The Limitation of Force Majeure and Increased Investor Protection

During the dark days of 2009 and 2010, the economic crisis seemed to perpetuate a slew of defences based on a vague reliance on a contractual force majeure provision within the original Sales & Purchase Agreement. Despite the legal theory of Force Majeure being relatively well known, and even well defined with the UAE Civil Code (the governing law for civil transactions) as ‘a natural disaster, unavoidable accident, force majeure, act of a third party or act of the person suffering loss’, these Agreements attempted to substantially widen the remit of such a clause to include anything from labour disputes to interruption of utility service. Clearly, with such uncertainty at this time of deep recession, public policy factors played a part in the protection of Developers from large scale default through generous interpretations of force majeure provisions and the inclusion of generally foreseeable economic factors within the definition of a force majeure event.

As time passed and the market corrected, through further regulation and more conscious investors, the judicial precedent from the UAE legal establishments began to slowly evolve to provide a more investor-friendly environment. In a landmark case in 2011, commonly known as the Dubai Flower Centre Case, the Dubai Court of Cassation ruled that commercial risk was something a prudent person would be able to guard against. In this case, the Defendant relied upon their removal from a list of accredited suppliers to be deemed as an event equating to Force Majeure and therefore outside of their control. This defence was eventually rejected, placing an onus on contracting parties to consider foreseeable commercial events when negotiating their obligations to perform.

The position of the Courts has certainly solidified over time, with a further decision in 2013 (Court of Cassation 200/2013) specifically considering Force Majeure as to be exclusive of delay in approvals and permission, as such requirements are clearly something that is not an unforeseeable event at the time of the contract or impossible to avoid. This decision went even further to protect Investors in that it allows, through UAE Civil Code Article 247, the Investor to potentially suspend payments where the Developer has ceased construction for non-contractually authorised reasons. This is a welcome step towards the common law theory of ‘anticipatory breach’.

Further good news has followed the recognition of the need to limit force majeure defence, in the more liberal use of Article 390 of the Civil Code, whereby the Courts have seen fit to alter any contractual agreement to limit compensation and ‘vary such agreement so as to make the compensation equal to the loss’. In a move that has obviously been well received by disaffected investors, the Court (in case 179/2012) even felt it appropriate to award a Claimant 9% interest on the payments that had been made for the period that they had been held by the Defendant.

With the recent introduction in Abu Dhabi of Law No. 3 of 2015, which increases the legislative protection available to Investors and formalises their method for termination and reimbursement, it is clear that the UAE has ‘grasped the nettle’ in its attempt to strike the right balance between Developer and Investor protection. What is clear is that there is no longer forlorn hope for Investors facing monumental Developer delay and that the judicial system will actively protect those who may otherwise have assumed their cases would be summarily dismissed. It will be interesting to see whether these recent developments will encourage further Investment in the market as consumer confidence grows.