Analysing the Force Majeure Clause in Maritime Contracts

The Law describes “Force Majeure” Clause as an individual concept capable of terminating the contract partially or completely. In a contractual sense, force majeure refers to an excuse used in any circumstance which has prevented the performance of any contractual obligation, wherein such an event was not foreseeable at the time of signing the contract. In almost all countries the definition of a force majeure clause is similar as above, however, the implications or the procedure to invoke this clause under a contract may differ from country to country. Corporate Lawyers of Dubai has experienced differentiating opinion of UAE courts at the time when force majeure clauses are invoked by either party, considering the provisions of Commercial Transactions Code of UAE. Nonetheless, the present article discusses the legal implications of a force majeure clause in a shipping contract by Maritime Lawyers in Dubai.

The spread of novel coronavirus has pushed the entire industry in considering the failed contracts due to the restrictions imposed by the government to ensure human safety against the virus. However, the restrictions so imposed has put a halt on normal activities and has caused serious losses. Alternatively, many businesses are exploring or analyzing the force majeure clause under the laws of UAE and what legal considerations the parties in a shipping industry shall consider at this point in time. Usually, most commercial contracts entail forcing Majeure provision which essentially covers different situations or circumstances that can be considered as force majeure events for the parties. However, if the commercial contract is silent about such provision, the parties may rely on Article 249 and 273 of the Civil Code of UAE (Federal Law number 5 of 1985) which reads as follows:

“Article 249: In any event, if any exceptional and unpredictable circumstance arises and happening of such event has made the execution of a contractual obligation impossible or burdensome in a manner causing the serious threat of significant loss, the judge may, bearing in mind the circumstances and comparing the interests of both the parties may reduce the burdensome obligation to a certain limit and any agreement in opposition will be considered as null and void.”

“Article 273: (1) In a contract, if an event of force majeure supervenes making the performance of the contract completely impossible, the corresponding obligation shall cease and contract will be deemed terminated;

(2) In the case of partial impossibility of performing obligation; the part of the contract, which is impossible to undertake, shall be removed and the same shall apply to temporary impossibilities in the continuing contracts. Importantly, in those two cases, it shall be permitted to the obligor to seek termination of the contract, subjected that the obligee is so aware of the situation.”

In addition, the Maritime Commercial Law (Federal Law 26 of 1981) sets out rights and obligations of companies in the maritime industry in relation to force majeure events, for instance, in event of force majeure the crew is entitled to receive a salary, the voyage charter party will be terminated and the parties are not obliged to pay compensation. Moving forward, the companies in the maritime industry shall carefully scrutinize their position under the contract and the force majeure event. More specifically when the impact of coronavirus is not yet defined as a force majeure event.