Force Majeure and Contractual Risk in the UAE: What Businesses Need to Know

Unforeseen events can disrupt even the most carefully planned commercial arrangements. Geopolitical tensions, regulatory interventions, transportation disruptions, and other extraordinary developments can significantly affect the ability of businesses to perform contractual obligations.

Under UAE law, such circumstances may fall within the legal doctrines of force majeure or exceptional circumstances, which determine when contractual obligations may be suspended, adjusted, or terminated. These provisions are primarily governed by the Federal Decree Law No. 5 of 1985 concerning UAE Civil Transactions Law and remain central to how courts assess contractual disputes arising from unexpected events.

What Is Force Majeure

Force majeure refers to an external event beyond the control of contracting parties that makes contractual performance impossible.

Under Article 273 of the UAE Civil Transactions Law:

If a force majeure event renders performance impossible in a bilateral contract, the corresponding obligation is extinguished and the contract may be automatically rescinded.

If performance becomes partially impossible, the obligation is extinguished only to the extent affected.

In continuing contracts, where the impossibility is temporary, performance may be suspended for the duration of the event rather than terminated.

This framework recognizes that extraordinary events may disrupt performance without necessarily ending the contractual relationship entirely.

Hardship Doctrine

UAE law also recognizes situations where performance remains technically possible but becomes excessively burdensome due to extraordinary and unforeseeable events.

Under Article 249 of the Civil Transactions Law, courts may intervene to restore contractual balance by:

reducing the burdensome obligation to reasonable limits;

balancing the interests of the contracting parties; or

adjusting contractual obligations where strict enforcement would cause disproportionate hardship.

This principle is often referred to as the hardship doctrine, allowing courts to address situations where extraordinary circumstances make contractual performance unfairly onerous.

Relief from Liability

Another important provision is Article 287 of the Civil Transactions Law, which addresses liability for damages.

A party may not be held liable for damages if the loss results from:

force majeure;

an external cause beyond its control; or

unforeseeable circumstances preventing performance.

However, the party invoking this defence must demonstrate:

the occurrence of the external event;

that it played no role in causing the event; and

a direct causal link between the event and the inability to perform the contractual obligation.

Other Legal Principles Considered by UAE Courts

When assessing force majeure claims, UAE courts may also evaluate broader principles under the Civil Transactions Law, including:

Good Faith (Article 246(1)) – contracts must be performed in good faith.

Abuse of Rights (Article 106) – contractual rights must not be exercised in a manner that causes unjustified harm.

Unjust Enrichment (Article 318) – one party should not unfairly benefit at the expense of another.

These principles allow courts to examine the conduct of parties and ensure fairness in the application of contractual rights.

Importance of Contractual Force Majeure Clauses

In addition to statutory provisions, many commercial contracts contain express force majeure clauses that define the events and consequences agreed between the parties. Common events covered include:

war or hostilities;

government restrictions or regulatory actions;

embargoes or sanctions;

transportation or logistics disruptions;

labour strikes or pandemics; and

natural disasters or public emergencies.

The legal effect of such clauses depends on their wording. Common contractual remedies include:

suspension of contractual obligations;

extension of time for performance;

relief from penalties or liquidated damages; and

termination rights where the force majeure event persists for an extended period.

Most clauses also impose strict notice requirements and mitigation obligations, meaning parties must promptly notify counterparties and take reasonable steps to minimize disruption.

Practical Considerations for Businesses

Where extraordinary events affect contractual performance, businesses should consider the following steps:

Review contracts to identify governing law, force majeure provisions, and notice obligations.

Assess the impact on performance, including whether obligations have become impossible, partially impossible, or excessively burdensome.

Issue formal force majeure notices, where applicable, in accordance with contractual timelines and procedural requirements.

Maintain supporting documentation, including evidence of regulatory directives, operational disruptions, and mitigation measures undertaken.

These steps may be important in demonstrating compliance with contractual obligations should disputes arise.

Upcoming Changes to the Civil Transactions Law

The new UAE Civil Transactions Law (Federal Decree Law No. 25 of 2025) will come into effect on 1 June 2026, replacing the current legislation. The updated law will apply to claims arising after that date and may influence how courts interpret contractual disputes involving force majeure and exceptional circumstances.

Conclusion

Force majeure provisions under UAE law provide a legal framework for addressing contractual disruption caused by extraordinary events.

Where performance becomes impossible or excessively burdensome due to circumstances beyond a party’s control, UAE courts may suspend, adjust, or terminate contractual obligations. However, parties invoking force majeure must demonstrate a clear causal connection between the external event and their inability to perform.

Understanding both statutory provisions and contractual force majeure clauses remains essential for managing contractual risk during periods of uncertainty.

Note: This Legal Update / Newsletter is intended for general informational purposes only and should not be construed as legal advice. It is based on laws and legal interpretations in effect as of the date of publication. Laws and regulations may change over time, and their application can vary depending on individual circumstances. Readers are strongly encouraged to seek specific legal counsel before acting on any of the information provided herein.rian and religious purpose in accordance with the law.