Whose fault is it anyway?

Developers are singing a different tune these days. Long gone are the days of "that's the contract — take it or leave it" and "you better buy it now as there is another buyer that wants it".

Developers who are facing project delays are increasingly turning to a widely misunderstood and somewhat untested clause in sales contracts known as force majeure in an effort to justify project delays to disgruntled investors, creditors and other stakeholders.

Force majeure literally means superior force. The concept originates from the French Civil Code.

Almost every sales contract has a section boldly emblazoned with the title force majeure.

Unforseen incidents

The force majeure clause is intended to cover unforeseen events that are beyond the control of the parties that affect performance. In the development sense, this might be more appropriately called a delay event, i.e., an event that allows them to delay delivery.

The concept of force majeure was always intended to provide for events beyond the control of either contracting party that jeopardised performance to provide some relief in extenuating circumstances. Although the UAE Civil Code does not specifically address force majeure, it does provide a judge scope to reduce onerous obligations on contracting parties in extenuating circumstances.

However, this requires a court order which can be expensive to seek and there is no guarantee in achieving it as judges usually take a hard line on these types, especially where the contracting parties could have addressed such issues in the contracts in the first place.

Developers are now dusting off their sales contracts and looking into the wording of those so called force majeure clauses. Essentially they are looking to justify delays in completion of projects.

However, as the concept is not independently recognised in the UAE Civil Code the contractual wording will need to be clear and applicable to the circumstances for developers to get relief. We expect judges will take a strict approach to clauses used to justify delay and, if the contract is not explicit, developers may find little sympathy for their plight.

Assessing the merits of these clauses is also more complicated than it first appears. As an example, one force majeure clause we reviewed included the wording: "interruption or failure of a utility service… that has an effect on the ability of the seller to perform its obligations under this Agreement".

At first view it appears to be clear that if power is not available then the developer can claim relief. However, on closer inspection this is not necessarily the case.

The developer's prime obligations are to construct, and therefore if he has not completed the activities, then how can he claim lack of infrastructure has affected the performance?

The developer had to provide their own infrastructure to build anyway. So how can lack of infrastructure stop them building?

In addition, a purchaser would reasonably assume that the developer had done a minimum amount of due diligence prior to purchasing the plot or on-selling to purchasers. This would include an assessment for the basic requirements like infrastructure to enable it to complete the development before the promised delivery to the end-purchaser.

However, the harsh reality is that the costs of litigation in the UAE have meant developers have the upper hand in these discussions.

Our advice to both developers and purchasers alike is to double-check that innocuous wording in those clauses. At the end of the day, each party has to plan prudently to ensure they can perform their obligations.

The writers are with the law firm of Hadef & Partners.