Hardship and the new UAE Civil Code: When performance becomes onerous, not impossible

This distinction is likely to be important for parties involved in the construction and engineering industry in the United Arab Emirates. Construction and engineering projects are often long-term and exposed to changes in market conditions, labour availability, materials prices, logistics and regional disruption – and many of these issues are facing our clients at this difficult time. In many cases, these events may not make performance impossible, but may make performance significantly more expensive, delayed or commercially burdensome.

The new UAE Civil Code appears to recognise this distinction. Article 236 deals with circumstances in which performance has become impossible. Article 224, by contrast, deals with circumstances in which performance remains possible but has become onerous. Article 829(3) also appears to introduce a construction-specific provision relevant to lump-sum construction contracts, known under UAE law as muqawala contracts.

Article 224 of the new UAE Civil Code

Article 224 of the new UAE Civil Code provides that, in certain circumstances, the court may intervene where a contractual obligation has become onerous. In exercising this power, the court is required to balance the interests of the parties.

This provision appears to replace, and go further than, Article 249 of the 1985 version of the UAE Civil Code ("the old UAE Civil Code"). Article 249 of the old UAE Civil Code allowed the court to reduce an onerous obligation in certain circumstances. Article 224 appears to broaden that position by allowing the court to dissolve the contract.

This is a notable development, although the threshold is likely to remain high. The fact that a contract has become more expensive, less profitable or more difficult to perform is unlikely, by itself, to be sufficient. A party seeking relief is likely to need to show a serious impact on the contractual balance between the parties.

Article 829(3) of the new UAE Civil Code

Article 829(3) appears to be a new muqawala-specific provision for lump-sum contracts. It allows the court or tribunal to extend time, adjust the contract price or dissolve the contract where exceptional public circumstances undermine the financial basis of the bargain.

By way of example, if a contractor agrees to perform works for a lump-sum price and exceptional circumstances later materially increase the cost of labour, materials or logistics, the contractor may seek to argue that Article 829(3) applies.

However, this should not be treated as a general price adjustment mechanism. A party seeking to rely on Article 829(3) is likely to need to establish that the relevant circumstances were exceptional, public in nature, unforeseeable and sufficiently serious to undermine the financial basis of the contract.

Hardship and impossibility

The distinction between hardship and impossibility may give rise to disputes. A contractor may argue that regional disruption, increased materials costs, labour shortages, import restrictions or supply chain issues have made performance exceptionally onerous. An employer may argue that those matters are ordinary commercial risks that were foreseeable or allocated to the contractor under the contract.

The answer is likely to depend on the wording of the contract, the date on which it was entered into, what was foreseeable at that time, and how the contract allocates the relevant risk. The requirement of unforeseeability means that, over time, it may become harder for parties to new contracts to argue that disruption linked to current regional conditions was not within contemplation when the contract was made.

Are the provisions mandatory?

Article 224 of the new UAE Civil Code appears to be mandatory in nature, meaning parties may not be able to exclude the court’s power to intervene where the relevant threshold is met. This may reduce contractual certainty in hardship scenarios, particularly in long-term projects.

Article 829(3) may be different. As a muqawala provision, and in the absence of express mandatory language, it seems to form part of the default rules that can be contracted out of.

Practical considerations

There are a number of practical points for parties to consider.

1. Parties should review hardship and force majeure clauses separately. The new UAE Civil Code appears to distinguish between performance that is impossible and performance that is onerous, so parties should avoid assuming that one clause will deal adequately with both scenarios.
2. Parties should consider how fixed-price and lump-sum contracts allocate the risk of increased costs. If the contractor is to bear the risk of price escalation, supply chain disruption, labour shortages or logistics issues, that should be stated clearly. If the parties intend there to be a rebalancing mechanism, the circumstances in which that mechanism applies should also be clearly set out.
3. Parties should consider the evidence that may be required to support or resist a hardship claim, including why the relevant circumstances were unforeseeable and how they undermined the financial basis of the contract.
4. Parties should be mindful of transitional issues. For contracts entered into before 1 June 2026 but performed afterwards, disputes may arise as to whether hardship arguments are governed by the old UAE Civil Code, the new UAE Civil Code, or some combination of both.

As with many of the changes introduced by the new UAE Civil Code, the practical impact of Articles 224 and 829(3) will depend on how they are applied by courts and tribunals. What is clear, however, is that hardship, impossibility and contractual risk allocation should each be addressed separately and with care.

Authored by Emerson Holmes and Jamie Phillips.