The COVID-19 pandemic has presented great challenges to governments and companies all over the world, including in the State of Qatar.
The pandemic has impacted companies operating in various industries in Qatar—from events to retail to construction and others. Companies that are now unable to perform their obligations or feel that performing their obligations would be exceptionally encumbering for them are considering their options under their contracts and under the law.
Qatari law presents two clear options that may apply to performing obligations in such circumstances: the Exceptional Circumstances theory and Force Majeure theory.
While Qatari courts generally defer to contracting parties and aim to treat agreements as binding and enforceable, there are some notable exceptions under Qatari law. First, in the Qatar Civil Code (Law no. 22 of 2004), several provisions describe the rights of obligors to be excused from contractual obligations should certain events occur. Article 171 of the Civil Code provides an overview:
- Pacta sunt servanda - A contract duly and properly concluded between the parties must be kept, and non-fulfillment of the respective obligations is a breach of that contract. Such a contract may be revoked or altered only by mutual consent of the parties or for reasons provided for by law.
- Where, however, as a result of exceptional and unforeseeable events, the fulfilment of the contractual obligation, though not impossible, becomes excessively onerous in such a way as to threaten the obligor with exorbitant loss, the judge may, according to the circumstances and after taking into consideration the interests of both parties, reduce the excessive obligation to a reasonable level.
Article 171 addresses several key concepts. First, the relevant event must be "exceptional and unforeseeable". This would likely make it difficult for parties who have contracted in recent weeks to claim that their contractual obligations should be adjusted due to the pandemic. Likewise, contracting parties in the medical and insurance industries could also face difficulty, as recent events (although unforeseeable to most) would be considered more foreseeable to companies operating in relevant industries.
Second, the mere correlation of an "exceptional and unforeseeable event" along with an onerous obligation does not suffice; in order for a court to consider reducing a party's obligations, causation must be established. In the current circumstances, not all parties may rely on the presence of the coronavirus and its consequent government measures. Instead, parties seeking to reduce or excuse their obligations must prove direct causation.
Third, the negative impact on the party seeking relief must be "excessively onerous" and present the threat of an "exorbitant loss". A mere increase in cost or difficulty caused by an exceptional event would be unlikely to entitle the burdened party to judicial relief. The contract must be actually and substantially impaired, and courts would have to assess this question on a case-by-case basis.
Article 188 of the Civil Code addresses a separate but related concept—force majeure.
- In contracts binding on both parties, where performance of an obligation by one party is extinguished by reason of impossibility of performance due to force majeure beyond the control of the obligor, such obligation and correlative obligations shall also be extinguished and the contract deemed rescinded ipso facto.
- Where such impossibility is partial, the obligee may either enforce the contract to the extent of such part of the obligation that can be performed or demand termination of contract.
Although "force majeure" is not defined, one useful way to understand it is an act beyond the control of the parties which makes it impossible for the parties to carry out their obligations. Qatari law does not specify whether outbreaks, epidemics or pandemics automatically qualify as force majeure events. (Nor does it identify blockades, civil unrest, acts of God or natural disasters.) However, it is possible that in some instances the COVID-19 pandemic and/or the government-mandated responses would qualify as a force majeure event for the purposes of Qatari law.
As force majeure events are not self-evident under the law, many contracts will explicitly enumerate qualifying force majeure events. A typical contractual provision is set out below:
Neither Party shall be liable for any delay or non-performance of its obligations under this Agreement caused by an event which is beyond its reasonable control (a "Force Majeure Event") provided that the Party affected by Force Majeure gives prompt notice in writing to the other Party of such Force Majeure Event and uses all reasonable measure to continue to perform its obligations under the Agreement. Either Party may terminate this Agreement if such Force Majeure Event continues for a continuous period of more than 3 months. The term “Force Majeure Event” shall refer to flood, other natural disasters or acts of God, war, insurrection, epidemic, revolution, riot, terrorist attack, governmental restrictions or so forth which are beyond the reasonable control of the Parties.
In these instances, the courts may be more likely to defer to the terms of the contract and avoid interfering. In cases where the contract is not as detailed in terms of identifying qualifying events or determining the consequences of their occurrence, the courts are more likely to apply the relevant provisions of Qatari law.
Again, causation plays an important role in the court's analysis. The mere presence of a force majeure event is not sufficient to allow a party to benefit from force majeure relief. The event must cause the impossibility—and the causation must be clear and direct. For example, if a shutdown occurs but the relevant work can still be performed remotely, then there is no force majeure.
Notwithstanding the severity of the current situation and its consequent government regulations, it must be stressed that Qatari courts rarely deem an event to be a force majeure. Qatar has recently experienced exceptional circumstances (in the form of the GCC blockade dating back to 2017), and there have been very limited reports of Qatari courts declaring the blockade a force majeure event under the law. It is possible the courts would take a similar view on the current situation.
Although much of the focus around force majeure events concerns termination or court-ordered contractual amendment, Article 204 of the Civil Code addresses another related concept—damages.
Where a person proves that damages have arisen from a cause beyond his control, such as force majeure, unforeseen incident or the fault of the victim or third party, such person shall not be liable for such damages unless there is a provision to the contrary.
Supplementing the Qatar Civil Code, the Qatar Commercial Code (Law No. 27 of 2006) provides guidance on "exceptional circumstances". This concept is distinguished from force majeure events in that "exceptional circumstances" make performance difficult or economically cumbersome, whereas force majeure events might make full performance impossible. Article 176, for example, which deals with import/export issues, provides that if a "carrier is compelled by exceptional circumstances to take a longer route in order to avoid a certain risk to the transferred object, the carrier shall be entitled to the fare for the extra distance and additional expenses if necessary". Under this provision, the obligor remains contractually bound to perform (contrast: Civil Code provisions on force majeure), but the Commercial Code provides a clear remedy.
Although force majeure events and exceptional circumstances are addressed in the Civil Code and Commercial Code, the starting point of any legal analysis is the contract itself and the actual circumstances. If your company is considering how to respond to the ongoing pandemic, please contact us to consider your options.