Motei & Associates

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Is Lack of Electricity Considered an Event of “Force Majeure” for Non Performance of Developer’s Contractual Obligations?
Is Lack of Electricity Considered an Event of “Force Majeure” for Non Performance of Developer’s Contractual Obligations?

The Fact that a government authority has refrained from supplying electricity to a project under construction, doesn’t constitute an event of “Force Majeure” for exempting the developer from their contractual obligations, as long as the authority’s action is not the direct cause for delaying the completion of the project.

In an unprecedented case, an Arbitral Tribunal has rejected a developer’s request to reject a buyer’s claim for cancelation of a Sale Purchase Agreement (SPA) of a high end-residential unit to be constructed on an island in Ras Al khaimah, and refund of the advance payment made towards the unit’s purchase price. The developer argued that based on a “Force Majeure” event, it couldn’t fulfill its contractual obligations to complete project and deliver the unit to the buyer on the agreed completion date. Developer explained that due to government’s failure to supply electricity to the project, the financing banks have refrained from continuing financing the project, as result developer’s couldn’t complete the project.

However, Tribunal has concluded that: 1. The fact that a government authority has refrained from supplying electricity to the project, doesn’t constitute an event of “Force Majeure” as long as the authority’s action is not the direct cause for developer’s failure to fulfill its obligations; 2. It is established that “Force Majeure” event must be neither expected nor controlled at the time of signing the contract, and beyond the party’s. However, it is clear that developer, at the time of contracting with buyer (our client), was well aware of the lack of electricity in the plot of land on which the project is expected to constructed; 3. The fact that the banks have stopped financing the project is the developer’s sole responsibility not the buyer who never been aware of such financing requirement at the time of contracting. Such event may not constitute a “Force Majeure” that would exempt developer from performing its contractual obligations under the SPA.

Therefore, Tribunal has ordered: 1. Cancelation of the SPA; 2. Developer to (i) refund buyer the advance payment; (ii) to pay 9% interest from the date of filing the case until full refund of the money; (iii) compensate the buyer for losses incurred; (iv) pay all arbitration costs and lawyers’ fees.

Author’s Profile:

Ashraf heads the dispute resolution practice in Motei & Associates. He specializes in general commercial and real estate litigation before local courts in the UAE, and has principal focus on international commercial arbitration. He has acted as counsel and as arbitrators in numerous arbitration cases.

About the author:

Ashraf El Motei heads the dispute resolution practice at Motei & Associates, a Dubai based law firm since 2002. Ashraf specializes in commercial and corporate disputes before local courts and international arbitration centers. He is a listed arbitrator at DIAC and registered practitioner before DIFC Courts. For further info on the article, please contact the author at: a.motei@motei.com

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