As regional hostilities disrupt projects, cost escalation and supply chain chaos are testing the limits of force majeure and hardship clauses under UAE and KSA law. Slava Kiryushin and James Plant, partners at HFW, unpack when termination is really on the table – and when it isn’t.
The ongoing tensions in the Middle East have created significant uncertainty for construction projects across the region. To date, the immediate focus has been to ensure safety. However, parties are now turning more of their attention to assessing the impact of the situation on their projects and their contractual rights and liabilities.
Cost and time are the main suspects when evaluating the impact to a project. Bases for claims range from price escalation, supply chains interruption, disruption to logistics, through to availability of insurance and skilled labour.
Construction contracts might include clauses that balance the risk of an unforeseeable event, provide rights to extensions of time (and adjusting the price) as well as allowing for suspension and eventual termination. The applicable law may affect the position and, in some instances, may dictate what remedies are available.
What if the works cannot continue at all?
If it becomes impossible to perform obligations due to a force majeure event, both the KSA Civil Transactions Law and the new UAE Civil Code (which took into effect on 1 June 2026) provide for the termination of the contract. The UAE Civil Code refers expressly to a supervening “force majeure”, whereas the KSA Civil Transactions Law refers to “a reason beyond the control of the debtor”.
The UAE and KSA provisions are likely to be interpreted similarly and equally strictly. For this reason, it is important to carefully consider the circumstances before jumping to any conclusions about potential termination of a contract.
Under UAE law, a force majeure event must have been unforeseeable at the time of entering the contract and its effects must be unavoidable. While not insurmountable, these criteria are not always easily satisfied, particularly in situations where contracts were signed at the time when the current hostilities are ongoing. While a lot of the impact is already felt, the foreseeable ‘butterfly effect’ on commodities and price escalation may disqualify a party from claiming force majeure.
Even if those criteria are satisfied, reasonable efforts must be made to mitigate the situation. Performance must be objectively impossible rather than inconvenient (or even extremely difficult). A necessity to reprogramme works to account for labour or materials shortages or an increase in costs (even if considerable) is unlikely to meet the test.
Furthermore, the force majeure event must be the direct cause of the impossibility, which will not necessarily be clear cut. Say that a key item of plant is destroyed, rendering performance impossible. If the destruction was directly caused by an act of war, the position might be straightforward. However, what if the destruction (or theft) was caused at a site where cargo was re-routed due to the closure of the Strait of Hormuz? Was this caused by the hostilities directly?
Courts or arbitral tribunals are unlikely to find that a force majeure event is the direct cause if a party’s negligence is also at play. If parties are not aligned on the desire to terminate then there is fertile ground for a dispute.
What if the works can go ahead in part, or are expected to resume in time?
The force majeure provisions in both KSA and UAE law cover the scenario where performance is rendered partially impossible. A project owner may not wish to accept this approach and may demand the full termination of the contract via court petition. The KSA Civil Transactions Law allows the court to dismiss such petition, if the impossible part of the works is “of little significance”, whereas the UAE Civil Code includes no such caveat.
The works can proceed but will take longer and/or cost more. Who pays?
Force majeure provisions under KSA and UAE law will be of little help when considering payment for ongoing works. A party will generally need to look to its contract to consider whether it allows for the recovery of costs.
Under the KSA Civil Transactions Law, if an unforeseeable extraordinary circumstance results in performance becoming oppressive and liable to cause “exorbitant loss”, the debtor may invite the other party to negotiate. Failing agreement, the court may reduce the oppressive obligation to a reasonable level.
The current UAE Civil Code hardship provision refers to “exceptional and unpredictable circumstances” which become “excessively onerous” and threaten “exorbitant loss”, and allows the court to reduce the excessive obligation “to reasonable limits”. Under the new UAE Civil Code, in addition to the ability to reduce the obligation the court will have the power to order rescission of the contract.
What amounts to “excessively onerous” or “burdensome”, and what constitutes “exorbitant loss”, will be entirely fact dependent and at the discretion of the judges or arbitrators. A very significant increase in prices might qualify but, if the relevant market is typically volatile, a change in price may not be extraordinary and/or unforeseeable.
These provisions (in both KSA and the UAE) cannot be contracted out of. However, if your contract expressly allocates risk for the type of event in question (which is rare), the court or arbitral tribunal is unlikely to interfere with that allocation.
Open and sensible communication between parties will reap rewards. However, to engage confidently, a party must know where it stands legally and contractually.
Slava Kiryushin and James Plant are both partners at the global law firm HFW.
