When business conditions become challenging, a common question arises:
Can a party legally terminate a contract due to changed circumstances?
Under UAE law, the answer depends on whether performance has become impossible or merely difficult. This distinction separates a valid force majeure claim from a standard commercial hardship argument.
What force majeure means under UAE law
In UAE contracts, force majeure is not a catch-all excuse. It applies only where an external event goes so far that the obligation can no longer be performed. Article 273 of the UAE Civil Transactions Law states that in bilateral contracts, if force majeure makes performance impossible, the corresponding obligation is extinguished and the contract is rescinded by operation of law.
The key test is impossibility.
- Not inconvenience,
- not delay,
- not an unfavorable deal,
- and not a decrease in profit.
If performance is still legally and practically possible, force majeure is usually not the right label. Courts and legal commentary in the UAE consistently draw that line.
Does force majeure automatically terminate a contract?
In some cases, yes, but not always as parties might expect.
If performance has become completely impossible, Article 273 says the obligation ceases and the contract is rescinded. If the impossibility is only partial or temporary in a continuing contract, only the impossible part is extinguished, and the law allows rescission in certain cases once the other party is made aware.
As a result, genuine force majeure may lead to:
- suspension of the affected obligation,
- partial discharge,
- or full rescission,
depending on the specific circumstances.
Once a contract is rescinded, UAE law seeks to restore the parties to their pre-contract positions. If this is not possible, the court may award damages.
What usually qualifies as force majeure
Each case depends on its specific facts, but the strongest force majeure claims typically involve events that are:
- outside the parties’ control,
- not reasonably avoidable,
- and directly prevent performance.
UAE legal commentary often cites legal prohibitions, government restrictions that prevent performance, war-related disruptions, or physical impossibility as examples that may meet the threshold, provided the event truly prevents performance rather than merely making it more difficult.
What does not qualify
Many businesses misunderstand this distinction.
The following are usually not force majeure on their own:
- market volatility,
- loss of financing,
- higher operating costs,
- reduced demand,
- delayed profitability,
- supply issues that can still be worked around,
- general commercial pressure.
This is because, in these situations, performance is often still possible. While it may be costly or commercially unattractive, UAE law does not consider this force majeure.
Force majeure vs financial hardship
Clients should understand this distinction before issuing any legal notice.
Force majeure
Under Article 273, the event makes performance impossible. The legal result can be rescission, discharge of the affected obligation, or partial discharge depending on the circumstances.
Financial hardship
Under Article 249, the event does not make performance impossible but it makes performance so onerous that it threatens grave loss. In that situation, a judge or tribunal may reduce the obligation to a reasonable level. The contract is not automatically terminated, and any agreement trying to exclude this rule is void.
The practical rule is as follows:
- Impossible = force majeure
- Still possible but commercially severe = hardship
Hardship typically leads to adjustment, renegotiation, or judicial relief, rather than immediate termination.
Risks of invoking force majeure prematurely
This is where significant risk arises.
If a party claims “force majeure” without legal grounds, this can create legal exposure. If performance was still possible, the other party may treat the notice as a breach, seek damages, or invoke termination and liability clauses in the contract. UAE commentary also emphasizes that a party relying on force majeure must demonstrate it was actually prevented from performing, not merely disrupted or faced increased costs.
In practice, that means the party raising force majeure should be ready to prove:
- the event directly caused non-performance,
- there was no realistic workaround,
- and reasonable mitigation was attempted.
What UAE courts and tribunals usually look at
Before any force majeure argument succeeds, the core questions are usually:
- Did the event actually prevent performance?
- Was the event external and beyond the party’s control?
- Was performance impossible, not just onerous?
- Could the party have mitigated the impact?
- Does the contract impose notice requirements or define force majeure more narrowly?
That last point matters more than most people realise. Even where UAE law provides a statutory framework, the wording of the contract still shapes how the dispute is argued especially on notice, timing, and risk allocation.
What businesses should do before taking action
Before terminating, suspending performance, or issuing a force majeure notice, consider the following questions:
- Is performance truly impossible right now?
- Is the issue temporary or permanent?
- Is there another lawful way to perform?
- Is this really force majeure, or is it hardship?
- What does the contract require me to do first?
Careful analysis at this stage often determines the outcome of disputes.
Final word
In uncertain markets, many parties seek a quick exit. However, UAE law does not permit contracts to be set aside solely because they have become more difficult, expensive, or less attractive.
A force majeure argument is only effective when the facts demonstrate true impossibility. If the issue is financial pressure rather than impossibility, the focus shifts to adjustment, renegotiation, and risk management rather than termination.
Speak to DY Lawyers and Legal Consultants
If you are considering termination, responding to a force majeure notice, or seeking to protect your position in a volatile market, obtain legal advice before taking any formal action.
DY Lawyers and Legal Consultants advises businesses and individuals across the UAE on:
- contract termination,
- force majeure and hardship disputes,
- commercial claims,
- strategic notices,
- and risk-managed dispute resolution.
A well-timed legal review can protect your position long before the dispute reaches court.
FAQ
Can market volatility alone be treated as force majeure ?
Usually no. Market volatility, lower profits, or funding pressure do not by themselves make performance impossible.
Does force majeure always end the contract?
No. If impossibility is partial or temporary, the legal effect may be limited to the affected obligation, with rescission rights depending on the circumstances.
What is the difference between Article 273 and Article 249?
Article 273 deals with impossibility and force majeure; Article 249 deals with exceptional hardship where performance remains possible but becomes excessively onerous.
Can I rely on force majeure if my contract is silent?
Potentially yes, because UAE law provides a statutory framework. But the contract wording still matters, especially for notice and procedure.
Is notice still important?
Yes. Even where a statutory argument exists, contracts often impose notice obligations, and delay in raising the issue can weaken the position.
