DIFC law, Force Majeure and COVID-19: what businesses need to know
The disruptive effects of the COVID-19 pandemic have had an unprecedented effect on the operation of businesses inside and outside the DIFC.
- Businesses should check whether their contracts have express Force Majeure clauses which cover the unforeseen consequences of the coronavirus epidemic, delays and non-performance caused by third parties such as suppliers and contractors, and the effects of the necessary public health measures implemented by the authorities to stop the spread of the illness.
- If your agreement is governed by DIFC law, Article 82 of the DIFC Contract Law (DIFC Law No.6 of 2004) effectively implies a Force Majeure term excusing non-performance by a party if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.The effect of the term is that, when the impediment is only temporary, the excuse shall have effect for such period as is reasonable having regard to the effect of the impediment on performance of the contract.The key exception to the term implied by Article 82 is that it does not cover an affected party’s ‘mere’ obligation to pay. Consequently, the default position at law in the DIFC is that the existence of a Force Majeure event is unlikely to excuse a party from honoring its payment obligations in a contract.
Whether affected parties seek to rely on express or implied Force Majeure terms, they should:
- Obey all notice requirements. Notice must be given by the affected party to its counterparty, with an explanation of its ability to perform, within a reasonable period of time after the affected party knew or ought to have known of the impediment. A failure to give notice in a reasonable time may make the affected party liable for damages. In light of this, we would advise businesses to carry out a review of their key contracts at the earliest opportunity in order to ensure that any notices that need to be served on counterparties can be circulated within the reasonable period of time required to avoid the potential liability for damages discussed above.
- Seek to mitigate the extent of non-performance by taking reasonable countermeasures.
If you need further assistance in respect of the legal consequences of business interruption caused by the COVID-19 pandemic, please contact any of the following members of our International Litigation Group: