Force Majeure vs Economic Hardship: What Many Businesses Get Wrong

When Businesses Look for an Exit

Periods of economic disruption often place businesses under significant pressure.

Supply chains become unstable, transportation costs rise, and contractual obligations that once appeared commercially reasonable may suddenly become extremely difficult to fulfil.

When this happens, many companies immediately begin asking whether force majeure allows them to suspend or terminate their contractual obligations.

In practice, however, businesses frequently misunderstand how the doctrine works.

The Most Common Misconception

One of the most common mistakes businesses make is assuming that economic hardship automatically qualifies as force majeure.

In reality, this is rarely the case.

Force majeure generally requires that performance become impossible, not merely more expensive or commercially disadvantageous.

If a party can still perform the contract, even at a higher cost, force majeure may not apply.

This misunderstanding often leads to disputes when one party attempts to suspend performance prematurely.

Two Different Legal Concepts

UAE law addresses these situations through two separate doctrines derived from the UAE Civil Transactions Law.

These doctrines serve different purposes.

Force Majeure

Force majeure applies when an unforeseen event makes contractual performance impossible. In such cases, the relevant obligation may be extinguished entirely.

Hardship (Exceptional Circumstances)

Hardship applies where performance remains possible but becomes excessively burdensome due to unforeseen events. In these cases, courts may adjust contractual obligations to restore fairness.

Understanding which doctrine applies can significantly influence the outcome of a contractual dispute.

Why the Distinction Matters

The legal consequences of these doctrines differ considerably.

If force majeure is established:

• contractual obligations may be cancelled
• parties may be released from liability
• the contract may be terminated

If hardship is established:

• the contract generally continues
• obligations may be adjusted
• courts may rebalance the agreement

For businesses, this distinction can determine whether a contract is cancelled or simply modified.

The Importance of Contract Drafting

In many commercial agreements, force majeure clauses are negotiated in detail.

These clauses may specify:

• events that qualify as force majeure
• notification requirements
• suspension periods
• termination rights

However, even carefully drafted clauses must be interpreted in conjunction with the broader legal principles contained in UAE law.

This makes professional legal guidance essential when businesses consider invoking force majeure or claiming hardship.

Managing Contractual Risk

Businesses operating in volatile environments should adopt proactive strategies to manage contractual risk.

This includes:

• reviewing contractual force majeure provisions
• identifying potential hardship scenarios
• maintaining clear communication with counterparties
• documenting disruptions affecting performance

By addressing issues early, businesses can often avoid costly disputes and preserve valuable commercial relationships.

How Al Kabban & Associates Can Assist

Al Kabban & Associates provides legal advisory and dispute resolution services for businesses facing complex contractual challenges in the UAE.

Our team assists clients with:

• force majeure and hardship analysis
• commercial dispute resolution
• contract negotiation and drafting
• strategic legal advisory

Conclusion

Force majeure and hardship are often discussed together, but they address fundamentally different legal scenarios.

For businesses navigating periods of economic uncertainty, understanding the distinction between these doctrines is essential for making informed decisions about contractual obligations and risk management.