While it is still common in the UAE for construction contracts to be governed by English law, the Abu Dhabi government passed Law No. 21 of 2006 to mandate prescribed standard forms of construction contract for projects initiated by government entities. International contractors may have taken heart at the time to discover that these forms were heavily based on FIDIC forms. However, familiarity with one contract form can lead to a false sense of security and unexpected surprises when applied in another jurisdiction. Whether FIDIC, any other standard form or bespoke, the contract itself is only half the story. Construction contracts governed by UAE law will always be subject to the UAE Civil Code, and (not unlike many other Civil Codes) there can be unwelcome surprises for the unwary.
For example, Article 390 of the UAE Civil Code permits contracting parties to agree in advance what compensation will be payable in the event of a breach, in much the same way that English law has developed to
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The real sting in this is that it can apply even if the contract is governed by a law other than UAE law. If the property in question is situated in the UAE, a UAE employer seeking the enforceability of decennial liability could expect reasonable prospects of success in the local courts.
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permit the concept of liquidated or agreed damages clauses. However, Article 390 grants judges the discretion to vary the agreement downwards so that the levels of damages equal the actual loss suffered. There are similar provisions giving judges such discretion in many other Middle Eastern Civil Codes including in some (the Jordanian for example) arguably the discretion to vary the damages upwards as well as downwards to reflect the true loss. While common law judges usually refrain from interfering with the parties' freedom to agree on commercial terms (whether imprudent or otherwise) under the Civil Codes of many Middle Eastern countries, a judge has the discretion to reduce the amount to be paid to zero or to some other sum which it considers to be appropriate. How, in practice, such discretion is exercised in local courts is not always clear and such precedents as there are from local courts can be very hard to follow or
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The general position under Article 267 is that a contract may be terminated in three ways: mutual consent; court order; or by force of law (even though this Article appears to be directed at cases where the contract is silent on the matter).
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draw any reliable conclusions from. Discerning the true effect of such provisions can be far from easy and consequently it is perhaps no surprise that, notwithstanding that they have the power to do so by applying the governing law, Arbitral Tribunals are often more reluctant to interfere with the bargain and exercise such discretion than judges in the local courts.
Perhaps one of the major differences between the common law and civil jurisdictions in a construction context is the notion of decennial liability which can still come as an unwelcome surprise to many international contractors. For example, Article 880 of the UAE Civil Code imposes a joint liability on the contractor and the designer for a period of 10 years for the total or partial collapse of a building or for a defect which threatens the stability of the building. This liability is strict; even if the contractor can be shown to have used reasonable skill and care and complied with recognized standards, or if the defect was unforeseen, decennial liability still applies, irrespective of any shorter defects liability period or other such contractual limitation. The real sting in this is that it can apply even if the contract is governed by a law other than UAE law. If the property in question is situated in the UAE, a UAE employer seeking the enforceability of decennial liability could expect reasonable prospects of success in the local courts. Again, it might be considered that such arguments would have less prospects of success before an Arbitral Tribunal composed of common law arbitrators who might be expected to give effect to the express bargain agreed including limitations on liability in preference to applying the local, but non governing law of the contract.
While on the subject of limitation, parties should be aware that under Article 473 of the UAE Civil Code, the limitation period for contractual claims in civil matters in the UAE is 15 years from the date the cause of action arises (and generally 10 years in commercial matters under Article 95).
The issue of unilateral termination of a contract still provokes debate in the UAE. Termination is addressed in several articles of the UAE Civil Code. However, depending on interpretation (and with the absence of clarity provided by binding precedent) a court order may be required for a unilateral termination to be enforceable. The general position under Article 267 is that a contract
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Time and again Arbitral Tribunals show themselves to be reticent to apply what might be considered to be alien concepts quite as freely as applied by local courts.
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may be terminated in three ways: mutual consent; court order; or by force of law (although this Article appears to be directed at cases where the contract is silent on the matter). While strong arguments can be made (for example, under Articles 246 and 258) for the legality of unilateral termination where the contract provides for such, if a challenge is made it will often be submitted to the courts.
The position can also be complicated if disputes (including as to termination) have been agreed to be submitted to International Arbitration rather than the local courts. UAE law has similar principles to English law on mitigation. However, in the UAE context, mitigation could be even more crucial. A positive duty is placed on the innocent party to mitigate losses to the extent that recoverable losses are those which cannot be avoided by exerting reasonable effort. Furthermore a judge can reduce the level of compensation (even to zero) where the innocent party participated in or aggravated its own loss. When things go well, a construction contract itself seems to be relegated to simply a procedure manual for managing the associated project, and it's only when things go wrong, that it comes to the fore. When familiar precepts are placed in different jurisdictions, the impact of the local law can fundamentally alter their treatment. Contractors and employers alike should always consider the impact of local law and take appropriate measures to mitigate such risks. One such measure can be to consider International Arbitration for the resolution of disputes. Time and again Arbitral Tribunals show themselves to be reticent to apply what might be considered to be alien concepts quite as freely as applied by local courts. This is particularly so where the application of such concepts drives the proverbial coach and horses through the express terms of the bargain.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
