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Qatar Crisis and "Force Majeure"

The Qatar crisis, as it has been unfolding since June 5, 2017 qualifies for “force majeure” in quite a number of aspects.

Sanctions against Qatar

On 5 and 6 June 2017, the United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA), Bahrain, Egypt, Yemen and the Maldives all separately announced that they were severing diplomatic relations with Qatar. Some days later Mauritius, Libya and Mauritania followed.

Measures include the imposition of broad air, land and sea embargos, travel and immigration bans as well as restrictions on banking transactions involving Qatari banks. Some days later a list with 13 topics was handed over requested to be complied with within 2 weeks or Qatar facing further measures.

The measures taken by the UAE and Saudi are particularly restrictive, focusing primarily on a comprehensive sea and air embargo, namely a ban on major transportation routes to and from Qatar as well as payment and banking restrictions.

The kingdom of Saudi-Arabia has closed its land border with Qatar, leaving Qatar with no other land-bound point of entry or exit.

In execution of the sea and air embargo maritime authorities have banned all Qatari vessels from entering their respective ports.

In execution of payment – and banking restrictions the Central Bank of the UAE (Central Bank) for instance has issued a notice according to which banks and other financial institutions have been instructed to identify and freeze accounts, deposits or investments held by individuals or entities designated as terrorists or terrorist organisations. In another notice, the Central Bank has advised banks and other financial institutions to engage in enhanced customer due diligence for activities with Qatari banks. Similar measures were taken in Saudi-Arabia and other boycotting states.

The restrictions that have been introduced are to be implemented by executive agencies and publicised through circulars issued by the concerned authorities. Up till now there has been no legislation yet passed in the UAE, KSA or Bahrain to give effect to any restrictions on trade with Qatar. Most of such legislation would fall under the legal framework covering the economic relations between the GCC – countries and will thus be dependent on the eventual freezing or even suspension of Qatar from this regional framework, should the crisis not be resolved soon.

Contract performance – Force Majeure considerations

The aforementioned steps, especially the sudden and comprehensive ban on major transportation routes to and from Qatar will significantly affect the ability of contractors in Qatar to perform their obligations under existing contracts.

A wide variety of contracts – sales, contracting, provision of services, supply, etc. - might be affected. What might matter most is, that imports of construction materials needed for Qatar to complete its World Cup and Vision 2030 infrastructure projects are being severely impacted by the recent closing of borders by key neighbours KSA and the UAE.

There will be questions as to whether contracts are able to be amended, suspended or terminated because of a force majeure event. Likewise there may be considerations concerning contractual arrangements being currently negotiated, in order to ensure that the terms of those contracts can support the actual or future situation.

Force majeure is a defence relied upon by parties to a contract that are unable to perform their contractual obligations as a result of events happening outside their control. When invoked, force majeure, meaning "superior force" (Arabic: al-quwa al-qahira), essentially frees both parties from liability or obligation to a commercial contract in the event of circumstances outside of the control of the contracting parties.

Force majeure relief may be available either by virtue

  • of the local law applicable in the place of performance of the contract, or

  • pursuant to the express terms of a contract.

As regards contract terms, force majeure provisions often appear in the general part (boilerplate) of commercial agreements exempting the defaulting party from liability under the contract.

Some contracts enumerate an exclusive list of events that would constitute force majeure, others only give an indicative list of events or circumstances which may enforce the force majeure provisions. Some contracts provide that “acts of state or governmental action that prevent, hinder or delay a party from performing its obligations” amount to a force majeure event. Most agreements contain notice procedures and the requirement to mitigate any potential failure to perform contractual obligations.

Ultimately, relief under a force majeure provision is dependent on the express terms of the relevant contract and how those terms would be interpreted under the governing law of the contract.

If, for instance, as frequently the case, UAE law is agreed upon, one has to take recourse to the specific regulations in the UAE Civil Code. Under Article 287 of the UAE Civil Code, various examples of extraneous events are provided including force majeure or acts of a third party. In the event that a party is able to establish that losses have arisen as a result of an extraneous event, that party is not bound to make good any such losses unless there is an agreement to the contrary.

Under Qatari law, the doctrine of force majeure, found at Article 256 of Law No. 22 of 2004 (the Civil Code) states: "If the debtor does not perform the obligation specifically, or is delayed in its performance, he is obliged to compensate the damage caused to the creditor; unless it is proved that the non-performance or the delay was for an extraneous cause for which the debtor is not responsible."

Further, parties can agree to take responsibility for the consequences of a force majeure event, as Article 258 of the Civil Code states: "It is permissible to agree that the debtor shall bear the responsibility of force majeure or sudden incident."

As such, where an agreement contains a force majeure clause which specifies the exclusive events that constitute force majeure, then such clause will be valid, binding and enforceable between the parties to that agreement.

The effect of the force majeure clause can be to relieve affected parties of their obligations under the contract or at law, until such time as the event triggering the force majeure clause ceases to exist. This may mean that a contractor can be entitled to cease work and/or a paying party can be entitled to suspend payments.

Regardless what applicable law is agreed upon by the parties, at least in case of litigation in front of Qatari courts or in case that Qatari law is for whatsoever reasons the governing applicable law, the Qatari Civil Code has to be observed. As a mandatory provision, Article 171(2) of the Qatari Civil Code as a mandatory provision will prevail over any provision of the contract that purports to exclude such rights. The requirements for relief under this provision are that the event or incident:

  • is public;

  • is exceptional in nature;

  • could not have been anticipated or reasonably foreseen;

  • renders the contractual obligations onerous; and

  • cause, or threaten to cause, great loss to the party burdened by performance.

Likewise, Article 700 of the Qatari Civil Code provides that price escalation due to an “exceptional event” may give rise to additional rights for the contractor or otherwise vary the contractor’s obligations.

Prima facie the Qatar crisis, as it has been unfolding since June 5th, seems to qualify for “force majeure” in quite a number of aspects.

Companies, doing business in the GCC-Region should review the Force majeure clauses if any in their respective agreements or should check, whether mandatory regulations in the applicable jurisdiction trigger “force majeure” in the specific case.

As regards new contracts under negotiation, carefully drafted “force majeure” regulations should be integrated.

The drastic measures, or at least some of it, taken by the Governments of the respective states against Qatar will also possibly be scrutinized under the aspect of state responsibility according to the various Bilateral Investment Treaties (BIT), signed by them, thus enabling private companies, damaged by these measures, to go against the state according to the ICSID regulations. Under this aspect, the “Qatar Crisis” may trigger a host of legal disputes in the years to come.

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