Force Majeure UAE: Contract Rights When a Crisis Hits

When an extraordinary event disrupts your supply chain, closes your premises, or makes a contractual obligation impossible to fulfil, force majeure in UAE contracts decides whether you can suspend or cancel that obligation without liability. For Dubai SMEs (as buyers, suppliers, landlords, tenants or employers) knowing exactly when this legal defence applies under UAE law, and how to invoke it correctly, can mean the difference between recovering from a crisis and being sued for breach of contract.

Force majeure in the UAE sits primarily under Article 273 of the Civil Code (Federal Law No. 5 of 1985), with a significant update coming on 1 June 2026: the provision moves to Article 236 of the new Civil Transactions Law (Federal Decree-Law No. 25 of 2025). The core legal test — unforeseeable, unavoidable, genuinely impossible — stays the same under both laws.

What force majeure actually means in UAE law

Force majeure is a legal doctrine that excuses a party from performing a contractual obligation when an extraordinary, external event makes performance objectively impossible. It is not a commercial escape hatch for unfavourable market conditions. UAE courts apply a strict three-part test, and all three parts have to hold.

The event has to be unforeseeable. At the time the contract was signed, it could not have been reasonably anticipated — natural disasters, sudden government-ordered closures and declared wars are the classic examples, while routine business risks like currency fluctuations, seasonal demand shifts or supplier pricing changes do not qualify. It also has to be unavoidable: the party invoking the doctrine has to show they could not have avoided the consequences despite taking reasonable precautions, and if an alternative method of performance existed, even at higher cost, the event may not clear this threshold.

The hardest element, and the one businesses get wrong most often, is that performance has to be genuinely impossible. UAE courts draw a hard line between a contract that is difficult or unprofitable to perform and one that is objectively impossible to perform. Increased shipping costs are not force majeure, no matter how much they hurt. A port physically closed with no alternative route might be.

Reading Article 273 properly

Article 273 sits within Book One of the UAE Civil Code, which deals with obligations and contracts. The provision states, in substance, that if a force majeure event makes performance of a contract impossible, the corresponding obligations cease and the contract is automatically rescinded. Where the impossibility is only partial or temporary, the obligor’s liability is extinguished only to the extent affected, and continuing contracts may be suspended rather than terminated.

Why the doctrine looks the way it does

The UAE Civil Code was drafted in 1985 by a committee drawing heavily on the Egyptian Civil Code of 1949, which itself was modelled on the French Civil Code (Code Napoléon) and refined by the jurist Abdel Razzaq al-Sanhuri. The Egyptian text blended classical Islamic jurisprudence (Hanafi and Maliki fiqh on darura and istihala — necessity and impossibility) with continental European doctrine. Article 273 carries a recognisably civilian flavour: courts look at the obligation in objective terms, not at the subjective hardship of the obligor.

This pedigree matters in practice. Common-law lawyers reading Article 273 sometimes assume it works like the English doctrine of frustration. It does not. Frustration is narrower and operates by implying a term; Article 273 operates by operation of law and does not depend on the parties’ implied intention.

How the courts actually apply the three-part test

The Federal Supreme Court and the Dubai Court of Cassation have built a substantial body of case law clarifying each element of the test:

• Foreseeability is judged objectively at the time of contracting, not at performance. The Dubai Court of Cassation asks what a reasonable commercial counterparty in the same market would have foreseen. Risks that could have been priced in — currency volatility, ordinary regional political tension — are foreseeable.
• Unavoidability requires the obligor to show no reasonable alternative existed. Failure to source from an alternative supplier, take a longer shipping route, or use a back-up workforce will defeat the claim if those alternatives were reasonable.
• Impossibility is the most contested element. UAE courts distinguish absolute impossibility (goods destroyed, premises razed, obligor dead) from relative impossibility (performance possible but ruinously expensive). Only absolute impossibility triggers Article 273; relative impossibility may fall under Article 249 hardship.

What changes on 1 June 2026

From 1 June 2026, Federal Decree-Law No. 25 of 2025 replaces the 1985 Civil Code. Article 236 preserves the Article 273 test almost verbatim. The most meaningful change for force majeure analysis is the strengthening of hardship relief under Article 224 (successor to Article 249), giving courts more explicit power to adjust an unaffordable contract rather than face the all-or-nothing choice of force majeure.

Picking the right article for your situation

The Civil Code provides several distinct provisions. Choosing the right one matters.

Under Article 273(1), which becomes Article 236(1) from June 2026, a force majeure event that makes the entire contractual performance impossible ends the obligation and cancels the contract automatically. Neither party needs a court order, and both are restored to their pre-contractual position. Where only part of the contract is affected, Article 273(2) (future Article 236(2)) extinguishes only that part, and for continuous contracts like leases, service retainers or employment, a temporary impossibility may result in suspension rather than termination.

Hardship under Article 249 (future Article 224) is legally distinct from force majeure. Where an extraordinary event makes performance excessively burdensome but not impossible, a court can step in and adjust the contract. This is often the more realistic route for SMEs facing supply-chain cost spikes or currency-driven margin compression, though unlike force majeure it requires a court application rather than operating automatically.

Frustration, hardship and force majeure are not the same thing

UAE law splits three separate doctrines that English-trained lawyers tend to lump together. The difference is what decides whether your claim succeeds or fails.

Force majeure proper

Force majeure terminates or suspends an obligation that has become objectively impossible. The remedy is automatic, though parties often go to court when the other side disputes the claim.

Frustration of purpose

UAE law has no standalone “frustration of purpose” doctrine in the English sense. Courts have, however, developed an analogous concept: where the essential commercial purpose of a contract is destroyed — even if literal performance is still possible — they may treat it as ending under Article 273 or adjust it under Article 249. A venue booking for an event that becomes illegal to hold is the classic example.

Hardship under Article 249 — the under-used route

This is the most under-used provision for SMEs facing crisis disruption. Where exceptional, unforeseeable circumstances make performance excessively onerous — but stop short of impossibility — Article 249 empowers the court to adjust the contract. The Dubai Court of Cassation has repeatedly applied this in COVID-era judgments, preferring adjustment to termination.

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Courts treated supply-chain shocks, rising costs and government restrictions as exceptional circumstances that justified adjusting contracts under Article 249 — not terminating them under Article 273.

In Dubai Court of Cassation Judgment No. 479 of 2021, the court held that pandemic restrictions did not, in themselves, render contractual performance impossible. The judgment crystallised what is now well-settled UAE practice: where performance can still occur, even at significantly greater cost or inconvenience, the proper route is Article 249 adjustment rather than Article 273 termination.

Drafting a force majeure clause that actually works in court

A well-drafted force majeure clause in a UAE contract does not just repeat the Civil Code — it customises the statutory default to your commercial reality, defines the events that trigger relief, and sets the procedural mechanics that will determine whether the relief actually applies.

What a strong clause looks like

• A clear definitional core mirroring the statutory three-part test: an event beyond the reasonable control of the affected party, not reasonably foreseeable at the date of the contract, and which could not have been avoided by reasonable measures.
• An illustrative (not exhaustive) event list — natural disasters, war, terrorism, sanctions, government acts, port closures, epidemics, cyber attacks, prolonged utility failures. Use “including but not limited to” so the list does not become a ceiling.
• A carve-out of routine commercial risks — expressly exclude payment obligations, currency fluctuations, ordinary market downturns and seasonal supplier difficulties.
• Strict notice mechanics — specify form, timing (within 5 or 7 business days), and content. Make late notice a basis for losing the relief.
• Mitigation duty — require reasonable steps to minimise impact and regular updates.
• Suspension versus termination toggle — a defined suspension period (30, 60 or 90 days), after which either party may terminate without liability if the event continues.
• FIDIC alignment for construction — FIDIC contracts (Red, Yellow, Silver Book) contain their own regime in Sub-Clause 19 (1999 form) or Clause 18 (2017 form) which overrides the Civil Code default.

Where drafters go wrong

• Defining force majeure by reference only to a closed list of events — leaving any new type of disruption outside the clause.
• Failing to require notice within a strict period, so the other side can argue waiver.
• Allowing suspension indefinitely with no termination right.
• Confusing force majeure with hardship — using one set of words to cover both situations and ending up with neither remedy clearly available.
• Forgetting to dis-apply the clause to payment obligations, leaving the door open to a debtor claiming a financial-crisis defence.

When the doctrine actually applies

When a port closes

If a supplier cannot deliver because ports are physically closed or transit routes are blocked, force majeure may apply — but only if there is genuinely no alternative. If goods could reach you via a different port or carrier at a higher price, courts will likely find that performance remained possible.

Construction projects under FIDIC

FIDIC contracts widely used in UAE construction include their own force majeure clause (Sub-Clause 19). This contractual provision takes precedence over the statutory Civil Code framework. Review your specific contract before relying on statutory rights.

Commercial leases and rent suspension

A tenant whose premises are government-ordered closed may seek rent suspension or cancellation under force majeure. However, reduced footfall, lower sales, or general economic disruption do not satisfy the impossibility test — the tenant must show that occupation and use of the premises became genuinely impossible.

Employment contracts in a crisis

UAE Labour Law (Federal Decree-Law No. 33 of 2021) does not use the term “force majeure” explicitly, but the Civil Code principles apply through Article 272. Crisis events may justify temporary workforce measures such as reduced working hours or remote work arrangements — but these require MOHRE coordination, not unilateral employer decisions.

Service providers who lose access

Providers of services requiring physical access, travel, or site presence may invoke force majeure when access becomes impossible. Prompt notice and evidence of the access restriction are mandatory.

How to invoke it, step by step

Step 1: Review your contract

Before relying on any statutory provision, read your contract’s force majeure clause. Contractual clauses override the Civil Code defaults. They may specify which events qualify, require particular notice periods, mandate specific mitigation steps, or limit available remedies. Follow the contractual procedure exactly.

Step 2: Send written notice immediately

Notify the other party in writing the moment the event occurs or becomes apparent. Identify the event, the affected obligations, and the expected timeline. Use the notice method the contract specifies — email, registered mail, or courier. If there is one practical lesson from the case law, it’s this: delayed notification sinks more force majeure claims in UAE courts than any weakness in the underlying event itself.

Step 3: Document everything from day one

Collect and preserve all evidence: government orders, port closure notices, flight cancellations, supplier communications, news reports, and official announcements. Record dates, times, and the specific impact on each contractual obligation. This paper trail is the foundation of your legal defence.

Step 4: Take mitigation steps and record them

UAE law requires you to take reasonable steps to minimise the impact of the event. If alternative suppliers, delivery routes, or performance methods exist, you must explore them — and document that you did. Courts will reduce or deny force majeure relief if you can be shown to have made no effort to mitigate.

Step 5: Seek legal and financial advice

Force majeure analysis is fact-specific and legally complex. Engage a UAE-qualified lawyer to assess your position. Engage your accountant to quantify the financial impact and ensure tax and compliance obligations remain on track — including any implications for VAT services in Dubai and corporate tax filing deadlines. For ongoing financial leadership through a disruption period, our CFO advisory service builds the impact-quantification, scenario-planning and FTA-correspondence framework your legal counsel will need.

Key dates and notice timing

[[chart:force-majeure-deadlines]]

What the disruption does to your accounts

A force majeure event is not just a legal question. It triggers a series of recognition, measurement and disclosure questions across IFRS. UAE businesses that prepare audited financial statements (and from 2024 onwards almost every taxable entity needs IFRS-compliant accounts for corporate tax) need to work through each standard in sequence.

Impairment indicators under IAS 36

A prolonged force majeure event is a classic impairment indicator under IAS 36. PP&E, right-of-use assets, intangibles or goodwill tied to the disrupted operation must be tested for impairment at the reporting date. Recoverable amount is the higher of fair value less costs of disposal and value in use; impairment losses hit profit and loss.

Provisions, contingent liabilities and onerous contracts

Force majeure typically generates both potential liabilities (counterparty breach claims) and additional costs (penalties, redundancy, alternative-sourcing premiums). IAS 37 governs all of them:

• A provision is recognised when there is a present obligation, a probable outflow, and a reliable estimate. Penalty exposure that is more likely than not to crystallise becomes a balance-sheet provision.
• A contingent liability — possible but not probable, or not reliably measurable — is disclosed in the notes rather than recognised.
• An onerous contract is one where unavoidable costs exceed expected benefits. Recent IFRIC clarifications confirm “unavoidable costs” include both incremental costs and a direct overhead allocation. If a force majeure event tips a contract into onerous territory, a provision must be recognised for the present value of the loss.

Lease modifications and rent concessions

Where a lease is suspended, abated or renegotiated, IFRS 16 requires the lessee to remeasure the lease liability at a revised discount rate, with a corresponding adjustment to the right-of-use asset. The COVID-19 practical expedient has expired, so in 2026 all force-majeure-driven concessions fall into the standard modification framework. Document every negotiated change in writing.

Revenue recognition under IFRS 15

Force majeure events can trigger variable consideration adjustments and contract modifications under IFRS 15. If revenue has been recognised on a contract that becomes impossible to perform, it may need to be reversed and a refund liability recognised. Where performance is delayed but still possible, revenue recognition moves with the new timeline.

What employers can and can’t do

UAE employment law places strict obligations on employers even during genuine crises. Force majeure is not a mechanism for cutting payroll costs without due process.

Key point:

Employers who stop salary payments or terminate staff during a crisis without following the correct procedure face not just MOHRE complaints but potential wrongful termination compensation claims. Document every workforce measure taken and the business reason behind it.

Will your insurance respond?

Most standard UAE commercial insurance policies do not cover war-related or political-event losses as a default. Before a crisis, review your policy wording carefully.

Regardless of whether your policy appears to cover the situation, document all losses — revenue impact, additional costs, property damage — from day one. A claim that later becomes viable depends entirely on contemporaneous records.

Subrogation and government relief schemes

Where insurance does respond, the insurer typically acquires subrogation rights — the right to pursue any third party responsible for the loss in your name. Coordinate with the insurer before launching parallel litigation against a counterparty. Salvage rights may also reduce the net loss recoverable. In past crises, UAE federal and emirate authorities have introduced time-limited relief schemes — rent waivers on government property, fee reductions, grant programmes — which need to be tracked actively. See also our guides to war risk insurance in the UAE and how regional instability is shifting business costs.

The COVID cases courts still rely on

The 2020–2022 pandemic generated the largest body of UAE case law on force majeure in modern memory. Most of it remains good law, and the principles are now being applied to the regional-instability and supply-chain disruptions of the 2024–2026 period.

• Dubai Court of Cassation Judgment No. 479 of 2021 confirmed that pandemic restrictions did not, by themselves, make performance impossible. The judgment is regularly cited for the proposition that disruption ≠ impossibility.
• Multiple Dubai Cassation cases on commercial leases held that standard lease clauses making rent payable irrespective of force majeure are enforceable. Tenants who tried unilateral rent abatement generally lost; those who used Article 249 hardship to seek court-ordered adjustment fared better.
• Supply contract rulings reinforced the mitigation duty — parties who could show contemporaneous efforts to source alternatives preserved their rights; those who simply stopped performing did not.
• Employment tribunal decisions confirmed that COVID disruption did not displace the Labour Law: terminations without due process remained unlawful.

A few first-instance rulings hinting at a more lenient approach were overturned on appeal. The settled position, expected to carry into the post-2026 Civil Transactions Law era, is that UAE courts will adjust before they terminate, and they will adjust only when the impossibility threshold is clearly exceeded.

The FTA’s separate administrative track

The Federal Tax Authority operates a separate, administrative track for force-majeure relief that runs in parallel to the contractual position. Failing to use it correctly is one of the more common — and most expensive — mistakes we see in practice.

Applying for a penalty waiver

Under Cabinet Decision No. 51 of 2021 and Cabinet Decision No. 105 of 2021, the FTA has discretion to waive or reduce administrative penalties where non-compliance resulted from circumstances beyond the taxpayer’s control. Force majeure events — natural disasters, sudden incapacitation of key personnel, government-ordered closures — are explicitly recognised. Apply through the FTA’s penalty-waiver portal with contemporaneous evidence.

Getting an FTA filing extension

FTA deadlines do not auto-extend. A taxable person must apply in writing and demonstrate the event and its specific impact. Corporate tax extensions sit under Article 56 of the Corporate Tax Law (Federal Decree-Law No. 47 of 2022); VAT extensions follow the same logic under the Tax Procedures Law.

When a voluntary disclosure is the cheaper fix

Where a force majeure event has caused a return to be filed incorrectly — for example, output VAT under-declared because invoicing systems were inaccessible — the correct remedy is a voluntary disclosure as soon as possible. It attracts much lower penalties than an FTA-initiated reassessment, and a documented force majeure event strengthens any subsequent waiver request.

A trading company hit by a six-week shutdown

A Dubai mainland trading company has an annual revenue of AED 3,600,000 and a monthly VAT liability of approximately AED 15,000 (5% on AED 300,000 taxable supplies per month).

A force majeure event halts operations for six weeks during Q3. The company:

• Files nil VAT returns for the two affected tax periods (output VAT = AED 0; input VAT on standing costs recoverable as a credit)
• Applies to the FTA for a 30-day extension on the next quarterly return, citing documented operational disruption
• Documents AED 214,000 in lost gross profit for the corporate tax year-end calculations
• At a 9% corporate tax rate (on taxable income above AED 375,000), the reduction in annual taxable income reduces the CT liability by approximately AED 19,260 (AED 214,000 × 9%)

The key takeaway: force majeure events do not automatically reduce your tax obligations, but they do affect your numbers. Accurate records of the disruption period, idle-cost allocations and revenue impact feed directly into VAT returns, corporate tax filing and any FTA extension application.

[[chart:force-majeure-tax-impact]]

How most claims fall apart

Where this leaves you

If you are an SME in Dubai or any UAE free zone, force majeure events are rare but their consequences on contracts, cash flow and compliance can be severe. The practical to-do list is short:

1. Review your contracts now, before a crisis, to understand whether they contain force majeure clauses and what notice requirements apply.
2. Build a documentation habit: government orders, supplier notices, and any communication evidencing disruption should be filed and dated.
3. Do not conflate difficulty with impossibility — most real-world disruptions fall under Article 249 hardship rather than Article 273 force majeure, and require a different legal route.
4. Keep FTA obligations current: even during a genuine force majeure event, VAT returns and corporate tax filings are due unless you have obtained a formal FTA extension. Penalties continue to accrue.
5. For employer-specific issues, consult a UAE-qualified employment lawyer before making any unilateral workforce changes.

For the financial and compliance dimension — impact documentation, FTA correspondence, corporate tax implications, and keeping your bookkeeping clean through the disruption — Velmont Crest’s UAE accounting specialists works alongside your legal advisors to make sure the numbers support your position. If you want a structured conversation about resilience planning before the next disruption hits, get in touch.

Businesses managing disruption-related compliance issues may also find these guides useful: UAE corporate tax penalties, VAT penalties in the UAE, and financial record-keeping requirements.

Official References

• UAE Civil Code — Federal Law No. 5 of 1985
• New Civil Transactions Law — Federal Decree-Law No. 25 of 2025
• UAE Labour Law — Federal Decree-Law No. 33 of 2021
• Federal Tax Authority — UAE Tax Portal
• Ministry of Finance UAE