an enumeration of persons or things of a particular and specific meaning, the general words are not construed in their widest extent but are instead construed as applying to persons or things of the same kind or class as those specifically mentioned.
Force Majeure in the United Arab Emirates
Article 287 of the UAE Civil Code states that “if a person proves that the loss arose out of an extraneous cause in which he played no part such as 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”.
The above article is generally misunderstood as defining the term force majeure. However, the said article is not a definition of force majeure but instead codifies and outlines the exceptions to the general rule of contrac- tual liability and includes force majeure as one of the many stated exceptions.
Article 273 of the Civil Code states that if force majeure interrupts the performance of a contract, such as to make it impossible for the contract to be performed, either wholly or in part, then the contract, or the relevant part thereof, is extinguished or may be treated as suspended.
Article 249 states that:
If exceptional events of a general nature occur which were not capable of being fore- seen, and the occurrence of which renders performance of a contractual obligation oppressive, albeit not impossible, for the obligor as it threatens him with exorbitant loss, it shall be permissible for the judge, in accordance with the circumstances, and after weighing up the interests of the two parties, to bring the oppressive obligation back to what is reasonable, if justice so requires. Any agreement to the contrary shall be null.
The said article has a lower threshold than the French force majeure and is more similar to the French doctrine of imprévision as well as to discharge of performance due to impracticability under Section 2-615 of the Uniform Commercial Code.
Economic Recession as Force Majeure
Developers of large-scale real estate construction have attempted to argue in courts that the UAE economic recession is a force majeure event that should excuse them of further performance in the contract and let the losses lie where they are, i.e. mostly with the purchasers.
In view of the foregoing, a recession can excuse performance in two ways: either to be specifically mentioned as such in the force majeure clause or to satisfy the test of being external, unpredictable and irresistible.
It is perhaps a stretch of the force majeure concept because an economic recession or a financial crunch is a business risk that the parties to a commercial contract are expected to have foreseen. Market downturns are acceptable risks within the contemplation of reasonable contracting parties.
Based on logic, it is hard to imagine that a global financial crisis would be a force majeure event destroying the settled expectations of parties to contract. However, the language in each agreement would also be critical in determining each contract on a case by case basis. If an agreement clearly states that a financial crunch, unavailability of supplies would discharge the parties of their obligations, then the court must uphold what the par- ties explicitly agreed. Therefore, all buyers are advised to be aware of what they might be agreeing to and the developers advised specifically to draft in as much detail as possible the events that would exonerate them of liability and be wary of relying on catch-all phrases.
Finally it is worth noting that Dubai Courts in a recent case rejected the contention by the developer that an economic recession amounted to a force majeure event. Of course this judgment does not set any precedent and not much can be determined from it unless we know exactly how the force majeure clause was drafted in this particular case.
Conclusion
If the force-majeure clause specifically covers financial crises and economic recession, then the parties have a better chance to excuse themselves of further obligations as they have explicitly agreed in the contract to this condition. A court would uphold the sanctity of the contract and the free- dom of the parties to define the parameters of their obligations as they see fit. The court cannot go contrary to explicit clauses in order to make the contractual bargain fairer. A court would only go contrary to a clause should it contain an illegality, in which case the illegal clause can be severed from the contract.
If the force-majeure clause does not cover that particular event upon which either party is relying, then the court will apply Articles 273, 249 and 287 of the Civil Code and see if under law the party can be exempted from further performance.
Citation: Azfar, F. (2012). The Force Majeure ‘Excuse’. Arab Law Quarterly 26, 2, 249-253
Available From: Brill https://doi.org/10.1163/157302512X628369
