Consider your political risks cover and contract frustration provisions

Amy Choudhary considers how the Qatar sanctions might affect the contractual obligation(s) of entities and whether performance can be discharged on the grounds of frustration. She also considers whether Political Risks Insurance can offer comfort.

Amid these interesting times and whilst the aftermath of the Qatar sanctions materalises, it is likely that multinational entities and/or any entity who are carrying out contractual obligations in Qatar are going to experience difficulties and/or impossibility in completing their obligations and contractual performance(s). The business disruption will be broad and affect many different industries from the construction sector to the delivery of sales and goods, such as construction material in this jurisdictions (and vice-versa).

The general rule is that a party to a contract must perform exactly what he undertook to do. If a performing party to a contract is unable to fulfill the terms of the contract, they are likely to face a claim of losses and/or damages from the counter-party that did not benefit from the contract being performed. Should this difficult situation arise, the performing party may look to discharge their performance by possibly arguing it is physically unable or commercially impossible to fulfill the contract due to the imposed political sanctions and instability of the region. This emanates from an unforeseen event which makes the performance impossible.

The Civil Code in the UAE provides in Article 893: “If any cause arises preventing the performance of the contract or the completion of the performance thereof, either of the contracting parties may require that the contract be cancelled or terminated as the case may be”.

The penalties and/or consequences of such an argument will then be considered and the specific Articles in the UAE Civil Code relating to damages may apply.

During these difficult times, an entity may benefit from reviewing their Political Risks Cover, if one is in place. This may include contract frustration coverage for businesses involved in international trade and services against losses in a range of situations from government embargoes and license cancellations to non-payment and delivery issues.