The Legal Impact of Regional Military Tensions on Commercial Contracts and Transactions in the UAE

The Legal Impact of Regional Military Tensions on Commercial Contracts and Transactions in the UAE

As regional military tensions continue to create uncertainty across global markets, businesses and investors in the UAE are increasingly asking a critical question: What happens to commercial contracts and real estate transactions when unforeseen events disrupt performance? 

In today’s environment, marked by supply chain disruptions, fluctuating financing conditions, and heightened regulatory responses, the legal concepts of force majeure and exceptional circumstances have become essential tools for protecting contractual rights and managing risk. Understanding how UAE law and the local judiciary apply these principles is now more important than ever.

Understanding Force Majeure and Exceptional Circumstances Under UAE Law

Force Majeure: When Performance Becomes Impossible

Under UAE law, force majeure refers to an unforeseeable, unavoidable event, such as war, natural disasters, or prohibitive administrative decisions, that makes contractual performance objectively impossible. Article 273 of the UAE Civil Transactions Law provides that if performance becomes impossible, the corresponding obligation is extinguished and the contract is automatically cancelled. In cases of partial or temporary impossibility, only the affected portion is terminated, and the other party may still request cancellation.

Exceptional Circumstances: When Performance Becomes Onerous

Exceptional circumstances arise when an unforeseen public event makes performance extremely burdensome, but not impossible. Article 249 of the Civil Transactions Law allows the court to adjust the obligation, extend deadlines, reduce oppressive burdens, or rebalance losses between the parties. This mechanism preserves the contract while ensuring fairness when circumstances fundamentally shift.

Key Differences Between Force Majeure and Exceptional Circumstances

How UAE Courts Approach These Doctrines

The UAE judiciary consistently emphasises good faith and timely performance. Courts require clear proof that the event was unforeseeable at the time of contracting, that the party invoking relief was not already in delay, and that the event directly caused the inability or difficulty in performance.

In Cassation Appeal No. 624 of 2025 (Real Estate), the Court of Cassation reaffirmed that a party already in breach cannot rely on force majeure or exceptional circumstances. The court also reiterated that assessing impossibility or onerousness is a matter for the trial court, provided its reasoning is grounded in evidence.

Applying These Principles to Current Market Conditions

Supply Chain Disruptions

Force majeure may apply if closures or blockades make sourcing materials impossible. Exceptional circumstances may apply if alternatives exist but at significantly higher cost or delay.

New Administrative Restrictions

Total prohibitions on activities or licence cancellations may constitute force majeure. Increased compliance costs or temporary restrictions typically fall under exceptional circumstances.

Financing Challenges

If banks suspend lending or tighten credit due to geopolitical risks, courts will examine whether financing was essential to performance and whether alternatives existed. If performance becomes impossible, force majeure may apply; if performance remains possible but costly, exceptional circumstances may apply.

Practical Steps for Businesses and Investors in the UAE

To successfully invoke force majeure or exceptional circumstances, parties must provide clear, contemporaneous evidence, including official reports, government notices, correspondence documenting the impact of the event, and immediate written notifications to the counterparty as required by the contract.

Conclusion

In the UAE’s dynamic commercial landscape, the legal consequences of regional instability depend on whether an event renders performance impossible or merely onerous. Courts apply these doctrines cautiously, focusing on foreseeability, causation, and the parties’ conduct before and after the event. Understanding these principles, and preparing the necessary evidence and notifications, is essential to safeguarding rights and mitigating risk in uncertain times. 

For professional legal guidance on protecting your commercial interests, explore the services offered by Horizons & Co.