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CONSTRUCTION LAW

COMPANY

PROFILE

Al Tamimi & Company, originally established in 1989, is today one of the leading law firms in the Arabian Gulf region. It is the largest local, non-affiliated law firm in the United Arab Emirates with offices in Dubai, Abu Dhabi, Sharjah and Baghdad, and an associate office in Doha. Al Tamimi & Company specialises in Banking & Finance, Corporate / Commercial and Communications, Information Technology & Media, Intellectual Property, Litigation, Arbitration & Alternative Dispute Resolution, Maritime, Trade & Insurance, Construction and Property Law. An international team of high calibre lawyers ably serves clients from the United Kingdom, North America, Europe, the United Arab Emirates and several other Arab countries. Each member of our team of professionals and qualified administrative staff is fully committed to providing our clients with accurate, thorough and cost effective advice. Within the U.A.E. we regularly confer with government ministries during the introduction of new legislation and the ongoing amendment of internal regulations, relying on long established contacts in all government departments. The firm can assist multinational companies to establish operations in the U.A.E. independently, or in association with local partners. Both our local clients, many of whom have business interests outside the United Arab Emirates, and our international companies, rely on our global perspective.

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PUBLICATIONS PRODUCED BY AL TAMIMI & COMPANY


The informative brochures listed below are available free of charge from the lobby of any of our offices in the UAE. We would also be happy to send them to you by post if you contact our Dubai office reception. Alternatively, the text of the brochures may be accessed on our website at www.tamimi.com Arbitration: Theory and Practice in the United Arab Emirates Laws Regulating Insurance in the United Arab Emirates International Agreements, Conventions & Protocols, signed by the Goverment of UAE 1971-2004 UAE Immigration Laws and proceedures in Dubai E-Commerce and the UAE Law Companies under the UAE Commercial Companies Law Registration of Trademarks Registration of Industrial Patents, Drawings and Designs in the United Arab Emirates Copyright Law in the United Arab Emirates UAE Construction Law and Dispute Resolution Media Query- Setting up in Dubai Media City IT Query - E-Commerce and the UAE Law IT Query- Setting up in Dubai Internet City Framework for Litigation in the United Arab Emirates Islamic Finance- A UAE Legal Perspective Banking and Security law in the UAE Establishing Offshore Companies in the Jebel Ali Free Zone IT Query- Setting Up in Dubai Internet City Taxation Law in the UAE The GCC Enocomic Agreement and Customs Law Standardisation and Classification in the UAE Law of Tort Commercial Companies Law in the UAE Joint Ventures in the UAE Inheritence Law in the UAE Property Law in the UAE Patents, Designs & Models

Al Tamimi & Company also has a free monthly newsletter called Law Update which provides readers with the latest news on legal and commercial developments in the region. To subscribe please send an email to: marketing@tamimi.com or call +971 4 3317090 or Fax: +971 4 3313177.

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CONSTRUCTION LAW

INTRODUCTION

Construction Practice AL Tamimi & Companys construction practice is at the heart of one of the most dynamic and burgeoning industries. Dubai is currently the largest construction site in the world and our firms legal services, provided by experienced high-pedigree lawyers and advocates, continuously address the needs of contractors and architects. From setting up, to contract review and dispute resolution, our legal input has helped numerous members of the construction industry to succeed in what is an increasingly demanding and competitive market. The number of construction projects and related contracts has increased substantially in the UAE over the last decade. This has inevitably given rise to significant numbers of claims either between contractors and owners / employers or between contractors and sub-contractors. These disputes are resolved either by way of conciliation or arbitration and are predominantly held in the English language, with specialist arbitrators appointed due to the technical nature of the aspects involved. Litigation is a less preferred mode of dispute resolution in the construction industry, although there are a number of Court rulings on important aspects of construction law. As a consequence of this, focus on construction law is increasing. The articles set out herein seek to address some of the most often encountered issues in construction law related disputes.

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INDEX

Consultants and contractors Consult before contracting!.......................................................................................................04 Architects liability under UAE Law............................................................................................09 But I thought we agreed! Can a contractors limit of liability be broken?..........................................................................13 Benefits and drawbacks for contractors in commencing arbitration / litigation prior to completion of works..................................................................17 Advantages and disadvantages of various methods of construction dispute resolution............20 Arbitration practice in the UAE.................................................................................................23 Know now your basics: Critical UAE arbitration stages............................................................30 Conditional payment clauses under construction contracts.......................................................35 All work and no pay? Can a contractor suspend works following delay in payment?.................................................38 Insuring a design and designing an insurance..........................................................................43 So what have you lost?............................................................................................................47 Construction time bars under UAE Law.....................................................................................51 To suspend works or not to suspend works? The contractors perenial dilemma ..........................................................................................55 Preparing early for works that may be late Effective documentary management for UAE delay and disruption claims...............................59

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CONSULTANTS AND CONTRACTORS: CONSULT BEFORE CONTRACTING!


Contractual transactions in the world of construction that are devoid of legal input are fraught with pitfalls.

arties to construction or consulting contracts invariably refer to lawyers aspects that need legal input only after major disputes have arisen or are about to arise. Other times, the lawyers are only wheeled in when both parties are contemplating the prospect of commencing arbitration or litigation and worse still, when this has already started with many potentially critical - errors. Most construction related contracts involve very substantial amounts of money and obligations that can linger for periods of time much longer than the actual duration of the works. Obtaining legal input prior to the signing of a contract in the construction field is far from throwing good money after bad: it is an essential and wise precaution that can not only cater for a dispute that may arise but can also limit the prospects of that dispute arising in the first place. The main purpose of legal consultation is to balance the interests of the parties and to ensure that their intentions are clearly set out in a legally binding document and in a form that is understandable both to the contracting parties and to a future judge or panel of arbitrators. Very often contract managers working for either party may overlook important legal fine tuning despite their admittedly substantial experience in negotiating the commercial substance of contracts. But commercial substance without strong legal footing may lead to the creation of obstacles that can prove virtually impossible to overcome.

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Just a small sample of these as they belatedly arrive at a construction lawyers office are the following: 1. Unsigned and unstamped contracts : possibly not worthy of the paper they are written on Very often construction works proceed before the contract has been signed and it is not unusual for the entire document (which very often is a voluminous document containing amendments and amplifications of various FIDIC based or other standard forms of construction contracts) to remain unsigned throughout the duration of the works. This can have substantial legal implications if a dispute arises thereafter and is brought before a panel of arbitrators or before the UAE Courts. Whilst the very presence of the works and services provided will probably not be put to question, local law and legislation does pay great attention to form and procedure: absence of signatures and stamps in the main contract (including initialing and stamping each page of the contract) may present evidential difficulties to either or both parties when they seek to rely on any specific clause. 2. Arbitration clauses : be careful what you wish for These are often either incomplete or are incorporated by reference only to a main contract or, more often, to a sub-contract. Arbitration clauses included by reference only may not be enforceable or recognised by the UAE Courts. This may lead to an entire nullification of the award by the UAE Courts and loss of precious time and costs by both parties. Ensuring that a dispute resolution clause, whether arbitration, mediation or litigation, is drafted clearly becomes essential in any construction contract so that there can be no question as to how disputes are to be resolved. Aside from this, very often arbitration clauses are drafted in such a way that the appointment of the arbitrator is left unbeknownst to the parties to the UAE Courts, who may not have an extensive list of specialists in the area of law or practice that the parties require. This may result in arbitration proceedings quite different to what the parties contemplated at the time of contracting. 3. Overriding mandatory law provisions its not just whats in the contract Clauses relating to limitation of liability (particularly defects liability) may not be enforceable under UAE Law as they may be overridden by mandatory law provisions.

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For example, including a defects liability clause for two years only for all defects may not be upheld under UAE Law because Article 880 of the UAE Civil Law stipulates that the decennial defects liability period will apply to major defects affecting the stability or safety of any structure and such decennial liability cannot be decreased even by the consent of the parties. Contactors and architects liabilities are quite rigidly set out in local law, setting impenetrable boundaries for a contracting party that is not aware of them and who may be lulled into a sense of false security in the thought that any limitation of liability clause will be legally enforceable. 4. What did you mean by that? The importance of parties intentions On various issues the intentions of the parties may be unclear to a third party, bystander or an independent arbitrator/judge who will try to deduce these after the event and on the basis of possibly non contemporaneous evidence. This can lead both to a misinterpretation and to an unfair award/judgment. Obtaining legal input on contractual documentation prior to its signing can ensure that the intentions of both parties are reflected clearly on clauses that may have been inserted with a certain understanding in mind from both parties but not drafted clearly enough to be identified by a third party. 5. Local Government Legislation each emirate may be different Construction contracts drafted without legal consultation often ignore local

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government laws applicable in a specific emirate. This will be particularly relevant to circumstances where one party to the contract is a government entity.

6. UAE case law the way the Courts think It may be useful to be aware of the general attitude Courts take when various construction related disputes are put before them for their resolution. By the use of recent case law, legal consultation may assist in fine tuning various clauses to reflect the way with which they may be treated by UAE Courts. 7. Delay whose fault? More often than not, construction disputes arise due to a delaying event, the responsibility for which has not been dealt with in the contract. Legal consultation may help in identifying such potential delaying events, placing the responsibility for each one of them on either party to the contract and generally setting out in a legally binding form the apportionment of liability for all predictable delaying factors. 8. Back to back contracts its not that simple Very often subcontracts are drafted on a back to back basis and this phrase is

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abundant in various parts of a subcontract. Back to back is not a legal term and may not mean much to a dispute resolution authority (particularly to the UAE Courts) if its substance is not reflected in the subcontract with an express explanation of what clauses of the main contract are to apply by analogy or verbatim to the subcontract. Furthermore, certain clauses, such as an arbitration clause, cannot be included in a subcontract by reference to a back to back arrangement and neither can an entire main contract necessarily be deemed to have been viewed by the subcontractor purely by virtue of such reference. One of the reasons why disputes, arising out of construction contracts, are eventually referred to arbitration or litigation is because their wording has been unclear, inadequately drafted and has not clearly reflected the true intentions of the parties. As such, perceived intentions become the object of interpretation and disagreement leading up to legal battles. This could be limited (and occasionally altogether avoided) if, following legal advice, intentions are identified clearly and with heed to UAE Law the ultimately determining factor of rights, obligations and amounts awarded locally.

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Architects liability under UAE Law


A look at how UAE Law treats architectural liability for both design and supervision, as well as how the two are differentiated.

oes an architect have as much exposure as a contractor when it comes to issues of liability? More worryingly, could it be even wider? Relevant liability provisions under UAE Law stretch out their ambit to encompass the errors and omissions of most parties actively involved in a project and the architects are of course no exception. Defects liability period The defects liability period under UAE Law is crucial to any party to a designing contract primarily because of its decennial (10 year-long) duration and its mandatory nature. The UAE Law defects liability period relevant provisions states that if the subject matter of the contract is the construction of buildings or other fixed installations, the plans for which are made by an architect, to be carried out by the contractor under his supervision, they shall both be jointly liable for a period of ten years to make compensation to the employer for any total or partial collapse of the building they have constructed or installation they have erected, and for any defect which threatens the stability or safety of the building, unless the contract specifies a longer period. The only exception to the above is if the contracting parties intend that the structure to be constructed will remain in place for a period of less than ten years. A further leap over circumstances that most architects may not consider relevant to them is set out in UAE Law wherein it is stated that the architects obligation to compensate for the damage caused shall remain, notwithstanding that the defect or collapse of the structure was related to the land itself or that the employer consented to the construction of the defective buildings or installations.

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There a number of issues arising as a result of these provisions, the most important of which for architects are the following: 1. The decennial defects liability period will only apply to major defects affecting the stability or safety of a structure. Independent or Court appointed experts could determine the nature of a defect and establish its importance. 2. Decennial liability is joint both for the architect (designer) and the contractor. In practice, this means that the employer can commence a legal action or arbitration proceedings for any major defect affecting stability or safety of a structure, both against the architect/designer and the contractor without being obliged to decide whether the defect is of a designing or structural nature. The outcome of a Court action or arbitration proceedings could be either that liability is apportioned between designer and contractor, or that only one of the two parties is liable, or that both are liable for the whole amount (in which case the employer is entitled to look for compensation from either one or both parties). 3. The decennial liability period will not affect minor defects, the liability period for which can be contractually agreed between the parties. It is important to note that in many construction contracts the parties agree a defects liability period without specifying whether that period relates to minor defects or major defects. In practice and under UAE Law, this defects liability provision will be construed as applying only to minor defects as the limitation period for major defects is the subject of mandatory UAE Law which the parties cannot contract out of. In this respect, Article 880 of the UAE Civil Law does provide that the parties may agree to extend the liability period for major defects beyond the 10 years provided in that Article. An exception to the architects/designers joint liability is set out in Article 881 which states that: If the work of the architect is restricted to making the plans to the exclusion of supervising the execution, he shall be liable for defects in the plans. In circumstances where it is clear that the architects/designers scope of work was limited to designing the drawings/plans for the structure in question and that no supervision of the execution and construction was included in its obligation, the architects/designers liability will be limited to purely architectural/designing errors in the plans and any structural error would be the responsibility of the contractor.

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Limitation of Liability The position with regard to limitation of liability reflects the provisions of the defects liability period of the UAE Civil Law. Article 878 of the UAE Civil Law states that: The contractor shall be liable for any loss or damage resulting from his act or work whether arising through his wrongful act or default or not, but he shall not be liable if it arises out of an event which could not have been prevented. The three major elements arising out of this provision are as follows: The contractors liability for defects affecting the stability or safety (major defects) of a structure is unlimited. With regard to the cause of such defect the only exemption is events which could not have been prevented. These can be acts of war, unpredictable weather related events, riots or events that were carried out by third parties over which the contractor had no power or control. The burden of proof of an extraordinary event which could not have been prevented, causing a major defect lies with the contractor. With regard to minor defects, the UAE legal position on limitation of contractors liability is more flexible and allows all parties to engage in an enforceable contractual agreement reflecting their wishes. Article 882 of the UAE Civil Law states that:

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Any agreement the purport of which is to exempt the contractor or the architect from liability, or to limit such liability shall be void. Although the above provision does not specify for which type of defects the contractors liability is unlimited, in practice the parties cannot limit or contract out of defects liability provisions relating to major defects only. It is, however, possible to limit liability for defects that are minor and do not affect stability or safety of the structure. Being aware of which UAE statutory provisions are mandatory is important for the parties to a construction contract so that their respective intentions are not only reflected in the contract but also enforceable in law.

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BUT I THOUGHT WE AGREED! Can a contractors limit of liability be broken?

cornerstone to any construction contract from the contractors point of view is a clause giving the perceived comfort that regardless of what goes wrong, the maximum exposure with which the contractor would be faced is a fixed percentage (typically 10%) of the contract price. This clause is usually headed Liquidated damages or Limitation of Liability. However, in circumstances where the employer feels that the contractor has caused him to suffer losses far exceeding the agreed limit of liability, he may be tempted to find ways of breaking that limit. Is this possible and does UAE Law allow it?

Before dealing with this question, it is best to have a brief look at how a contractors liability is dealt with under UAE Law. Is limitation of liability possible in the first place? Contractor's liability is governed by UAE Civil Law provisions stating that the contractor shall be liable for any loss or damage resulting from his work whether arising through his wrongful act or default or not. There is also a provision stating that any agreement the purport of which is to exempt the contractor or the architect from liability, or to limit such liability, shall be void. However, this last provision, when read within the context of the surrounding provisions, only prohibits limitation of liability for major defects affecting stability or safety of a structure. It follows on from other

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articles of the law that expressly refer to issues of defect liability, setting out the joint (for architect and contractor) decennial (ten-year-long) liability for major defects affecting stability and safety and limiting this liability to designing errors only in the case of an architect who only designed and did not supervise implementation of his designs. Whilst it is not expressly stated in these provisions, by the process of elimination it is generally accepted that a contractors liability can be limited by agreement with regard to minor defects not affecting stability or safety of a structure. This is usually reflected in the Maintenance period or Defects liability period section of a standard construction contract. What about liability for delay? The good news is that parties to any type of contract would be free to limit their liability to the extent allowed by UAE Law. A specific provision states that parties can fix in advance a specified level of compensation to be paid in lieu of losses incurred. In a construction contract this is referred to as limitation of liability. The preferred term used for the specified compensation is liquidated damages as opposed to penalty because the former presupposes that losses have to be incurred and proven first whereas the latter may be imposed regardless. The liquidated damages are normally agreed as a percentage of the contract value and the general intention of the parties is that for any delay caused by the contractor his maximum exposure would be that percentage (payment of which is usually secured by the employer through his obtaining an irrevocable bank guarantee from the contractor for the corresponding amount). Is there any bad news? There could be. A further UAE Law provision gives discretion to the judge for him to effectively break the limit of liability that was agreed between the parties and adjust it to the loss incurred. In many instances judges will recognise that freedom of contract should govern the intentions of the parties and will not interfere with freely negotiated contractual limits of liability. The power given to the judge is discretionary and this of course means that it may or may not be applied in a particular case.

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Is this discretion entirely arbitrary? There is no formal list of criteria on how this discretion is to be exercised. However, the position could depend on two issues: firstly how far the loss claimed is from the contractual limit of liability (the greater the difference, the more likely it could be that the judge may exercise his discretion). Secondly whether the difference, if substantial, could have been reduced in any way by the employer. So in a construction contract where the employer has already proven that the contractor is to blame for the delay incurred, there would be a number of further hurdles for the employer to overcome before he can rely on the discretion a UAE judge would have to break the contractors limit of liability. The employer should have to at least: Provide details of his loss (e.g. evidence of cancellations of confirmed bookings in a hotel that was supposed to have been completed by a certain date or evidence of a penalty paid as result of cancellation of an associated contract dependant upon the project being completed by a specific time). Link the contractors liability for delay directly to the loss he incurred (for example technical expert evidence that, were it not for the contractors delay, the loss claimed would not have been incurred). Point out a substantial difference between the loss incurred and the contractually agreed limit of liability. Prove that he has limited his loss (e.g. by replacing the delaying contractor with another, omitting to sign contracts bearing penalty provisions once it became obvious that the project would be delayed, etc.).

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So is there any point in agreeing a limit at all? Absolutely. Judges will often be reluctant to vary an agreed limit of compensation and instances where this has been carried out are comparatively rare. Therefore, it will always make sense for the limit of compensation to be included. However, it is advisable that the wording of the clause that stipulates what that limit will be, is such that it gives as clear an indication as possible on what the intentions of the parties were and what instances of potential liability they had in mind at the time of signing the contract. Simple clauses like Overall limit of liability: 10% of contract price or similar laconic references may increase the chances of a judge exercising his discretion to break the limit agreed. Extreme reliance by the contractor on such clauses could prove hazardous in certain cases. In order to break the limit, it is an extraordinary disparity between the instances initially envisaged and the ones that actually occurred that the employer would seek to allege. It would, therefore, serve contractors well to ensure that such an allegation appears one sided when compared with the mutually agreed and detailed wording of the contract.

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Benefits and drawbacks for contractors in commencing arbitration / litigation prior to completion of works

ore often than not the dispute resolution process related to construction contracts commences after the works are completed. Lawyers are instructed, voluminous correspondence is produced and extended statements of claim are drafted, all in preparation for a grand trial or arbitration, the cost and duration of which can be substantial. As in most aspects of a dispute resolution process, deciding when to commence arbitration/ litigation proceedings involves consideration of various benefits and drawbacks, the most prevailing ones of which are set out below: BENEFITS Increased Pressure on Employer

The threat of a dispute resolution process would start with the referral of a dispute to the engineer and end up with the appointment of an arbitration panel or the filing of a Court action before local courts. This procedure can apply substantial pressure on the employer, who would be, above all, interested in finalising the works as quickly as possible to avoid penalties arising from relevant project finance. Contractors stand many chances of resolving disputes in their favour if they commence arbitration proceedings as quickly as possible after a dispute (that merits its resolution by way of arbitration/litigation) arises.

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Early Commencement of Dispute Resolution The second major benefit of commencing arbitration / litigation prior to work completion is that the chances of successfully resolving the dispute in question are increased if it is dealt with shortly after it is formed and not left to augment through the passage of time, increase of costs etc. In all probability the dispute resolution process if commenced swiftly, will not run its full course as the attention of both parties will be focused on the dispute at an early stage and, in view of the overriding purpose of finalising the works, it is almost certain that the parties will seek to eliminate the prospects of progressing with an arbitration or litigation to the best of their ability. In any event, it is advisable that legal assistance is sought as soon as a dispute arises whether arbitration / litigation proceedings will be commenced or not. This is because, at an early stage, legal assistance may provide the parties seeking to resolve the dispute with a clear understanding of the legal position and the issues at stake as well as the strengths and weaknesses of any potential claim including the ultimate likely outcome of an arbitration award or final Court judgement. DRAWBACKS Dispute Resolution Process may effect progress of works One important element within the duration of the works is the relationship between the parties. Very often the offended party may legitimately become reluctant to commence full arbitration/ litigation proceedings for fear of damaging the all important relationship with the employer. In addition, commencing the dispute resolution early will not necessarily guarantee that such dispute will be successfully resolved to a satisfactory degree for both parties. If such satisfactory resolution does not take place, the parties relationship may be damaged to such a degree that termination of a contract may also be envisaged. This will ultimately have delay repercussions, which will affect both the employer, in terms of finalising the works in the envisaged time frame and the contractor, in terms of obtaining swift certification of applications for payment, ultimately leading to issuance of final certificate of payment.

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If the relationship with the employer is damaged substantially, from the commencement of arbitration or litigation proceedings prior to the completion of works and without principled negotiation having taken place, it is possible that also the cash flow of the contractor may be substantially affected, ultimately resulting in more money being spent in the pursuit of its claim than is being recovered through the progress of the works. Quantification of claims may be difficult to finalise prior to works completion A practical difficulty in successfully commencing arbitration/litigation prior to work completion is simply the fact that the quantum of the various heads of claims involved would not be finalised until works are completed, costs are assessed, man hours and materials/bills of quantities measured and adjusted. In addition, the possibility of further heads of claim arising that may be disconnected with each other at a later stage of the works is always a real one. Therefore, it may prove to be substantially costly if arbitration has commenced on a number of claims and before the arbitration proceedings are concluded and also prior to the works being completed - further disputes occur. These would give rise to the need to commence additional arbitration proceedings especially if the defending party does not agree to the inclusion of such further heads of claim to the current arbitration proceedings. This can be obstructive both to the resolution of disputes and to the financial exposure involved with such resolution. In short, deciding when to commence arbitration/litigation is a fine balancing act between: The need to ensure that disputes are identified and resolved swiftly and The common aim to complete the works with little or no interruption and as efficaciously as possible. This fine balance is best achieved when a decision to commence any dispute resolution process is made not as an act of aggression or threat but as a prudent and reasoned conclusion reached through a thorough and principled negotiation process that has identified the issues that can be resolved amicably and those that require the intervention of a mediator/arbitrator or the Court.

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Advantages and disadvantages of various methods of construction dispute resolution.

arties to a construction contract may wish to resolve their dispute through a number of methods all of which have their advantages and disadvantages.

The principle methods widely used locally and internationally are: Alternative Dispute Resolution (to include negotiation, mediation, conciliation and adjudication) Arbitration Litigation We examine below the benefits and drawbacks of resorting to any of the above dispute resolution methods. Alternative Dispute Resolution (ADR) An ADR option should ideally be incorporated in the contract for it to be binding on both parties. If it is not, the consent of both sides will be required for ADR to take place. The first stage of resolving a dispute would be for the parties to negotiate. The benefits of negotiations are of course related to low or no costs involved, combined with speed

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and an amicable desire for the parties to continue their commercial relationship. The disadvantages are that very often negotiations fail when there is lack of trust and confidence between the parties. The next step for resolving a dispute by way of alternative dispute resolution is to proceed to mediation/conciliation. Again, this method should ideally be incorporated in the dispute resolution clauses of the contracts. Whereas in a negotiation, resolution of a dispute takes place purely between the parties, in a mediation/conciliation the mediators/conciliator is a neutral party appointed by both sides to facilitate the negotiations and reach a resolution. The mediators/conciliators role is also to point out the strengths and weaknesses of each partys case and guide the parties to a negotiation process. The benefits of mediation and conciliation are almost the same as those of negotiation but also include the benefit of resolution of disputes involving complicated issues by a party possessing advanced technical or legal knowledge. In addition, mediaton / conciliation is more appropriate in multi-party disputes (for example, contractor, subcontractor, engineer or employer). As far as drawbacks are concerned, mediation / conciliation may not be appropriate if there is a need for interpretation of a controversial issue by a legal authority such as a Court or an Arbitral Tribunal or if any circumstances exist where one of the parties wishes to strongly discourage similar disputes from occurring in the future. Arbitration Arbitration is gradually becoming a popular dispute resolution mode in the UAE as specialised experts from various fields (particularly construction) are appointed as arbitrators in view of the better appreciation of the technical aspects of a dispute and their wealth of technical and legal experience. The advantages of arbitration as a dispute resolution method include the freedom of choice with respect to the arbitrator, the flexibility on procedure as rules can be agreed between the parties and the relative speed of issuance of an arbitration award compared to the time required for a final Court judgment to be delivered. In addition, arbitration awards are generally private and also final and binding to the parties with no further rights of appeal. On the disadvantages front, in the UAE an arbitral award needs to be authenticated/certified before the UAE Courts. This forces the winning party (in the event

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the losing party does not automatically honour the arbitration award) to resort to the Courts for such authentication and proceed through the Court of First Instance, Court of Appeal and Court of Cassation before the award is officially final and enforceable. Further difficulties with regard to enforceability relate to the fact that the UAE is not party to the New York Convention for mutual enforcement of a foreign arbitration award. Therefore, with the exception of bilateral treaties (with France, for example) the enforcement of a foreign arbitration award is very difficult in the UAE. Litigation Finally, with regard to a litigation, the advantages relate to the fact that resorting to the Courts is a dispute resolution method that is available to any party unless they have specifically contracted out of this by submitting to any other dispute resolution method evidenced by a duly signed clause / agreement to this effect. Also, a Court judgment is immediately enforceable once it becomes final thus providing the parties with a one stop shop option for the resolution of their disputes. The disadvantages of litigation relate mainly to the time consuming process of issuing a final and binding judgment and the reliance on local courts, which are not always familiar with complex and technical issues that may arise in a construction contract. As a result of this, the Courts very often appoint a single expert, who decides upon the disputes and whose report is adopted, in most cases verbatim, by the Courts.. Very rarely do the parties to a litigation agree on the identity of the expert and even if such identity is agreed upon the ultimate decision maker on the dispute in question is one individual as opposed to a panel of three as is more common in an arbitration. Finally, Court judgments are available on public record and there is no privacy with regard to the contents of the dispute. In conclusion, although there is no single dispute resolution method that is free of any disadvantages, it is nevertheless important for the parties to a construction contract to be aware of all the benefits and drawbacks of each such method so as to make a conscious choice bearing in mind the nature of the dispute that could arise, the availability of competent experts and the cost related to them, the identity of the parties and the local legal system.

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Arbitration practice in the UAE

rbitration is gradually becoming a popular dispute resolution mode in the UAE. Specialised experts from various fields (particularly construction) are appointed as arbitrators in view of their better appreciation of the technical aspects of a dispute and their wealth of experience on the basic principles of dispute resolution. This, together with the time limit of six months (subject to extension by mutual agreement) for issuing an award provided for in Article 210 of the UAE Civil Procedure Code should, in theory, tackle the prevailing drawbacks of litigation before the UAE Courts, namely lack of specialised expertise and length of proceedings.

However, in practice, both parties and arbitrators should be alert to a number of pitfalls and critical points that, if overlooked, can defeat the purpose of arbitration as a swift and fair dispute resolution mode. The most important of these are as follows. (1) Choice of Arbitrators

An arbitration proceeding is essentially a trial that is taking place privately rather than publicly in courts. Ultimately the parties would have agreed to be bound by the award issued by the arbitrators, which will subsequently be converted into a judgement (through the relevant authentication by the UAE Courts). Since the judges in Court litigation are of legal background, the same should apply to the appointed arbitrators, at least one of whom, should be either a qualified lawyer, legal consultant or, possessing a mixture of technical and legal background. This is important for two reasons: Firstly, so that the legal arguments raised by the parties representatives (who are invariably lawyers or legal consultants) are understood and evaluated: arbitrators with a purely technical background and experience would have difficulties in deciding whether to uphold or reject legal arguments raised by either party. Often these

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arguments may have very little to do with the technical merits of the dispute but they can, nevertheless, have a critical impact on the overall fair assessment of the case. The second reason relates to the fact that an arbitrator with a strong legal background would be more cautious in ensuring that the award becomes enforceable and that it has not only efficiently dealt with the substantive aspects of the dispute but also with the legal aspects of the awards enforceability, as these are set out in Article 216 of the UAE Civil Procedure Code, which states as follows:ARTICLE 216 1. In the following instances, the opposing parties may apply for the annulment of an arbitrators ruling when the Court is examining whether to validate it: (a) If given without a deed of arbitration or if based on an invalid deed, or if lapsed through prescription, or if the arbitrators have exceeded the limits of the deed. (b) If the ruling has been given by arbitrators not appointed according to the law, or if given by some of them without being so empowered in the absence of the others, or if given under deed of arbitration in which the subject of the dispute is not stated, or if given by someone not competent to agree to arbitration or by an arbitrator who does not fulfil the legal requirements. (c) If there is something invalid in the ruling or in the procedures affecting the ruling. 2. Acceptance of invalidity shall not be inhibited by the opposing party abandoning his right thereto before the arbitrators ruling is issued.

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It is of course essential that arbitrators do possess a substantial degree of competence and expertise on the technical aspects of the dispute they have been requested to resolve. Ultimately, however, their award will take the form of a judgement and as such it is the arbitrators implied obligation to ensure that it is as legally sound as possible so that its nullification by the UAE Courts is avoided. (2) Validity of award Claimants perspective From the point of view of the claimant who instigates the arbitration procedure and demands resolution of its dispute, it is imperative that throughout the arbitration procedure (indeed from the stage of drafting the arbitration clause or arbitration agreement) attention is focused on the ultimate validity of the arbitration award. The claimant needs to ensure that the arbitration award, when issued, will survive any attempt made by the defendant through the three tiers of the UAE judicial system (Court of First Instance, Court of Appeal, Court of Cassation) to nullify it on the basis of lapse of procedure or breach of a mandatory provision of UAE Law. Some of the basic points that the claimant should bear in mind in this respect, include the following: Clear Arbitration Clause Arbitration Agreement The arbitration clause or agreement should specify the rules under which any dispute resolution by way of arbitration should be conducted. These may be the Rules of the Dubai Chamber of Commerce & Industry, Dubai Municipality Rules, UNICITRAL, ICC etc. For a more effective supervision and conduct of arbitration proceedings held in the UAE it is advisable to agree local (as opposed to international) rules. This will facilitate the certification of the award by the supervising body and subsequently its authentication through the UAE Courts. In addition, it is preferable that the parties to the dispute, rather than their lawyers, sign any arbitration agreement. This is because in most cases, although a Power of Attorney (see below) gives a lawyer rights to conduct an arbitration on behalf of his client, vary rarely will such Power of Attorney include an express right for the lawyer to sign binding arbitration agreements. Determination of whether the dispute will be resolved by one or three Arbitrators. Very often this issue is left unclear in arbitration clauses or agreements and becomes the object of a separate dispute. The options available are essentially three:

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either one arbitrator appointed by mutual agreement of the parties or by a neutral entity (such as a Chamber of Commerce & Industry) or three arbitrators, one appointed by each party and the third appointed by the two arbitrators or a neutral entity, the majority of whom will determine the dispute, or finally, two arbitrators, one appointed from each party, and an umpire who will only determine the dispute if the two arbitrators disagree on their findings. Powers of Attorney It is essential that under UAE Law parties are represented by authorised attorneys who should carry with them, during all arbitration hearings, a letter of authorisation or ideally, a Power of Attorney appointing them as legal representatives of the parties with powers to draft pleadings (written submissions) and attend hearings. Arbitrators should not take actions that exceed the limits of their powers under the arbitration clause / agreement. If this aspect is overlooked paragraph 1(a) of Article 216 of the UAE Civil Procedure Code (set out above) clearly states that the award will be invalid at least to the extent that it includes decisions that have been made beyond the powers of the arbitrators as these are set out in the arbitration clause / agreement. Arbitrators should not violate or overlook any of the Rules of Arbitration agreed to by the parties. Paragraph 1(c) of Article 216 of the UAE Civil Procedure Code sets out the rather general provision that if there is something invalid in the ruling or in the procedures affecting the ruling the arbitrators award may be nullified. In practice, this provision has allowed the defendant to submit various arguments before the UAE Courts with regard to procedural and sometimes bureaucratic aspects of the arbitration in an attempt to nullify the award. The Award is issued within the time limit prescribed by Law Any time extensions need to be agreed upon at an early stage with the defendant. Time extensions need to be in compliance with the agreed rules of arbitration and, if the dispute is subject to UAE Civil Procedural Law, with Article 210 of the UAE Civil Procedure Code, which states:

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ARTICLE 210 (1) If the opposing parties do not specify a time for a ruling to be given in the arbitration agreement, the arbitrator is to give his ruling within six months from the date of the initial arbitration hearing, otherwise any of the opposing parties may raise the dispute to the Court or may pursue it before the Court if already raised. (2) The opposing parties may explicitly or implicitly agree to extend the date prescribed by agreement or by law, and they may empower the arbitrator to extend it to a particular date. At the request of the arbitrator or one of the opposing parties, the Court may extend the date specified in the foregoing paragraph for such period as it deems appropriate of a settlement of the dispute. (3) The period shall be interrupted whenever the proceedings are interrupted or suspended, and shall be resumed from the date on which the arbitrator becomes aware that the cause of the interruption or suspension has been eliminated. If the remaining period is less than a month, it shall be extended to a month. It is quite possible for the defendant to apply for nullification of the award on the basis that it has been issued out of time. It is therefore imperative that the claimant always oversees this issue and ensures that if it becomes obvious that the arbitration award will not be issued within the prescribed time limit, an agreement for extension is obtained as soon as possible. (3) Validity of award Defendants perspective

Defendants very rarely submit a defence statement that deals purely with the merits of the dispute. More often than not, the bulk of the defence submissions relates to procedural aspects, time bars, validity of Powers of Attorney, validity of arbitration agreements, jurisdiction, etc. This type of preliminary defence is normally accompanied by a request for one or more interim awards. This has the inevitable effect of prolongation of the arbitration proceedings, the ultimate goal being either: To approach the time limit during which the arbitration award should be issued and before a time extension has been agreed upon, or to prolong proceedings and force the claimant into an amicable settlement for an amount substantially lower than that demanded.

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In addition to the prolongation, the defendants objective is to identify any procedural errors committed by the arbitrators, which will subsequently give it sufficient ground to request nullification of the award before the UAE Courts. (4) Authentication through UAE Courts

As in most jurisdictions, an award needs the authentication of the local courts for it to be equivalent to a Court judgement and to be enforceable against the losing partys assets. The UAE courts cannot consider the merits of the arbitrators findings. This is clearly stated in paragraph 1 of Article 217 of the UAE Civil Procedure Code which states: ARTICLE - 217 (1) Arbitrators rulings may not be contested in any way. In contrast to other jurisdictions, it has been noted that, in the UAE, the nullification / ratification of the award becomes, effectively, the subject of a separate legal action that progresses through the process of the three tier local Court system. This is primarily fuelled by defendants that wish to nullify the award on the basis of procedural errors. Ultimately the claimant/plaintiff will not be able to enforce the arbitration award until this is converted into a final judgement confirming validity of the original award. The result of this process, which can sometimes be lengthy, is that certainly one of the primary purposes of arbitration a swift dispute resolution process is defeated by what is time wise, yet another trial between the same parties. Very rarely are arbitration awards issued within the six months time limit. Invariably there will be extensions granted/agreed and it may be more than a year before an arbitration award is issued. Thereafter, the litigation process of authentication of the award could result in an additional years delay before a final judgement is issued. The overall time consumed is arguably equal to and sometimes greater than the time spent before the Courts through a straightforward litigation process. However, very often the defendants request for scrutiny of the award and nullification by the UAE Courts is quite legitimate because arbitrators that were more focused on the technical merits of the dispute rather than the form and due process of the arbitration have overlooked important aspects of mandatory UAE Law. (5) Legal costs

One major advantage of the arbitration proceedings is that in most cases the successful party will be awarded a greater portion of its actual expenses and legal costs than it would

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if it had resolved its dispute through litigation. However, the fact that higher costs are involved in arbitration coupled by the inevitable legal and Court fees of the subsequent litigation (for authentication of the arbitration award) can mean that the ultimate cost exposure to the successful party in an arbitration is substantially greater than in litigation.

(6)

Conclusion

Whether arbitration can be a successful mode of dispute resolution is dependant upon a series of factors that are inextricably linked to each other, the main ones being: clarity of the arbitration agreement / clause, quality and legal competence of the arbitrators appointed, observance of all relevant procedural and mandatory laws as well as issues of public policy. This should lead to a swift consideration by the UAE Courts of the validity of an arbitration award If these areas are addressed, arbitration in the UAE will become an increasingly preferred option for dispute resolution. This would be a welcome development both from the UAE Courts perspective, who would be alleviated from the increasing volume of commercial disputes, the merits of which they would otherwise have to consider, and from the perspective of the UAEs image as an important commercial and business centre in the Gulf.

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Know now your basics: Critical UAE arbitration stages.

esolution of disputes by way of arbitration requires familiarisation, of all parties concerned, with often complex procedural law, rules and regulations of arbitrating bodies, local as well as federal provisions and issues of public policy all of which can differ substantially in various jurisdictions. We address below some of the most crucial junctures in construction disputes resolved by way of arbitration in the UAE:

Nullification of an arbitral award resolving a construction dispute before the UAE Courts at the request of the losing party. It is possible to challenge and even nullify an arbitral award but only on specific procedural grounds. These are set out in Article 216 of the CPC, which states that: ARTICLE 216 1. In the following instances, the opposing parties may apply for the annulment of an arbitrators ruling when the Court is examining whether to validate it: (a) If given without a deed of arbitration or if based on an invalid deed, or if lapsed through prescription, or if the arbitrators have exceeded the limits of the deed. If the ruling has been given by arbitrators not appointed according to the law, or

(b)

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if given by some of them without being so empowered in the absence of the others, or if given under deed of arbitration in which the subject of the dispute is not stated, or if given by someone not competent to agree to arbitration or by an arbitrator who does not fulfil the legal requirements. (c) If there is something invalid in the ruling or in the procedures affecting the ruling.

2. Acceptance of invalidity shall not be inhibited by the opposing party abandoning his right thereto before the arbitrators ruling is issued. Ultimately, the award will take the form of a judgment and as such it is imperative to ensure that it is as legally sound as possible so that its nullification by the UAE Courts is avoided and that throughout the arbitration procedure (in fact from the stage of drafting the arbitration clause or arbitration agreement) attention is focused on the ultimate validity of the arbitration award. Foreign Arbitration Clauses with Dubai Government Departments. The position with regard to foreign arbitration clauses with Dubai Government bodies is set out in Law No.6 of 1997 ( In respect of Contracts of Government Departments in the Emirate of Dubai), Articles 36 and 37 of which state as follows: ARTICLE (36) No stipulation shall be made in any contract in which the Government of Dubai or any of its departments is a party to conduct the arbitration outside Dubai or to subjugate any dispute regarding arbitration or the procedures thereof to any laws or principles rather than those applicable in the Emirate of Dubai. Any stipulation in violation thereof shall be deemed null and void. Save as the foregoing and wherever the public interest may require, the Government or any of its departments, institutions, bodies or authorities may under a written consent from the Ruler be exempted from abiding by this provision. This law is mandatory and will override any conditions in a contract with a Dubai Government Department that directly contravene its provisions. The mandatory nature of the Law is set out in Article 84 of Part 4 of Law No: 6 of 1997, which reads:

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The Head of the Financial Department shall draft the written form of all the contracts stated herein together with the general conditions thereof in accordance with the provisions hereof. All the departments shall abide by such form and conditions. In circumstances where various provisions of this law are not compulsory/mandatory and the parties can contract out of them this is clearly stated. For example, Article 36 relating to arbitration states that: Save as the foregoing and wherever the public interest may require, the Government or any of its departments, institutions, bodies or authorities may under written consent from the Ruler be excepted from abiding by this provision. The nature of this law is that it is applied universally by all Dubai departments and that such departments do not have the option (save for specific provisions referred to in the law such as Article 36 referred to above) to waive any of the rights or liabilities that this law creates for the contracting parties. It could be argued that the above provisions apply also to companies that are wholly UAE Government owned, though not government departments as such. In any event, a foreign arbitration clause, even if accepted and ratified by the Rulers Court, could present the winning party with substantial enforcement problems. This is because the UAE has not yet acceded to the 1958 New York Convention for the reciprocal Enforcement of Arbitral Awards and with the exception of a few bilateral treaties (for example with France), enforcement of a foreign arbitration award is extremely difficult in the UAE. Time frame for issuing an arbitration award under UAE Law in construction disputes resolved through arbitration The time limit for issuing an arbitral award is usually six months, but can often be extended up to another six months or more by mutual agreement. Any time extensions need to be agreed upon at an early stage. Time extensions need to be in compliance with the agreed rules of Arbitration and Article 210 of the UAE CPL, which states: ARTICLE 210 (1) If the opposing parties do not specify a time for a ruling to be given in the arbitration agreement, the arbitrator is to give his ruling within six months from the date of the initial arbitration hearing, otherwise any of the opposing parties may raise the dispute to the Court or may pursue it before the Court if already raised.

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(2) The opposing parties may explicitly or implicitly agree to extend the date prescribed by agreement or by law, and they may empower the arbitrator to extend it to a particular date. At the request of the arbitrator or one of the opposing parties, the Court may extend the date specified in the foregoing paragraph for such period as it deems appropriate of a settlement of the dispute. (3) The period shall be interrupted whenever the proceedings are interrupted or suspended, and shall be resumed from the date on which the arbitrator becomes aware that the cause of the interruption or suspension has been eliminated. If the remaining period is less than a month, it shall be extended to a month. It is important that the claimant always focuses on this issue and ensures that if it becomes obvious that the arbitration award will not be issued within the prescribed time limit, an agreement for extension is obtained as soon as possible. Enforcement on losing partys assets of an arbitral award resolving a construction dispute As in most jurisdictions, an award needs the authentication of the local courts for it to be equivalent to a Court judgement and to be enforceable against the defendants assets. This involves an application to the Court of First Instance, the judgement of which is then appealable within 30 days before the Court of Appeal. Thereafter, the Court of Appeal judgment can be appealed within 30 days before the Court of Cassation, the judgement of which is final. During the process of this authentication, the UAE Courts cannot consider the merits of the arbitrators findings. This is clearly stated in paragraph 1 of Article 217 of the UAE Civil Procedure Code, which states that arbitrators rulings may not be contested in any way. There have also been a number of Dubai and Abu Dhabi Court of Cassation rulings confirming that appeals against the merits of arbitrators awards are not permissible. Legal costs and relevant expenses incurred in arbitration proceedings Although legal costs are not generally recoverable by the successful party under UAE Law, in some cases, the successful party will be awarded a greater portion of its actual expenses and legal costs than it would have done had it resolved its dispute through litigation. For example, Article 48 of the Dubai Chamber of Commerce & Industry Rules for Arbitration and Conciliation states that:

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The costs of conciliation or arbitration shall include charges of the Chamber, remuneration and actual expenses of the conciliators or arbitrators, fees and expenses of the experts and the translators if any, normal expenses incurred by the parties in preparation of their pleadings any administrative expenses relating to meeting-rooms rentals, typing, recording, photocopying and others incurred in the course of the conciliation or arbitration proceedings. In addition, it is possible for both parties, at the beginning of the arbitration, to agree on bearing their own legal costs or that these will be borne by the losing party. The higher costs that are generally involved in arbitration coupled by the inevitable legal and Court fees of the subsequent litigation (for authentication of the arbitration award) can mean that the ultimate cost exposure to the successful party in arbitration may be substantially greater than in litigation. Litigation of a dispute arising out of a construction contract containing an arbitration clause. The claiming party may resort to litigation (i.e. file a case with the Court) even where the contract contains an arbitration clause. However, the defendant may expressly refer to the arbitration clause at the first Court hearing in accordance with Article (203/5) of the CPL. Upon the defendant so doing, the Court will refer the matter to arbitration. Conversely, if the defendant fails to object and refer to the arbitration clause at the first Court hearing, the Court will assume that the arbitration clause has been waived by both parties and will continue with the resolution of the dispute through litigation. The plaintiff in such approach should bear in mind that it may lose the Court fees and advocacy charges if the defendant successfully raises the arbitration clause defence at the first hearing.

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Conditional payment clauses under construction contracts

n important consideration for subcontractors involved in a construction project is the fulfilment of payment of the subcontract value by the main contractor and in many cases, ultimately, by the employer/ owner. Ideally, when the works are completed both the main contractor and any subcontractors should be fully remunerated for work duly carried out and completed. In addition to the employers reluctance to pay for parts of work carried out there is also the risk of non-payment as a result of the employers inability to pay. It is, therefore, important for the main contractor and the subcontractor to agree the basis on which the risk of the employers inability or reluctance to pay is borne.

Very often the main contractor will prefer to let the subcontractor bear the burden of the employers inability or reluctance to pay amounts ultimately due to the subcontractor. The main contractor will often use pay when paid or pay if paid clauses in the subcontracts (for example, the total subcontract price paid to the subcontractor shall be , no part of which will be paid until and unless such part has been received by the employer). In addition, Article 891 of the UAE Civil Law expressly precludes the subcontractor from claiming directly from the employer for any amounts that are properly claimed against the main contractor unless the main contractor has given to the subcontractor an assignment of its rights against the employer.

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Furthermore, standard clauses are often included to reflect this. For example, Clause 4.3 of the FIDIC Conditions of Subcontract for Works of Civil Engineering Construction, states: Nothing herein shall be construed as creating any privity of contract between subcontractor and the employer The above legal and contractual framework can place the subcontractor in substantial difficulties if he has effectively waived his rights against the main contractor and also is barred by UAE Law to claim directly against the employer. Although UAE Courts have so far been sympathetic to subcontractors deprived of their payment by the main contractor, this to date has been in circumstances where there was no pay if paid clause in the subcontract. It remains to be seen whether the position will change when a dispute between the subcontractor and the main contractor arises and is brought either to arbitration or litigation before the UAE Courts in a situation where a pay if paid clause forms part of the subcontract. However, a pay if paid clause may be considered as contrary to public policy and to Article 891 of the UAE Civil Law and could therefore be rejected by the UAE Courts. If it is rejected, this would place an obligation upon the main contractor to effect all due payments to the subcontractor regardless of whether the main contractor has been paid by the employer or not. Under UAE Law, risking the effect of a pay if paid clause may not be advisable for a main contractor. However, the risk of not receiving any payment to pass to the subcontractor under the subcontract (either due to reluctance or due to inability of the employer to effect such payment) may be very real. It may, therefore, be preferable for the main contractor to simply follow the wording of Article 891 of the UAE Civil Code and include a clause in the subcontract giving the subcontractor an assignment of his rights against the employer. In addition, any clauses that exclude any privity of contract between subcontractor and the employer should be deleted from the subcontract. Finally for maximum clarity of the true intentions of the parties a pay if paid clause should also be added in any event, the content of which should in general be as follows: The subcontractor will not be paid unless the main contractor receives payment from the employer and the subcontractor assumes the risk of non-payment by the employer due to any reason whatsoever. In practice, an assignment clause in the subcontract will very often be subject to the employers approval, which could in many circumstances, understandably, not be given.

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If the main contractor gives such assignment only after the event, i.e., after the subcontract has been signed and at a stage when the works have been completed and payment is outstanding, it is likely that the subcontractor may not actually wish to direct his claim against the employer. This can be particularly so if the employer is bankrupt or faces financial difficulties or simply does not have any assets which would provide sufficient security for the subcontractors claim. This, combined with the possibility of the main contractor providing the subcontractor with a more tangible and attractive target to launch his claim against, can mean that an assignment after the event will not assist the main contractor in discharging the burden of paying the subcontractor. Provided the assignment clause is acceptable to the employer, such clause would be in compliance with UAE Law and would in all probability be upheld by arbitrators and UAE Courts. This clause may serve the interests of the main contractor (who will be able to avoid liability for payment towards the subcontractor if the employer does not pay). It could also assist the subcontractor in circumstances where lodging a claim against the employer may be a more attractive option than doing so against the main contractor (who may have less assets or be unable to pay if payment has not been received by the employer). In conclusion, it is important for both the main contractor and the subcontractor to have a clear agreement well in advance of signing the subcontract on any issues that relate to liability for payment and risk for non-payment and to ensure that any such agreement is enforceable and recognisable under UAE Law.

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All work and no pay?


Can a contractor suspend works following delay in payment?

ontractors often fail to agree with the employer/engineer the pricing for additional works or variations that they feel they are perfectly entitled to. Furthermore, certificates of payment are often not issued on time or at all. Whats worse, payment certificates are issued but not honoured at a time when: Works are not completed, The engineer has issued positive decisions on various extensions of time and additional payment requests, as a result of which payment certificates are issued.

However, in a scenario where the employer does not honour these payment certificates, the contractor is simply left with a piece of paper evidencing an entitlement to be paid and an ever hanging question mark on whether he should carry on the works and hope for the best or rest his tools and go on a quasi strike until his demands are met. Similar instances are often part and parcel of construction practice internationally for a variety of reasons. But what are the rights and obligations of a contractor under UAE Law when faced with delay in payment? Well, a lot will depend on what we mean by delay in payment in the first place. This is how UAE Law deals with this issue:

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So is payment actually late? Very often contractors believe that their additional payments are late in what they perceive (often quite rightly) to be a straightforward case of you want more you pay for more. The contractor has followed the agreed procedures, made his applications for variation orders, which were either rejected or not dealt with, and his requests for engineers decisions, which were also ignored. To the contractors mind there is a delay in payment and consequently a feeling of being justified to succumb to the temptation of simply stopping work. As frustrating as this may be, for as long as no payment certificate has been issued, strictly speaking, the law does not see any delay in payment. At best there could be a delay in issuing a decision on whether payment is due, or a delay in approving payment, but no delay in payment as such can properly be argued. Hence, no right to suspend works can be founded. Delay in payment is only recognised as such by UAE Law if it is alleged following the issuance of a payment certificate. Anything prior to a payment certificate being issued does not qualify as a delay in payment. Payment certificate issued and still no money - what now? In this instance both UAE Law and various standard contractual clauses are more sympathetic to the contractor. UAE Case Law has upheld the contractors right to suspend work if payment is delayed following issuance of a payment certificate. In addition, clause 69.4 of the FIDIC General Conditions to Civil Engineering Construction, states that: Contractors Entitlement to Suspend Work Clause 69.4 Without prejudice to the contractors entitlement to interest under Sub-Clause 60.10 and to terminate under Sub-Clause 69.1, the contractor may, if the employer fails to pay the contractor the amount due under any certificate of the engineer [emphasis added] within 28 days after the expiry of the time stated in Sub-Clause 60.10 within which payment is to be made, subject to any deduction that the employer is entitled to make under the contract, after giving 28 days prior notice to the employer, with a copy to the engineer, suspend work or reduce the rate of work.

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If the contractor suspends work or reduces the rate of work in accordance with the provisions of this sub-Clause and thereby suffers delay or incurs costs the engineer shall, after due consultation with the employer and the contractor, determine: (a) any extension of time to which the contractor is entitled under Clause 44, and (b) the amount of such costs, which shall be added to the contract price, and shall notify the contractor accordingly, with a copy to the employer. The general position on the impact of commencing arbitration proceedings is reflected in Clause 67.3 of the FIDIC General Conditions to Civil Engineering Construction, which states, amongst other issues, that: Arbitration may be commenced prior to or after completion of the works, provided that the obligations of the employer, the engineer and the contractor shall not be altered by reason of the arbitration being conducted during the progress of the works. However, a default in payment following issuance of a payment certificate, goes so much into the heart and the purpose of a construction agreement that the above Clause 69.4 is a contractual exception - upheld by UAE Courts - to the general standpoint that neither party can default on its obligations pending resolution of any dispute arising in the meantime. Works legitimately suspended and still no payment can we go to Court now? Whether litigation (i.e. dispute resolution before the Courts) is an available option will very much depend on the contractual terms agreed. The default position is that litigation is always available unless the right to it has been expressly and unequivocally waived in the contract by both parties with the inclusion of an arbitration clause duly stamped and signed by the parties authorised signatories.

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It must be noted that other dispute resolution methods such as conciliation or mediation are not expressly recognised in the UAE Civil Procedure Law. As such, any awards or opinions issued pursuant to these methods are not enforceable against the losing party. In essence, UAE Civil Procedure Law recognises two basic dispute resolution methods: arbitration and litigation. This being the legal background, going to Court may not be an option, if an arbitration clause is in place, even for something that appears as straightforward as a debt collection from the defaulting employer. In that scenario, the only stage that can be skipped is that of a request for an engineers decision and of settlement negotiations and this is confirmed in standard contractual clauses. Clause 67.4 of the FIDIC General Conditions to Civil Engineering Construction states: Failure to Comply with Engineers Decision Clause 67.4 Where neither the employer nor the contractor has given notice of intention to commence arbitration of a dispute within the period stated in Sub-Clause 67.1 and the related decision has become final and binding, either party may, if the other party fails to comply with such decision, and without prejudice to any other rights it may have, refer the failure to arbitration in accordance with Sub-Clause 67.3. The provisions of Sub-Clauses 67.1 [i.e. engineers decision] and 67.2 [i.e. amicable settlement] shall not apply to any such reference. So does one only have to look at the contractual clauses to see what rights each party has? Doesnt the law play any role? The rule of thumb to bear in mind is that contractual clauses that refer to a procedure mutually agreed between the parties with regard to dispute resolution are generally upheld by UAE Courts. It is in relation to clauses that go into the merits of liabilities (and especially exclusion or limitation thereof), and the rights or obligations of the parties with regard to defects, delays etc that one needs to be aware of mandatory UAE Law provisions overriding any conflicting contractual clause.

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What else can the contractor do to force the employers hand for swift payment? Article 879 of the UAE Civil Law provides another remedy for the contractor who has been deprived of his dues: Article 879 (1) If the work of the contractor produces (a beneficial) effect on the property in question, he may retain it until the consideration due is paid, and if it is lost in his hands prior to payment of the consideration, he shall not be liable to the loss, nor shall he be entitled to the consideration. This is a form of a lien that the contractor may exercise on the property, although physically doing so may involve additional labour costs and defeat the purpose it is meant to serve. Furthermore, the drastic measures that an employer may take to remove a contractor from the site (ex parte Court orders for example) may far exceed in their effectiveness any lien that the contractor may apply pursuant to Article 879. It is also difficult to determine exactly what is meant by beneficial effect especially in light of the less encouraging second paragraph of the same article, which states that: (2) If his work produces no (beneficial) effect on the property, he shall not have the right to retain it pending payment of the consideration, and if he does so and the property is lost, he shall be liable in the same manner as if he had misappropriated it. In circumstances, where the employers financial status may not be in question, exercising the right set our in Article 879 of the UAE Civil Law may prove to be superfluous. The provision appears to be more tailored for circumstances where, rather than a possible dispute in payment, there is a real inability on the part of the employer to pay the contractor. In this case, the contractor would seek to attach any asset belonging to the employer and it is this right that the above provision would seek to secure. In short, it is important to differentiate between an employers delay in agreeing that payment is due and a delay in honouring a payment certificate. In either of the two scenarios it is also crucial to respect the dispute resolution methods agreed and be aware of which means of securing a contractors claim are advisable to exercise and under which conditions.

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INSURING A DESIGN AND DESIGNING AN INSURANCE


The pros and cons of providing adequate cover for an architects contractual liabilities

n architects obligation to insure for designing errors, and provide satisfactory evidence of having done so, is invariably imposed by employers in UAE contracts for architectural or consultancy services. As a result, compulsory insurance provisions have become an inseparable part of UAE contracts within the designing industry, as the quantum of losses, claims and arbitration awards increases.

Under UAE Law, there are no specific legal requirements for an architect to insure for all of its liabilities that may flow from designing and consultancy related errors or omissions. Neither the general provisions of the UAE Civil Law nor the more specific and stringent provisions of Law No.6/97 in relation to Contracts with Government Departments in the Emirate of Dubai, set out any obligation for either the architect or the employer to obtain insurance cover. Insuring for an architects potential losses and liabilities may be a wise option that will provide peace of mind but taking out insurance is an additional cost exposure for the architect. Knowing what type of optional insurance to take presupposes knowledge of the exposure to local legal liability and of the potential quantum involved. Some of the more common types of optional insurance available worlwide are the following: 1. Professional indemnity insurance

UAE Construction Law liability provisions can be quite onerous for the architect. Some of

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the most important ones to bear in mind when determining the level of professional insurance to be taken out are the following: Liability for defects affecting the safety or stability of a building is joint for the designer/architect and the contractor. If the designers/architects work does not include supervision of execution of the works, its liability will be contained only to any purely designing errors (always affecting stability or safety). Limitation of liability for major designing defects would be held as invalid. For any design responsibility, it is essential to take out professional indemnity insurance covering legal liability for negligence in design. However, the precise level of an architects designing liability is not always obvious. If fit for purpose designing liability is involved, insuring for it can be very expensive. Input from insurance brokers is highly advisable before a legally binding contract is signed. 2. Insurance for legal costs

In view of the fact that the UAE legal system does not allow recovery of legal expenses by the successful party (i.e., loser does not pay winners cost), it is essential to consider taking out legal expenses insurance. Architects should consider taking out insurance to cover legal expenses incurred in defending a designing errors liability action. Having said this, insurers that issue policies for legal expenses may decline cover for defending or pursuing an action that does not have reasonable prospects of success and they may seek to determine this first before cover is provided. If legal expenses insurance has not been placed, it may be possible (and in some jurisdiction compulsory for lawyers to advise their client) to obtain after the event insurance. This type of insurance is available to protect an insured from the downside of specific known litigation by covering their legal costs (and certain disbursements) in the event that the action is lost. In certain cases, the potential liability can also be insured. If the insured wins the case, or a settlement is reached which is in favour of the insured, the insurer has no liability to pay out. Otherwise, the insurer will pay both sides legal costs. The assessment of the risk insured would be made by the insurer who will obtain independent or in house legal advice and then determine the insurance premium payable. However, under UAE Law recovery of such premium by the successful litigant is unlikely.

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3.

Environmental liability insurance

UAE Federal law No.24/99 for the Protection and Development of the environment, poses substantial penalties for the natural or non natural contamination of the environment resulting from introduction of pollutants directly or indirectly, deliberately or non deliberately by man to the natural elements of the environment which may jeopardise the health of humans, plants or animals, or harm the resources and ecological systems. Environmental insurance can pose a substantial cost exposure to the architect because various assessments are usually carried out at the architects expense, to determine the level of the risk and the type of likely pollution, throughout the course of the works. Even so, in view of the strict liability provisions set out in UAE Law, it is important to at least assess whether an environmental risk is likely and to what extent. A third party liability policy may provide cover for one incident of pollution but an additional policy may be required if gradual pollution liability, inclusive of clean up costs, needs to be insured for. 4. Insurance for health and safety liability As indicated, liability for designing defects affecting the safety of a structure is set out in UAE Civil Law. It is important to be aware of the current health and safety regulations and relevant legislation to determine any insurance cover. For example, the Dubai Municipality has recently issued strict rules with which construction companies need to comply relating to safety and applicable to all private, local and federal establishments as well as free zones. To this extent the designing architect also acts

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as supervising engineer ensuring that safety measures are correctly implemented. Taking out health and safety liability insurance should also be considered by architects. 5. UAE Insurance Law principles

UAE Civil Law sets out the general principles of insurance. Of these the most fundamental are the following: The obligation of the insured to declare at the time the insurance policy is drawn, all information, knowledge of which is of concern to the insurer for estimation of the risk assumed. This is in line with the internationally adopted principle of an insurance contract being one of utmost good faith. The three-year time bar for claims arising out of an insurance policy from the occurrence of the incident out of which the claim arose. An arbitration clause built into an insurance policy will be invalid. For an arbitration clause to be valid, it would need to be part of a separate (arbitration) agreement. If many different types of insurance policies are taken out, there is a risk for overlap of insurance. Although not specifically set out in the general provisions of the insurance section of the UAE Civil Law, policies invariably do not allow recovery of the same insured loss more than once. The insurers will seek to only contribute their proportion of the insured loss. This can lead to disputes and loss of time. It is therefore essential for architects wishing to insure their potential liabilities that no duplication exists in policies taken out. This will also ensure that the cost exposure to insurance premium is kept to a minimum. Although taking out the right type of insurance is an additional administrative burden for architects, it can at the same time prove to be a valuable risk management tool for potential losses.

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So what have you lost?


Can an employer deduct and keep liquidated damages if a contractor is in delay?

nvariably a construction contract will include a clause entitled liquidated damages, wherein the employer reserves the right to deduct a specified amount for each day or part of a day that the contractor is late in meeting a specific milestone or in completing the works. Very often, in the minds of both parties, lies a preconception that once a delay entirely attributable to the contractor has taken place, this amount can be automatically deducted by the employer no questions asked. We examine below whether this is indeed the case under UAE Law. Liquidated damages and penalties In legal practice there is a distinction between liquidated damages and penalties: Liquidated damages do presuppose that some initial agreement by both contractor and employer exists that a determinable but not accurately quantifiable loss will be incurred by the employer in the event the contractor is in delay. A penalty is a more strict imposition of an amount regardless of whether a loss has been incurred or not.

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UAE jurisprudence has taken a stricter stance on whether and how liquidated damages can be imposed by an employer, by adopting the view that the loss incurred by the employer cannot be less than the amount deducted by way of liquidated damages. Consequently whether worded as a penalty or a liquidated damages clause, any provision setting out an employers right to deduct amounts that would otherwise be due to the contractor, would be subject to substantiation of any corresponding losses incurred. Burden of proof In most cases the employer has the advantage of simply triggering the liquidated damages clause and deducting the amount stipulated in the contract for every day the contractor is in delay. Following this, the contractor will try to claim back his money by following a contractually agreed procedure, usually through applications to the consulting engineer, culminating in a notice to refer matters in dispute to arbitration. In doing so, the contractor will allege that the employer should not have deducted the amounts stipulated in the liquidated damages clause because no proportionate loss was incurred. It is normal practice for any allegation made by a party to an arbitration or litigation, to carry with it the burden of substantiating the veracity of such allegation. In essence, the contractor would have to prove that the employer has either suffered no losses at all or has suffered losses substantially lower than the amounts deducted under the liquidated damages clause. Loss proved Whether the contactor is the one that has to prove absence of loss or whether it is the employer who has to substantiate his loss, the fact remains that a liquidated damages clause does not equate to an automatic right for the employer to deduct and keep any amounts without proving at some later stage, at least in general terms, that these amounts did not equate to undue enrichment nor to a penalisation of the contractor in delay, but to an actual loss incurred by him and which was the sort of loss both parties envisaged would be incurred by the employer in the event of a delay.

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Assuming a loss can be substantiated; is a liquidated damages clause without an overall limit enforceable? Usually, no. The common practice in construction is to cap the overall limit of liability for delay and the total amount to be deducted by way of liquidated damages, to 10% of the contract price. However, it is possible to depart from that practice if the employer can substantiate losses that were occasioned in circumstances where the employer feels that the contractor has caused him to suffer losses far exceeding the usual 10% of the contract price. As previously reported, a UAE Law provision gives discretion to the judge for him to effectively depart from any limit of overall liability that was either agreed between the parties or applied in practice and adjust it to the loss actually incurred by the employer. In many instances judges will recognise that freedom of contract should govern the intentions of the parties and will not interfere with freely negotiated contractual limits of liability. However, the position may be different if no specific cap has been agreed and the employer capitalises on this to depart from the general practice and submit evidence showing a greater loss incurred by him. How easy would it be for an employer to do this? The greater the difference, between the claimed loss and normal limits of overall liability, the more likely it could be that the judge may award losses actually incurred. However, the employer would have to show that he did not simply let this loss accrue indefinitely but took active steps to minimise its quantum. So can the contractor always hope that liquidated damages imposed upon him would eventually be recovered? Not necessarily. Whilst the employer would have to substantiate his losses, if loss of profit or consequential losses have not been expressly ruled out in the contract, the door is open for the employer to build a case by submitting evidence that points to actual, consequential or economic loss. This may be enough in some instances for the judge or arbitrator to conclude that at least a part of this loss has been actually incurred and therefore uphold the validity of deducting liquidated damages.

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In conclusion Proving that the contractor was in delay through reasons entirely attributable to him is only half the battle for the employer to successfully invoke a liquidated damages clause and keep the amounts deducted. In addition the employer should at least: Provide details of his loss Point out a substantial difference between the loss incurred and the contractually agreed limit of liability or the normal construction practice. Prove that he has taken active steps to minimise his loss.

In any event, it would be helpful for both parties as well as for the dispute resolution authority that decides on the merits of a claim, to include in the liquidated damages clause, as clear an indication as possible as to what the intentions of the parties were and what instances of potential liability they had in mind at the time of signing the contract and agreeing the liquidated damages quantum.

CONSTRUCTION LAW

Construction Time Bars Under UAE Law

T
(a)

he purpose of this article is to examine the way with which various statutory and contractual time bars interact at different stages of a construction contract and affect the process of dispute resolution.

1. Statutory Time Bars for Commencing Litigation / Arbitration Proceedings Relating to Construction Disputes Article 95 of the Commercial Transaction Law

In the absence of a specific construction law, the applicable provision relating to a general time bar for disputes arising out of construction contracts is found in Article 95 of the UAE Commercial Transactions Law, which states that: When denied, and without lawful excuse, actions relating to the obligations of traders to each other and in connection with their commercial business shall not be heard upon the expiration of ten years from the due date for fulfilment of the obligation, unless the law provides for a lesser period. This provision is applicable to construction contracts by virtue of the fact that both parties to a construction contract (employer and contractor or main contractor and subcontractor) are viewed by UAE Law as traders engaging in commercial transactions. The 10 year time bar set out in Article 95 of the Commercial Transaction Law should not be confused with the decennial liability set out in Article 880 of the UAE Civil Law (referred to below).

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(b)

Article 880 of the UAE Civil Law states that:

This article sets out the contractors decennial liability and states that: (1) If the subject matter of the contract is the construction of buildings or other fixed installations, the plans for which are made by an architect, to be carried out by the contractor under his supervision, they shall both be jointly liable for a period of ten years to make compensation to the employer for any total or partial collapse of the building they have constructed or installation they have erected, and for any defect which threatens the stability or safety of the building, unless the contract specifies a longer period. The above shall apply unless the contracting parties intend that such installations should remain in place for a period of less than ten years. (2) The said obligation to make compensation shall remain notwithstanding that the defect or collapse arises out of a defect in the land itself or that the employer consented to the construction of the defective buildings or installations. (3) The period of ten years shall commence as from the time of delivery of the work.

This article sets out the decennial liability applicable only for major defects affecting stability or safety. The decennial liability period will not effect minor defects the liability period for which can be contractually agreed between the parties. (c) Article 886 (1) of the UAE Civil Law

In addition to the statutory time bars mentioned above, the following specific statutory time bars should also be observed in the context of a construction contract: Article 886 (1) of the UAE Civil Law states that If a contract is made under an itemised list on the basis of unit prices and it appears during the course of the work that it is necessary for the execution of the plan agreed substantially to exceed the quantities on the itemised list, the contractor must immediately notify the employer thereof, setting out the increased price expected, and if he does not do so he shall lose his right to recover the excess cost over and above the value of the itemised list.

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This article is relevant to increases in Bills of Quantities which must be notified by the contractor to the employer immediately or as soon as practically possible after their quantification. (d) Article 883 of the Civil Law states that

No claim for compensation shall be heard after the expiration of three years from the collapse or the discovery of the defect. This article sets out a three year time limit for the employer to start the contractually agreed mode of dispute resolution (i.e. commence arbitration proceedings or file an action before the UAE Courts) from the date a defect was discovered or should have been discovered) on a building / structure etc. This three-year time limit may, in practice, result in the decennial period mentioned in Article 880 of the Civil Law to be overrun if the employer discovers the defect less than three years before the expiry of the decennial liability period. 2. Contractual Time Bars for commencing Arbitration Proceedings

In many construction contracts and all FIDIC contracts there are various contractual time provisions for notifying disputes arising between the parties to the engineer leading up to Notice to Refer Matters in dispute to arbitration. The enforceability and relevance of those time bars set out in various contractual clauses will depend upon the intention of the parties: Intention is to time bar If the intention is to time bar the right to arbitrate then the effect of a breach of that time bar would be that the parties will effectively lose the right to refer the matter to arbitration. However, the right to refer the matter to litigation can not be lost and will always be subject to the 10 year time bar set out in Article 95 of the Commercial Transactions Law. Intention of the parties is only to provide a timeline If the intention of the parties is only to provide a timeline of the right to arbitrate and if complying with such time line is not a precondition to the right to arbitrate then such right may still not be lost for the parties. In such circumstances, the matter may still be resolved

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by way of arbitration. The burden proof on whether the intention of the parties is to time bar the right to arbitrate or simply to provide a timeline of the right to arbitrate is a matter that lies with the party seeking to resort to arbitration. In this respect, a recent Dubai Court judgment highlighted three important issues. All the contractually agreed time bars and procedures in a construction contract, that activate the right to commence arbitration, are generally upheld by UAE Courts in circumstances where the parties intended to time bar the right to arbitrate. The parties should therefore ensure that such time bars and procedures are very closely monitored and observed. If a dispute arises, the party wishing to rely on arbitration clause needs to follow the contractually agreed procedure even if that party is a defendant. Failing this, that party would not be entitled to either rely on the arbitration clause or avoid litigation before the Courts. If the right to resort to arbitration has been lost due to failure by either of both parties to abide by the contractually agreed procedure, the right to resolve the dispute through litigation is not lost or time barred (subject always to the statutory time bar) set out in Article 95 of the UAE Commercial Transactions Law. 3. Court procedure time bars

After the issuance of an arbitration award, authentication of it will be required by the UAE Courts although there is no specific time bar for that purpose. There are further time bars relating to the appeals that either party may file before the UAE Courts between the Court of First Instance and Court of Appeal level (30 days from the date of service of the Court of First Instance judgment) and the Court of Appeal to Court Cassation level (30 days from the date of service of the Court of Appeal judgment). Being aware of the UAE statutory and contractual time bar provisions will affect the parties ability to pursue their claims through the dispute resolution mode chosen and compliance with them is critical from the early stages of referral of a dispute to the engineer until the final stages of commencing arbitration/litigation or enforcing an arbitration award.

CONSTRUCTION LAW

TO SUSPEND WORKS OR NOT TO SUSPEND WORKS? The contractors perenial dilemma

wo scenarios are amongst the most frustrating ones in construction practice for contractors: The failure to agree with the employer/engineer the pricing for additional works or variations. The failure to obtain certificates of payment either on time or at all.

In the first scenario, does the contractor have the right to refuse doing the additional work or should he proceed with the work and claim later? In the second, can the contractor terminate the contract and leave the site or does he have to continue with the work regardless of non payment and in any event? Termination under the Law Article 892 of the UAE Civil Law sets out three possible termination options for the parties to a construction contract: A contract of muqawala shall terminate upon the completion of the work agreed or upon the cancellation of the contract by consent, or by order of the Court.

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Completion of the works may at first glance seem a comfortable option. However, in practice, completion is evidenced by a taking over certificate, which the engineer will simply not issue if the employer is not satisfied with the works or requires additional variations over and above the work contracted for. Consent of both parties is a seemingly less problematic option. Obviously if both the employer and the contractor are in agreement on termination of the works, the position does not become litigious or acrimonious. However, this option is in practice no different from the first one, in that the contractor is again dependant upon the employer agreeing on the issuance of a taking over certificate and thus formalising the end of the works carried out by the contractor thus far. Obtaining a Court order is the third option available to the contractor. The objective of this option would be for the contractor to be legally allowed to cease the works. The reasons that would be raised by the contractor before the Court could vary from lack of payment, inability to agree on additional works pricing or to any other major breach of the construction contract by the employer. This option is rarely used in practice. This is primarily because of the following reasons: There is substantial onus on the contractor to prove that the employer is in breach of the construction contract. The Court will have to consider the documentation submitted as well as any arguments raised by the employer and develop the whole matter into a full trial before any order is issued. In the meantime, the contractor would have to continue with the works and only rely on the final Court order which, if it allowed for the termination of the contract, should also include any compensation he is entitled to for continuing the works. In certain circumstances the law provides for no additional compensation if the variations are within 30% over and above the contractually agreed price for the works. This is expressly provided for in Article 48 of Law No: 6 of 1997 in respect of contracts with the Government Departments in the Emirate of Dubai. Obtaining a Court order is a relatively easier process for the employer (although still very time consuming and potentially costly), should it require the contractor to be removed

CONSTRUCTION LAW

from the site: an application to the Court through an authorised local advocate together with a bank guarantee for the value of the works should normally ensure the issuance of the order, although matters may be further perplexed if the contract provides for an arbitration clause as this may lead the UAE Courts to decide that a decision on whether the contract can be terminated only falls within the ambit of the arbitrators powers. In an application for termination filed by the contractor, it is usually difficult for the Court to determine the amount that would be required by way of bank guarantee to cover the potential loss of the opposing employer. The Court is therefore more likely to look into the merits of the contractors reasons for termination before it issues an order. This in practice means that a full trial will take place during which the contractor will have to continue with the works. The right to terminate through a Court order seems, therefore, to be a real option for the employer but an academic one for the contractor. Contractual provisions In practice, most construction contracts include a provision for the contractor to carry out any additional works in the form of variations as these may be decided by the employer/engineer. As such, in addition to the legal obligations set out by mandatory provisions of the UAE Civil Code, the contractor is also obliged contractually to carry out additional work, comply with a very strict procedure for claims for additional time or additional payment and then, either hope that its claims will be approved by the supervising engineer, or rely on a formal dispute resolution process (usually arbitration or litigation and sometimes conciliation) to recover its dues. In the meantime, the contractor will have no practical option but to finance any operations required for the additional work and variations of the employer/engineer. International position The position is cumbersome for the contractor in other jurisdictions as well: under English Law the most recent Construction Act sets out that the contractors right to suspend depends on: a sum of money falling due under the contract

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it not being paid in full by the payment date and there not being effective notice of withholding payment in addition to a seven day notice for an intention to suspend. There are also mandatory law requirements for a contractor to provide a payment notice to be given no later than five days after payment falls due or should have fallen due. However, there are also other mandatory provisions in English Law that prohibit withholding of payment unless the paying party gives notice of the amounts to be withheld and the grounds for doing so. In short, the position internationally and in the UAE seems to be that if there is any burden on the employer, it is one that is relatively easy to discharge: it will always be feasible for the employer to state the reasons (whether they are justified or not) for withholding payment and, by doing so, it would have complied with mandatory law and possibly contractual provisions. Conversely, the onus on the contractor is substantial, and the requirements with which it needs to comply are numerous and complex. In the UAE, the right to suspend works is not recognised and the right to terminate is conditional upon a Court order being issued the difficulties of which are set out above. Appreciating and limiting the pitfalls relating to variations and additional works in a construction contract is crucial for the contractor. Accepting highly onerous terms or overlooking provisions that seek to compel completion of extra works in any event, can have serious financial implications for the contractor that could eliminate its profit margin and expose it to additional costs at the employers benefit.

CONSTRUCTION LAW

PREPARING EARLY FOR WORKS THAT MAY BE LATE: Effective documentary management for UAE delay and disruption claims

ow can a contractor maximise its chances of success in a delay and disruption claim? How can it ensure that by commencing the enormous task of preparing and submitting a complex claim in a UAE Court litigation or arbitration, it is not actually throwing good money after bad? Below we examine the factors that need to be addressed before a disruption claim is filed, and how these are dealt with under UAE Law.

A. 1.

CONTRACT MANAGEMENT Applying effective contractual procedures

The effectiveness of contract administration systems is crucial for both the employer and the contractor. The first step is to engage into a contract with clear and comprehensive terms but thereafter, it is compliance with the contractual provisions and regular management of documentation that will secure a watertight claim submission. Efficient

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contract management should ideally ensure that: 1. The intention of the parties on contractual time limits is clearly defined. 2. Where the parties intention is to time bar and extinguish a claim failing implementation of specific actions after the passage of a certain time limit, those time limits are strictly complied with; 3. The delaying effect, if any, of every variation order is assessed and communicated promptly through contractually agreed mechanisms; and that 4. The parties seek as soon as possible to agree on such assessment, failing which, the agreed mode of dispute resolution is commenced while the evidence is still fresh and the employer still has an interest in completing the works within a prescribed time frame. This being the theoretical and ideal position, the fact remains that complex and major variations demand a dedicated claims processing team working contemporaneously with other departments of the contracting company. In practice, not many contractors can allocate the necessary resources to achieve this in parallel with normal work progress. UAE Law stipulates that variations should generally be proportionate to the initial specifications of the contract. Article 887 (2) of the UAE Civil Law states: If any variation or addition is made to the plan with the consent of the employer, the existing agreement with the contractor must be observed in connection with such variation or addition. In circumstances where variations depart considerably from the initial specifications the delaying impact on the completion date will be substantial. UAE Law recognises the need to remunerate the contractor for additional work carried out but the relevant provision in support of this is vague and does not stipulate a precise measure for determining the value of such additional works. Article 888 of the UAE Civil Law states: If the consideration for the work is not specified in a contract, the contractor shall be entitled to fair remuneration, together with the value of the materials he has provided as required by the work.

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The burden of proving what is fair remuneration is squarely placed on the contractor who would need to substantiate any alleged delaying impact of a variation order on the contract price. Contractors are expected to produce and continuously update a critical path analysis. The more complete the technical support available and the more specialised the contractors personnel is, the more accurate the information supporting a claim will be. Having said this, it may still not be possible for the contractor at any given point in time to always be able to calculate with precision the disruption or delay aspect of a variation order. In that case, the contractor may defer the calculation until such point in time as the position becomes clearer and more easily quantifiable. In doing so, the contractor must ensure that it reserves its position in a legally effective way so that it is not barred from subsequently producing evidence that was not readily quantifiable at an earlier point in time. Although at an initial stage the employer is usually not required to justify any rejection, once the dispute resolution process has commenced, it will inevitably have to produce substantiating evidence in support of its decision to do so. To achieve this, the employer would also need to have implemented equally effective claims handling resources so that it can properly reject or accept the contractors claims. B. DOCUMENTS MANAGEMENT The bedrock of any delay and disruption claim is the documentation available to support it. A non-exhaustive list of such documentation will include: Daily communications by fax or e-mail, Notices given in accordance with the contractual method agreed, Signed minutes of meetings by all parties attending, Progress reports, Countersigned timesheets or other man-hour measuring document relevant to the dispute, Cost analysis for hiring equipment, plant etc.

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Monitoring from an early stage, the contemporaneous documentary back-up of a claim is just as crucial to its success under UAE Law as in any other jurisdiction and may ultimately determine whether such claim can be resolved before or after work completion. Communications to the employer notifying expected delays and attaching a detailed breakdown of anticipated costs will be far more convincing evidence than communications made in defence only after the contractor has incurred damages or is confronted with a claim for liquidated damages for delay in completion. On some occasions, such as notifications for an anticipated increase in bills of quantities, UAE Law demands swift action on the part of the contractor. Article 886(1) of the UAE Civil Law states: If a contract is made under an itemised list on the basis of unit prices and it appears during the course of the work that it is necessary for the execution of the plan agreed substantially to exceed the quantities on the itemised list, the contractor must immediately notify the employer thereof, setting out the increased price expected, and if he does not do so he shall lose his right to recover the excess cost over and above the value of the itemised list. The accuracy and completeness of any data in support of a delay and disruption claim is also dependent upon the contractors quality control system. The higher the level of quality control the more objective and reliable the data submitted will be thus increasing the chances of compliance with UAE Law provisions and of the dispute being efficiently resolved before works are completed. Very often, instructions on site on aspects that could affect a critical path are given verbally. Even if such instructions are given in writing, they are invariably generated by an unauthorised party. A panel of arbitrators or a UAE Court appointed expert may reject such communications filed as evidence in support of submitting or contesting a claim. Conversely, correspondence generated by representatives of the employer, the engineer or the contractor, may have major legal or contractual implications at a later stage. It is therefore important to review from a legal and contractual perspective, potentially controversial correspondence (alleging delays, attributing fault to factors that have not yet been assessed or inadvertently admitting liability where the position should be reserved) before it is generated. Preparing early for late completion requires substantial investment in human and technical resources but is an investment worth considering in view of the fact that it can result in an educated evaluation of the claims submitted and, potentially, in their earlier settlement.