< Previous10 Vol. 21/09, April – May 2020 C OMMENT / By Ashish Mehta, founder and managing partner of Ashish Mehta & Associates 3% Contraction of the global economy as a result of Covid-19, according to the IMF been replaced with video conferencing, and homes are filling in as offices. However, this serves its purpose in sectors where providing the product and/ or service is unaffected by THE ONGOING CRISIS following the Covid-19 pandemic has given rise to unprecedented circumstances and there is no denying that businesses have slowed down. Force majeure clauses - sword or shield? The Covid-19 pandemic situation is currently evolving and ensuing, and its far-reaching effects are not yet assessed fully uTrying times companies in many sectors will be forced to review the terms of existing contracts to determine their legal responsibilities amid Covid-19 CO MMM ENENENENNNENNENENENNNNNENENNNNNNNNNNNNNNNE NENENENNNENNNNNNNNNNNNNEENENNNENENENNENNENENNNNEEEEEENENENNENNNEEEEENENEEENEE NNEEEENEEENEEEEENENE NEEEEETTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT / By Ash Businesses and transactions have been able to run, nonetheless, putting to use the available technological alternatives. As a result, physical meetings have C OMMENT arabianbusiness.com 11 the government’s restrictive measures. Other sectors are not left with many options, except for the contracting parties to review terms of their underlying contracts and check the scope and extent of the applicability of force majeure clauses. The Covid-19 pandemic and the preventive compensate the other party. An incomplete clause therefore makes positions lopsided with a weak shield for the obligor and a heavy sword for the creditor. Courts On the other hand, the absence of such a clause, or such clause submitting to the prevailing laws, may give parties the option to determine the fate of the contract in accordance with the prevailing laws. However, this may also be marred by its time and cost impact due to the involvement of courts or dispute resolution forums. Eventually it may rest on the contracting parties to consider the applicable force majeure clause and apply the same in a way so as not to make it too onerous on any one party to the contract. For effective application, force majeure clauses may be drafted with the widest possible inclusions like “any pandemic”, “virus/ biotech disasters”, “leakage or spillage of nuclear/ hazardous items”, “biological warfare” and cover situations like “lockdowns”, “restrictions on public/cargo movement” and so on. Further, parties may also consider incorporating a limitation of liability clause to deal with a force majeure event. The Covid-19 pandemic situation is currently evolving and ensuing, and its far-reaching effects are not yet fully assessed. For the time being, it is for the contracting parties to assess their obligations in view of the existing circumstances, Q FOR THE TIME BEING, IT IS FOR THE CONTRACTING PARTIES TO ASSESS THEIR OBLIGATIONS IN VIEW OF THE EXISTING CIRCUSMTANCES” QIT MAY BE PERCEIVED THAT THE EXISTENCE OF THE PANDEMIC FOR CONTINUED PERIODS WILL LIKELY INVITE THE IMPOSITION OF GREATER RESTRICTIONS” measures taken in respect thereof may not be uniformly applicable to every sector. Frustrated In cases where restrictions imposed by the governments have rendered performance of obligations impossible, it may be said that the contract has been frustrated. When a contract is frustrated, the parties may invoke the force majeure clause to determine the fate of the contract. The force majeure clause in a contract holds great significance in the prevailing times of the Covid pandemic and lockdown. Such clauses usually describe the applicable force majeure events, like natural calamities, government sanctions, and war, and set forth the consequential terms for when performance becomes difficult or impossible during such times. Interpreted literally, a typical force majeure clause may not effectively cover all events causing impediments on the performance of obligations, and therefore may not be able to shield the interests of the obligors – who may still be required to perform despite the situation, or with special reference to force majeure clauses, if any. Defence For the defence of force majeure, it is essential for the obligor to notify the creditor regarding the former’s inability to perform its obligations. Inasmuch as the Covid-19 pandemic has taken the entire world, within its grip, contracting parties even in different jurisdictions would be able to appreciate the impact thereof. It is therefore essential for the parties to keep communicating about their respective positions, to determine and agree upon terms suited to the best interests of both. The exact financial implications of frustration of contracts or application of force majeure clauses following the Covid-19 pandemic may be assessed in view of the implications following either the full rescinding of a contract or the extinguishment of a part of the obligations rendered impossible due to circumstances following the pandemic situation. However, the implications will also depend on the period that the pandemic continues to exist, and how soon an effective cure is devised. It may be perceived that the existence of the pandemic for continued periods will likely invite the imposition of greater restrictions, which may have negative multiplier effects on sectors otherwise unaffected by the pandemic situation. Under such circumstances, the financial implications would be far reaching. 12 Vol. 21/09, April – May 2020 Many of the countries due to participate have been significantly impacted by Covid-19 and sought to delay the opening of Expo 2020 Dubai by a year to enable them to overcome this challenge. Mohamed Al Ansaari, vice president, Communications at Expo 2020 Dubai, tells Arabian Business: “We are absolutely committed to hosting Expo 2020 and look forward to delivering an exceptional World Expo, at the right time.” Livermore also believes a postponement would be for the benefit of everyone concerned. He says: “The postponement clearly removes one of the factors that could drive a strong recovery from the coronavirus pandemic in late 2020/early 2021. However, the lingering effects of the pandemic did mean that the Expo 2020 was at best going to get off to a very slow start. “Delaying a year therefore makes it much likelier that Expo Dubai is a success and achieves its goals, thereby making a bigger overall contribution to the economy.” IF EXPO 2020 IS TO BE HELD 12 months later in 2021, then immediate funds for the world showcase should be channelled into supporting Dubai’s fight against coronavirus, according to a leading economist. The Executive Committee of the Bureau International des Expositions (BIE) earlier last week unanimously agreed to propose the postponement of Expo 2020 Dubai to 1 October 2021 – 31 March 2022. Any shift, however, requires the support of a two-thirds majority of member states of the BIE. Voting will be carried out remotely between Friday, April 24 and Friday, May 29. Scott Livemore, ICAEW Economic Advisor & Senior Economist at Oxford Economics, tells Arabian Business Expo funds should be spent on safeguarding the emirate’s economy. He says: “The government needs to be very active in supporting the economy and divert some of the capital spending to completing preparation for Expo 2020 to provide additional relief to SMEs and support households that have individuals who have lost their job or have been furloughed.” Government action Earlier this month, the UAE Central Bank doubled to $70bn a stimulus package to support the Gulf state’s economy amid the coronavirus pandemic. Expo 2020 Dubai, the first World Expo held in the Middle East, Africa and South Asia region, was set to open on October 20 this year, host 192 countries and welcome some 25 million visits over 173 days. World showcase event, due to start in October, likely to be postponed until 2021 Expo 2020 Dubai funds should be used to boost emirate’s economy, says leading economist By Gavin Gibbon THE BIG S T O RY / E VENT S u Expo 2020 Dubai was set to host 192 countries and welcome 25 million visits during its 173-day runRRRRRRRRRRRREEEEEEEEEFFFFFFFFFFFIIIIIIIIINNNNNNNNNNNNNNNNIIIINNNNNNNNNNNNNNNNNNNGGGGGGGGGGGGGGGGGGGGGGAAAAAAAANNNNNNNNNNNNDDDDDDDDDDDDDPPPPPPPPPPPPPPPEEEEEEEEEETTTTTTTTTTTTRRRRRRROOOOOOOOOOOOOCCCCCCCCCCHHHHHHHHHHHHHHHEEEEEEEEEEEEEEMMMMMMMMMMMMMIIIIICCCCCCCCCCCCCCCAAAAAAAAAALLLLLLLLLLLLLSSSSSSSSSSSSSSSMMMMMMMMMMEEEEEE......CCCCCCCCCCOOOOOOOOOOOOOOOMMMMMMMMMMMMMMMMTHE BIG PICTURE A picture taken on April 18, 2020 during the World Heritage Day shows the Great Pyramids lighten up with blue light and a laser projection with the message “Stay Home” on the Giza plateau outside the Egyptian capital of Cairo, as the country fights the spread of the Covid-19 virus. PHOTO BY KHALED DESOUKI/AFP VIA GETTY IMAGESCOVER STORY By Lubna Hamdan Real estate agents were earning $500m a year in commissions. But Covid-19 has left them fighting for their futures Bye, bye brokers?18 Vol. 21/09, April – May 2020 were still boasting of private island tours in helicopters on the way to holiday in the Seychelles. How the world has changed. Today Covid-19 has forced brokers to swap their Zuma dinners for Zoom meetings to discuss not multi-million dollar deals, but whether they should brace for a crash expected to be worse than the 2008 financial crisis. in Dubai even jumped by almost 10 percent in Q1 2020 compared to Q1 last year, with a total of 10,243 compared to 9,317, according to figures by Property Finder. The total is the highest number of sales transactions recorded in Q1 in the city since 2017. Yes, real estate brokers in the oil rich Emirates were having the time of their lives. Just two months ago some u Dubai’s real estate market saw a 10 percent rise in transactions in Q1 2020 compared to last year $500m The estimated amount of commissions real estate agents made in the UAE in 2018 INNERS A T ZUMA, drives in Porsches, open houses in Armani suits, handshakes in $20,000 watches and $6m deals closed over rounds of golf - welcome to the life of some of the UAE’s top property agents. A sluggish market didn’t stop those in Dubai making nearly $300m in commissions during the first nine months of 2018 alone, while the countrywide figure could easily be estimated at half a billion dollars. Real estate transactions D “Ther” C OVER S T O RY / REAL E STAT E arabianbusiness.com 19 / REAL E STAT E financial crisis,” Haider Ali Khan, the CEO of online prop- erty portal Bayut.com, tells me. “They were difficult times, but mobility wasn’t restricted then. Now the whole world is restricted. These are truly unprecedented times”. In the front line of the war against coronavirus are the brokerages, the smallest of whom are expected to pay the highest price. Crash, what crash? Property sales have, unsur- prisingly, come to a near halt as countries around the world adhere to strict lock- down measures to curb the spread of the virus. The UAE announced a 24-hour curfew for two weeks on April 4 and has since extended it. “I worked in the US during the 2001 internet recession and then during the 2008 “We can’t get away from the fact we’re in a crisis. We can’t do business. We can’t really earn money at the moment,” says Andrew Cummings, managing director at Dubai- based LuxuryProperty.com. “Sales have definitely slowed down, a lot.” But mention the word ‘property crash’ to Cummings and he instantly turns on his persuasive charms we can only assume work well on potential buyers. “I don’t think we’re going to see a crash, no. There will be an element of distressed sales but if anything, Dubai’s incredible handling of this pandemic means a lot of people will be looking at Dubai and saying, u Dubizzle’s top priority is to look after stakeholders u A view of the Dubai Marina Dubai rental market provides opportunity for tenant negotiations, says report Commercial and residential tenants in Dubai are in as strong a position as ever to negotiate new contracts, according to the latest market report from Core Real Estate. The outbreak of coronavirus continues to cause economic uncertainty, with many employers choosing to reduce hours and, in some instances, salaries. However, research from Core from Q1 this year suggests that this may provide an opportunity for those in the rental market. The report said: “We continue to see enquiries and online searches as tenants are either looking to fi nd the current rental value of their property to help them negotiate with their landlords or to relocate and reduce their rental outfl ow.” “I don’t think we’re going to see a crash, no [but] there will be an element of distressed sales” u 100 brokers took down 9,000 listings from Property Finder last month $300m The amount of commissions brokers made in Dubai in the fi rst nine months of 2018Next >