Principle: When the performance of an obligation under a binding contract becomes impossible, the contract will be terminated, thereby extinguishing the subject obligation and returning the parties to their pre-contractual positions,.
When the performance of an obligation under a binding contract becomes impossible, the contract will be terminated, thereby extinguishing the subject obligation and returning the parties to their pre-contractual positions,. This means that each party will be required to return that which he had received under the contract. If that is not possible, the court will award damages. An extraneous cause such as an unforeseen occurrence, force majeure, fault of the aggrieved party or the act of a third party may be pleaded as a defence to liability in both tort and in contract.
A commercial action was filed by a company (“the Claimant”) against the first and second defendants, being the Dubai International Airport and a Contractor (together “the Defendants”). In his action The Claimant sought an order from the court:
- that the Defendants pay, jointly and severally, the amount AED 3,406,323.27; alternatively
- an order of specific performance, plus the payment of damages for the period of non-performance
The Claimant’s case was that it had concluded a contract with the Defendants to supply 35 airlock units and accessories for installation at the Dubai Flower Centre, which was part of the Dubai International Airport Expansion Project. In compliance with its obligations, the Claimant instructed its UK factory to purchase the raw materials and engineering materials required to manufacture the airlock units. The Claimant asserted that the Defendants had both refrained from performing their obligations under the contract and then arbitrarily terminated it without notice, thus causing loss and damage to the Claimant.
The Court of First Instance
An expert was appointed by the Court of First Instance. Upon receipt and review of the expert’s report, the Court ordered as follows:
Subsequently, the Claimant and the second Defendant appealed.
The Court Of Appeal
The Court of Appeal dismissed the Claimant’s appeal. However, with respect to the Second Defendant’s appeal, the court decided to overturn the decision of the Court of First Instance and dismissed the case. Consequently, the Claimant appealed to the Court of Cassation.
The Court of Cassation
Before the Court of Cassation, the Claimant argued that the Court of Appeal had erred in its decision to dismiss its case. The basis of the Claimant’s argument was that an event of force majeure had occurred. The Claimant submitted that the Department of Civil Aviation had struck the Claimant off its list of accredited suppliers, and had refused to accept any of the Claimant’s work or use its equipment in the Dubai Flower City project. The Claimant submitted that this was an event of force majeure which had rendered the performance of its obligations under the contract impossible. On the Claimant’s assessment, this impossibility equated to the contract being terminated. The above interpretation by the court means that the Claimant cannot request the 2nd Defendant to take delivery of the 5 airlock units that the Claimant had supplied under the terminated contract and to pay their value (AED 21,614.28) to the Claimant.
The Court of Cassation accepted the appeal on the following basis:
In light of this the Court of Cassation overturned the lower’s court decision as it considered that the fact the Claimant was struck off from the list of accredited suppliers of the Department of Civil Aviation was not to be considered as an event of force majeure requiring the termination of the contract.