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Diplomatic Crisis and Sanctions – Qatar & UAE – Arbitration Impact

 The Middle East is a country heavily affected by economic sanctions. The recent Qatari crisis will lead to implications in the practice of arbitration in the region considering the upcoming World Cup 2022 and the Expo 2020. Existing underlying contracts could be impacted by the sanctions and should be looked at with the aim to mitigate its effects. Early contractual drafting stages in the region should also be aware of the proliferation of sanctions in the region and anticipate specific clauses dealing with sanctions and the possibility to apply contractual variations.

 

Since June 2017 the UAE, Saudi Arabia, Bahrain and Egypt severed diplomatic relations with Qatar blocking Qatari airplanes and ships from entering their airspace with Saudi Arabia blocking the only land crossing.

 

The rationale for the halt of relations is rooted in a media attack against the Qatari News Agency that would reveal the resentment towards the United States for the blockage of Iran and the support of various terrorist groups.

 

Qatar has denied the allegations and has refused to accept the requests to lift the blockage (amidst others: closing of Al Jazeera and halting support to Iran and terrorism). One year later, Qatar banned all goods arriving from the blocking countries. 

 

This is the current status of diplomatic relations as of April 2019.

 

In parallel to the Qatari situation, the MENA regions is a region heavily affected by the proliferation of sanctions, aimed to try to alter decisions of state and non-state actors that threaten a state’s interests of violate international norms of behavior (democracy, human rights or the rule of law).

 

Current sanctions by UN Security Council, the US or the EU affect Afganistan, Iran, Iraq, Lebanon, Syria and Yemen, Burundi, Central Africa, Darfur, Egypt, Eritrea, Guinea-Bissau, Guinea, Libya, Mali, Somalia, South Sudan, Sudan, Tunisia and Zimbabwe, etc. 

How are underlying contracts in preparation of Qatar 2022 or Expo 2020 between countries affected by the crisis expected to be affected?

 

There are two forms of potential impact, substantive and procedural:

 

       Substantive: for example, could a UAE entity deliver goods under an existing contract for the supply of items on occasion of Qatar 2022? Would an Arbitral Tribunal see force majeure hardship or frustration under such impossibility? 

The Tribunal will need to consider the impossibility to seek an alternative to meet contractual obligations and will need to assess the risk assumption by the parties by revising the force majeure clause in the contract. 

 

       From the Procedural angle there are a number of aspects to be considered that are likely to affect the arbitration. While it is generally accepted that arbitrators can decide on matters affecting sanctions there are a number of issues to be considered:

o  Can I appoint a Qatari arbitrator for an arbitration being held in Saudi or UAE?  Will it have an impact?

o  Can a UAE based arbitral institutions receive funds from a bank in Qatar? This is an often raised question when dealing with Iranian Parties given the in place US sanctions against Iran.

o  Will awards rendered in favor of a Qatari party be likely to be enforced in the UAE or Saudi? 

These substantive and procedural questions are a call for action. Existing contracts should be looked at to mitigate their impact. New contracts in the region should keep the existing and potential relations in an aim to make room for sanctions and contractual adaptation. 

 

Given the current world state of affairs the former unexpected is the new likely, raising a number of former force majeure considerations to the front line. 

 

**This does not constitute legal advice. It is a note of general application on current state of affairs in the region.