On 5 June 2017, the UAE announced that it would be severing all diplomatic ties with Qatar. In separate announcements, Saudi Arabia, Bahrain and Egypt also severed ties with Qatar, with other countries in the region following suit shortly after.
Measures taken by the UAE include the imposition of broad air and sea embargos, travel and immigration bans, listing certain Qatari individuals and organisations on the UAE's list of terrorists and terrorist organisations, and heightened due diligence requirements on banking transactions involving Qatari banks.
These measures mean that businesses in the UAE which are party to contracts with Qatari businesses or which otherwise involve the performance of obligations in Qatar may be able to rely on force majeure provisions in order to relieve them of their contractual obligations. Similarly, it is possible that the relevant counterparty may also be able to invoke these provisions.
What is force majeure?
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. Force majeure provisions often appear in the boilerplate section of commercial agreements and, when relied upon correctly, exempt the defaulting party from liability under the contract.
While some contracts provide an exclusive list of events that would constitute force majeure, others only provide an indicative list of events or circumstances which may trigger the force majeure provisions. Other terms of a force majeure provision may include the required level of impact the triggering events have on the party declaring force majeure, 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. For contracts governed by UAE law, the UAE Civil Code contemplates the application of force majeure events to contractual obligations. 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.
What are the recent measures taken by the UAE?
Maritime authorities in the UAE have banned all Qatari vessels from entering UAE ports. As a result, Qatari-flagged or Qatari-owned ships have been prohibited from using UAE berths. UAE ports operated by DP World have banned all vessels travelling to or from Qatari ports regardless of the nature of the call, and all vessels loading or unloading cargo destined to or arriving from Qatar. The Port of Fujairah has also announced that all vessels flying the Qatari flag or are traveling to or from Qatari ports are not allowed to call at the Port of Fujairah or Fujairah Offshore Anchorage regardless of the nature of their call until further notice.
However, the Abu Dhabi Petroleum Ports Authority (ADPPA) has provided some relief from the strict measures imposed by other ports and has recently confirmed that non-Qatari owned, flagged or operated vessels are permitted to sail to Qatar from ports under the authority of the ADPPA, and to ports under the authority of the ADPPA from Qatar.
The UAE General Civil Aviation Authority (GCCA) has similarly issued a decision banning all Qatari aviation companies and aircraft registered in Qatar from landing in the UAE or transiting through the UAE's airspace. Furthermore, the same decision requires private and chartered aircraft travelling through the UAE-Qatar airspace channel to submit a request to the GCCA at least 24 hours in advance, including a list of names and nationalities of crew and passengers. Lastly, any aviation companies registered in the UAE are banned from flying directly or indirectly to Qatar. As a result of these disruptions, Emirates Post has suspended all postal services to Qatar.
As a result of the above embargos, UAE-based entities that are contractually obliged to supply goods to Qatar-based entities may not be able to fulfil those contractual obligations. They may be required to consider alternative shipping routes or transportation methods. If that is not possible, they may be able to invoke the relevant force majeure provisions. This will ultimately depend on how the relevant contract is drafted.
The Central Bank of the UAE (Central Bank) has issued two notices in respect of any transactions involving Qatar. The Dubai International Financial Centre has also adopted the measures outlined by the Central Bank pursuant to Article 71(1) of DIFC Law No. 1 of 2004.
In the first notice, banks and other financial institutions under the governance of the Central Bank have been instructed to identify and freeze accounts, deposits or investments held by individuals or entities designated as terrorists or terrorist organisations. In the second notice, the Central Bank has advised banks and other financial institutions in the UAE to engage in enhanced customer due diligence for any activities between: (i) the institution itself or their customers; and (ii) six Qatari banks (Qatari Banks)1. Enhanced due diligence could involve UAE banks carrying out further checks such as questioning the source of funds and/or the reasons for transactions.
Payments between accounts with any of the Qatari Banks and accounts held in the UAE are likely to be subjected to closer scrutiny by the UAE banks and, as a result, payments could be delayed and/or blocked if the bank is not satisfied with the responses received to any enhanced due diligence procedures they impose. If UAE-based entities are under contractual obligations to provide payment to Qatari-entities within specified time periods, then the UAE-based entity may be able to rely on the force majeure provisions to excuse itself for any late payment, subject to how the relevant contract is drafted. Similarly, the relevant counterparty may also be able to invoke the force majeure provisions if it is late in making a payment as a result of these issues.
What does this mean for UAE businesses?
Businesses which are affected by the measures should undertake a careful review of the key provisions of all relevant contracts in order to determine whether or not the force majeure provisions are applicable and, if so, what the consequences are and what measures (if any) need to be taken.