Saudi Arabia’s Supreme Court has agreed to consider the COVID-19 pandemic as an emergency situation if the commitment or contract could only be executed with an unusual loss, and force majeure if the implementation became impossible, local media reported.
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The pandemic poses particular risks in the country as it is in a period of massive economic and social development, with more than $1.6 trillion in construction projects underway, including the multi-billion dollar giga projects of the Red Sea Development and NEOM.
Okaz quoted informed sources as saying that the application shall be effective if the contract was concluded before the start of the COVID-19 precautionary measures and its implementation continued after its occurrence, that the impact of the pandemic is directly on the contract and cannot be avoided, that the impact of the pandemic on the contract is independent, that the affected person has not waived his right, and finally, that the effects of the pandemic and its damage should not have been treated by a special system, or by a decision of the competent authority.
The Supreme Court affirmed that, after looking into the surrounding circumstances, it undertakes to amend the contractual obligation affected by the pandemic, in order to achieve justice.
The court affirmed that the provisions will be applied in the rental contracts of real estate and movable property affected by the pandemic in two cases: The first is if, due to the pandemic, the tenant is unable to use the leased property wholly or in part, then the court will reduce the rent to the extent that it decreases from the usual intended benefit. In the second case, the landlord shall not be granted the right to revoke the contract if the tenant defaulted on paying the rent for the period during which it was impossible to fully or partly use the property, because of the pandemic.
Concerning construction, supply contracts and the like that have been affected by the pandemic, the court ruled: First, if the pandemic increased the value of materials, labour wages, and the like, the court shall increase the value of the contract, provided that the obligor bears that increase to the reasonable level, then turn down what exceeds that, but the obligor shall, in this case, have the right to request the termination of the contract. In the event that the material price increase is temporary, the court will suspend the implementation of the commitment after that period. And if the pandemic caused shortage of goods, then the court will decrease the quantity required from the suppliers to the extent it deems sufficient to remove any unusual harm to them.
If the pandemic causes temporary lack of materials, the court shall suspend the commitment temporarily, if the obliges are not seriously affected by this suspension, and if they sustained massive damages, then they have the right to request an annulment. The court will write off the commitment at the request of a contracting party if it is impossible to implement.
If the construction contract is an obligation to perform work and if the pandemic made it impossible for work under a construction contract to be completed on time, the court shall rule to stop implementing the obligation for a temporary period. But the obligees have the right to file for revoking the contract if they sustain huge damages because of the suspension of the obligation.
The Supreme Court said the penalty clause, fines, or the withdrawal of the project, shall not be fully or partially applied — depending on the case — if COVID-19 is the reason for delaying the implementation of the obligation. When an emergency situation or force majeure clause is included in a contract, there shall be no effect of that clause, and the party that breaches any obligation shall take the burden of proving that the pandemic caused such delay, the Supreme Court ruled.
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