Impact of exceptional circumstances on UAE construction contracts: the Strait of Hormuz context

Samer Abou Said and Loaa Zaarour
The Firm - Moaza Alkhadar Advocates and Legal Consultancy

The disruption of the Strait of Hormuz (SOH) has created significant legal and commercial challenges for businesses performing contracts connected with the region. Parties affected by these events may seek relief under the doctrines of force majeure or exceptional circumstances (hardship) under UAE law. This article examines the legal framework governing exceptional circumstances in general under Article 224 of the New UAE Civil Transactions Law (CTL) which came into force in June 2026, which replaced former Article 249 of the old Civil Code, and under the newly introduced Article 829(3) of the New CTL regarding hardship in construction contracts. Events occurring before the new CTL came into force remain governed by Article 249, while continuing events may be subject to both provisions depending on when they occurred.

Force majeure v exceptional circumstances

• Force majeure applies where an exceptional event renders contractual performance impossible, potentially extinguishing the obligation or terminating the contract. 
• Exceptional circumstances (hardship) apply where performance remains possible but has become excessively onerous. Unlike force majeure, hardship does not require impossibility. 

For example, while some businesses may still transport goods through alternative routes despite the closure of the SOH, the additional cost, delay, insurance, and logistical burdens may make performance significantly more difficult without making it impossible. Such cases are more likely to fall within Article 224 than under force majeure.

Nature and purpose of article 224

Article 224 reflects a fundamental principle of civil law systems by granting courts the authority to intervene and rebalance contractual obligations in exceptional circumstances. This distinguishes UAE civil law from common law systems, where courts generally uphold the sanctity of contracts.

The principle is comparable to the French doctrine of Imprévision, under which courts may modify contractual obligations when unforeseen events fundamentally alter the contractual equilibrium.

Article 224 provides that where:

• exceptional and unforeseeable circumstances of a public nature arise; 
• those circumstances make contractual performance excessively onerous for the debtor and threaten serious loss; 

the court may either:

• reduce the debtor's obligation to a reasonable level after balancing the interests of both parties; or 
• rescind the contract. 

Any contractual provision excluding the application of Article 224 is void because it relates to a matter of public policy which is ensuring economic stability at times of crisis. 

Relevance to the Gulf Cooperation Council armed conflict

Following the outbreak of the regional armed conflict and disruption of the Strait of Hormuz, Article 224 has become particularly significant because many commercial obligations have become substantially more burdensome without becoming impossible.

Examples include:

• suppliers seeking price adjustments due to increased freight, insurance, fuel, and handling costs; 
• construction subcontractors requesting extensions of time or compensation for increased costs; 
• purchasers of real estate properties seeking relief from contractual penalties arising from changed economic conditions. 

Accordingly, Article 224 provides a legal mechanism for courts to rebalance contractual obligations where strict enforcement would result in serious injustice.

Conditions for applying Article 224

1. Exceptional and unforeseeable circumstances of a public nature

• could not reasonably have been foreseen at the time of entering into the transaction; and 
• affects the public generally rather than an individual party. 

Whether the armed conflict related to SOH itself was unforeseeable remains open to judicial interpretation. While geopolitical tensions existed and threats exchanged between involved parties including armed attacks occurring against Iran in 2025, the closure of the Strait of Hormuz had not previously occurred despite such earlier regional hostilities, supporting an argument that such disruption could not be reasonably anticipated. The Dubai Courts have observed that an event should be unforeseeable to an ordinary person.¹

Regarding public nature of an event, Abu Dhabi Court of Cassation² decided that a bank’s rejection of a debtor's request to reschedule loan repayments on grounds of his loss of employment does not satisfy requirements of exceptional circumstances doctrine because loss of employment was neither unforeseeable nor a circumstance of public nature.

2. Performance must become excessively burdensome

The second condition requires that contractual performance has become so onerous that it threatens the debtor with serious loss.

Dubai Courts have observed that whether the performance is onerous should be assessed based on the objective conditions of the transaction which considers the prevailing market conditions irrespective of the parties' individual circumstances.³ For example, a hike in the price of material by USD 50,000 that would cause a small retailer to become bankrupt would not make this party more likely to benefit from the hardship doctrine than a multinational company that would not be affected by such a small loss. 

Article 224 requires only that the debtor be threatened with serious loss. Thus, it could be interpreted that actual loss need not already have occurred yet, allowing parties to seek judicial intervention before suffering irreparable financial damage provided the future occurrence of such harm is certain to happen. Dubai Courts appear to have consistently provided that the incident should be unavoidable.⁴

Judicial powers under Article 224

Once the statutory requirements are satisfied, the court possesses broad discretion to restore some sort of contractual equilibrium.

Unlike compensation claims, Article 224 does not seek to place parties in the position they would have occupied absent the exceptional event. Instead, it aims to reduce the burden to a "reasonable limit" after balancing the interests of both parties. 
The new CTL also expressly empowers courts to rescind the contract which provided it with greater flexibility, particularly where the determination of a fair adjustment would require complex commercial assessments that are challenging for any judge to undertake.

Mandatory nature of Article 224

Any contractual provision purporting to exclude or waive its application is void. The legislature adopted this approach because the provision serves broader public interests, including maintaining market stability and protecting the circulation of wealth during periods of exceptional economic disruption.

The new Article 829(3): hardship in contracting transactions

This Article, which did not exist before, addresses contracting transaction and thus applies to construction contracts. Due to its specific nature, it is believed that its application supersedes the application of Article 224 in relation to construction contracts. However, given its recent introduction, it remains to be seen which interpretation the courts would follow. 

Article 224 v Article 829(3)

While both articles require unforeseeable exceptional circumstances and a high degree of hardship to be suffered, Article 829(3) allows the court to restore the contractual equilibrium which could be interpreted to give the court wider powers to compensate a party for its losses. This Article expressly grants the court granted the power to adjust the price of construction contracts and to extend time for completion.

Dubai courts: the regional situation does not entitle the contractor to increase the contract price

In a judgment issued in July 2026, the Dubai Court of First Instance dismissed a contractor's claim brought under Article 829(3), seeking an extension of the contractual completion period and an increase in the contract price on the basis of, according to the contractor, exceptional regional circumstances that had resulted in increased prices, inflation, supply chain disruptions, and delays in the delivery of construction materials.

The Court reaffirmed an established principle in the jurisprudence of the Dubai Courts, stating that:

“It is well established in the jurisprudence of this Court that the doctrine of exceptional circumstances (hardship) or force majeure can only arise where the conditions prescribed by law are satisfied. In particular, the event must be exceptional, unforeseen, and extraordinary in nature; it must be one that could not reasonably have been anticipated or prevented, notwithstanding the adoption of reasonable precautions and in the absence of any fault, such that its occurrence was unavoidable.”

The Court further held that the contractor had no contractual entitlement to recover additional sums arising from increases in prices, as the competent governmental authorities had not issued any instructions or decisions authorising such adjustments.

It also found that the contractor's refusal to commence work on the slab as of 19 February 2026 was unjustified, particularly as this refusal predated the commencement of the regional conflict.

Conclusion

In summary, the UAE courts appear willing to entertain the application of the hardship doctrine to events arising prior to 28 February 2026, provided that there is a clear and direct causal link between the exceptional regional circumstances and the increased onerousness of the contractual obligation. Equally important, the party invoking the doctrine must demonstrate that it is seeking genuine relief from hardship rather than attempting to exploit the circumstances to obtain a commercial advantage or improve its contractual position.

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Notes

1  Ruling of the Dubai Court of Cassation in Case No. 249/2023 Civil, dated 16 May 2024.
2  Ruling of the Abu Dhabi Court of Cassation in Case No. 399/2026 Commercial, dated 7 May 2026.
3  Ruling of the Dubai Court of Cassation in Case No. 18/2010 Real Estate, dated 30 May 2010.
4  Ruling of the Dubai Court of Cassation in Case No. 249/2023 Civil, dated 16 May 2024.