07 Jun 2017

Give early notice to preserve Qatar force majeure claims

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Several Arab nations including Bahrain, Egypt, Saudi Arabia, the United Arab Emirates (UAE), the Maldives, Libya's Tobruk government, and the internationally recognized government of Yemen have broken off relations with Qatar, citing fears that the country supports terrorism and encourages dissent against their governments. Jordan has also downgraded diplomatic relations with Qatar while Kuwait has reportedly begun to mediate a resolution between Qatar and the other countries.

The picture is still developing over exactly how these measures will be enacted in each state, however the practical impact is already being felt following the announcement and certain concrete steps have already been taken. At present the Gulf States have announced the severing of diplomatic ties, the closing of the land border between Saudi Arabia and Qatar and the closure of air (including overflight rights) and sea routes from the Gulf States. Whilst the severing of diplomatic ties between the countries is not new (a similar incident occurred in 2014), the breadth and scale of the economic measures that the Gulf States are taking are.

These economic measures are likely to have an impact on contractors working on ongoing projects in the region:

  1. Travel to Qatar and Africa affected
    All of the Gulf States have banned Qatari aircraft from their airspace and reports confirm that all of the national flag carriers of the Gulf States have suspended flights to Qatar. Qatar Airways has now cancelled all flights to the Gulf States. Due to the flight restrictions, travellers will have to transit through a third country.

    The UAE and Saudi Arabia are reportedly closing airspace to Qatar Airways which is likely to cause travel disruption. Bahrain has reportedly limited flights to and from Qatar by Qatari aircraft through its airspace to a single air route; subjecting the flights to heavy air-traffic congestion.

    Qatar is largely surrounded by Bahrain airspace, with Saudi Arabian airspace to the south and UAE airspace on the eastern border. A ban would mean that Qatar Airways flights would need to fly through prohibited airspace to reach their home base in Doha, effectively grounding the airline.

    While Bahrain and the UAE are free to refuse landing rights, it is unclear whether they can legally bar Qatar Airways from their airspace. The International Air Services Transit Agreement (IASTA), of which Bahrain, the UAE, and Qatar are members, prohibits countries from shutting off their airspace to fellow signatories. They could, however, exit the treaty or try to enforce the ban despite the treaty.

    Saudi Arabia, which is not an IASTA member country, can legally shut Qatar Airways out of its airspace. Qatari aircraft flying to Africa and, in some cases, the Americas may be required to pass over Turkey and around Egypt to avoid Saudi airspace; inevitably increasing flight times and impacting upon connecting flights.

  2. Impact on labour force
    Qatari nationals in Bahrain, Egypt, Saudi Arabia, or the UAE have been given until 19 June 2017 to leave. Bahrain, the UAE, and Saudi Arabia have prohibited their citizens from traveling to Qatar, and Saudi Arabia requires its citizens in Qatar to leave by 19 June 2017. Additionally, the Philippine government has temporarily suspended the deployment of Filipino workers to Qatar. Those required to leave the country in which they are presently located will be affected by the travel restrictions now in place.

  3. Supply and import of materials
    The border between Qatar and Saudi Arabia is the peninsula nation’s only land border which has now been closed. With over 40% of non-oil imports including food being transported over this border to Qatar, this will have a serious impact.

    There appears there will be little respite in respect of Sea transport. Although it remains to be seen exactly how each of the Gulf States will treat the shipping sector, it is being reported that the UAE has issued a proclamation that all ships flying the flag of Qatar or vessels destined to or arriving from Qatar ports are not allowed to call at the Port of Fujairah or Fujairah Offshore Anchorage "regardless of the nature of their call" until further notice. Large vessels that normally offload cargo in the UAE's port of Jebel Ali onto smaller, Qatar-bound ships also will now be prohibited from doing so. If the crisis continues over the long term, supplies of construction materials will likely be adversely affected since Qatar imports large quantities of both from Saudi Arabia.

    UPS has announced its suspension of transit of all goods to and from Qatar, applicable to Saudi Arabia, Egypt, the UAE, and Bahrain.

  4. Criminal offenses
    The UAE appears to be the first country to have taken steps to criminalise activities involving Qatar. Others may follow suit. “Strict and firm action will be taken against anyone who shows sympathy or any form of bias towards Qatar, or against anyone who objects to the position of the United Arab Emirates, whether it be through the means of social media, or any type of written, visual or verbal form,” said Counsellor Dr Hamad Saif Al Shamsi, UAE Attorney-General.

    The UAE Federal Public Prosecution also announced that according to the UAE Federal Penal Code and the UAE Federal law decree on Combating Information Technology Crimes, anyone who threaten the interests, national unity and stability of the UAE will face a jail term from three to 15 years, and a fine not less than Dh500,000.

Clearly the above steps have the potential to seriously impact upon all aspects of construction. While most construction contracts contain some provision for these events outside the control of the parties (e.g force majeure clauses) which may excuse parties from their obligations, caution must be used when determining whether the current situation falls within such provisions. More importantly, complying with the requirements set out in the contract is critical to ensure eligibility for relief from performance of affected obligations; entitlement to an extension of time and additional costs arising from the force majeure event; and even entitlement to termination if the force majeure event is prolonged.

The 1999 FIDIC Red Book (which forms the basis for many contracts in the region) provides, for example, that if a party is prevented from performing its obligations under the contract by force majeure, it must give notice to the other party within 14 days of the event or circumstances constituting the force majeure and identify the affected obligations. The affected party is required to take reasonable steps to mitigate the impact of the force majeure and to notify the other party when effects of the force majeure event end. A failure to notify the other party within the prescribed period for doing so may lead to a reduction or loss of contractual entitlements. The 1999 FIDIC Red Book provisions are referred to only as an example. Parties involved in construction contracts affected by the diplomatic events involving Qatar should pay due regard to the terms of their own contracts.

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Ron Nobbs

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