On March 11th, 2020, the outbreak of Coronavirus was declared a pandemic by the World Health Organization (WHO) with the name COVID-19. After a few days of this lockdown was imposed by governments in many countries. Businesses were shut down and a travel ban was imposed by governments across the globe. The extraordinary lockdown due to the epidemic has significantly impacted the businesses and the world economy as the whole world has become a standstill. As the virus is spreading rapidly consequently businesses have begun finding and working on the effect of a pandemic on businesses as it is affecting the supply chain and market around the globe. The companies are working to find ways to avoid contractual obligations as the whole world from every sector is facing severe problems because of the outbreak of COVID-19 and is having difficulty in protecting their rights and fulfilling their obligations.
The force majeure is one of the rights available in such situations to avoid contractual obligations because of the outbreak of pandemic COVID-19 worldwide. The clause force majeure essentially frees both parties from agreement, liabilities, and obligations due to unforeseen reasons such as COVID-19 over which none of the parties has control over. In this case, the contracting party is discharged from the obligations which are impossible to fill as a result of uncontrolled circumstances. Given the recent disruption caused by COVID-19 worldwide; only in China businesses that failed to fulfill the obligations due to the pandemic; starting January 2020, more than 5,000 force majeure certificates were issued.
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Force Majeure in UAE:
According to the laws of the UAE, force majeure can be used if provided by the contract agreement. The implementation and effect of force majeure will depend upon the description mentioned in the contract. A person or party in UAE willing to utilize the clause of force majeure needs to first establish the intervening event within the definition of the contract for force majeure. However, usually most well-drafted contracts do provide the list of such triggering events as a pandemic, epidemic or outbreak under the clause of force majeure. All these terms refer to the current outbreak of COVID-19. There can be other situations too where companies in the UAE can utilize the clause of force majeure to avoid contractual obligations. For instance, many governments across the globe have closed their borders and have declared a state of emergency including the UAE. Such cases fall under the category of force majeure which also includes government and administrating bodies ordering the stop of some event and companies can avoid any type of contractual obligations as they won’t be able to fulfill those promised obligations. The contract also mentions other cases with the statement as all other events which are not under the control of any party. COVID-19 surely comes under such a category.
Mitigating Losses: It is important to note that before utilizing the clause of force majeure the assessments are made case to case as force majeure does not necessarily apply and fit in all cases. It will surely depend upon the circumstances and facts and figures along with the provisions of the contract. The party or individual willing to utilize this clause should establish the event and must prove that the specific event has caused him/her major damage and that he/she is unable to perform the obligations mentioned in the contract. Without proof force majeure won’t provide you the excuse to not fulfill those duties.
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A clause for force majeure in a well-drafted contract from an expert sets a degree of impact which can range from “prevented” to “delayed” or “hindered. If such a degree isn’t specified in the contract then courts maybe call upon where they will apply the threshold and will only excuse not to perform obligations when it seems impossible for anyone to perform the duties and the event has made performance expensive and non-profitable. The force majeure won’t apply if the party willing to avoid contractual obligations hasn’t used all the possible options for performing their duties, as some parties and individuals try to use this clause as an excuse in case of a catastrophic event. The contractual parties stand to lose the benefits of an agreement as a result of the failure of the other party to perform obligations that are required in mitigating damages as well. Breach of contract damages can only be recovered in the case when the claimant took reasonable and solid steps in preventing further losses. The party utilizing this clause must make sure and prove that there is absolutely no way out and they are unable to fulfill the obligations.
Commercial Lawyers in UAE
In this stressful situation when WHO has declared the outbreak of the deadly virus known as COVID-19 it is important to avail the legal services of commercial lawyers in UAE to draft the documents related to force mature and to avoid contractual obligations. Our expert team will provide you with outstanding services across the Emirates in this stressful situation and pandemic.