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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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This has inevitably given rise to significant numbers of claims either between contractors and owners / employers or between contractors and sub-contractors. 1 . continuously address the needs of contractors and architects. focus on construction law is increasing. although there are a number of Court rulings on important aspects of construction law. The articles set out herein seek to address some of the most often encountered issues in construction law related disputes.CONSTRUCTION LAW INTRODUCTION Construction Practice AL Tamimi & Company’s construction practice is at the heart of one of the most dynamic and burgeoning industries. As a consequence of this. The number of construction projects and related contracts has increased substantially in the UAE over the last decade. our legal input has helped numerous members of the construction industry to succeed in what is an increasingly demanding and competitive market. provided by experienced high-pedigree lawyers and advocates. Litigation is a less preferred mode of dispute resolution in the construction industry. These disputes are resolved either by way of conciliation or arbitration and are predominantly held in the English language. Dubai is currently the largest construction site in the world and our firm’s legal services. From setting up. to contract review and dispute resolution. with specialist arbitrators appointed due to the technical nature of the aspects involved.

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..........................................59 3 ......................................................13 Benefits and drawbacks for contractors in commencing arbitration / litigation prior to completion of works........................................................................................................38 Insuring a design and designing an insurance..........................................09 But I thought we agreed…! Can a contractor’s limit of liability be broken?.............................47 Construction time bars under UAE Law...............................................................................................CONSTRUCTION LAW INDEX Consultants and contractors Consult before contracting!............................................................................................35 All work and no pay? Can a contractor suspend works following delay in payment?.................................04 Architect’s liability under UAE Law........................................................................................................................................................................20 Arbitration practice in the UAE..................................................................................55 Preparing early for works that may be late Effective documentary management for UAE delay and disruption claims........................................................................................23 Know now your basics: Critical UAE arbitration stages..............................................30 Conditional payment clauses under construction contracts.....................................17 Advantages and disadvantages of various methods of construction dispute resolution......51 To suspend works or not to suspend works? The contractor’s perenial dilemma .......43 So what have you lost?........................................................................

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. 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. Other times.CONSTRUCTION LAW CONSULTANTS AND CONTRACTORS: CONSULT BEFORE CONTRACTING! Contractual transactions in the world of construction that are devoid of legal input are fraught with pitfalls. But commercial substance without strong legal footing may lead to the creation of obstacles that can prove virtually impossible to overcome. 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. 4 . P 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.errors. 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. 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 .

whether arbitration. to a sub-contract. is drafted clearly becomes essential in any construction contract so that there can be no question as to how disputes are to be resolved. more often. Overriding mandatory law provisions – it’s not just what’s 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. mediation or litigation. 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. 3. Arbitration clauses : be careful what you wish for These are often either incomplete or are incorporated by reference only to a main contract or. 2. who may not have an extensive list of specialists in the area of law or practice that the parties require. Whilst the very presence of the works and services provided will probably not be put to question. 5 . 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. Ensuring that a dispute resolution clause.CONSTRUCTION LAW Just a small sample of these as they belatedly arrive at a construction lawyer’s office are the following: 1. This may result in arbitration proceedings quite different to what the parties contemplated at the time of contracting. Arbitration clauses included by reference only may not be enforceable or recognised by the UAE Courts. This can have substantial legal implications if a dispute arises thereafter and is brought before a panel of arbitrators or before 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. Aside from this. 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.

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. 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. Contactors’ and architects’ liabilities are quite rigidly set out in local law. Local Government Legislation – each emirate may be different Construction contracts drafted without legal consultation often ignore local . bystander or an independent arbitrator/judge who will try to deduce these after the event and on the basis of possibly non contemporaneous evidence. 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.CONSTRUCTION LAW 6 For example. This can lead both to a misinterpretation and to an unfair award/judgment. 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.

By the use of recent case law. 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. This will be particularly relevant to circumstances where one party to the contract is a government entity. construction disputes arise due to a delaying event. Delay – whose fault? More often than not. legal consultation may assist in fine tuning various clauses to reflect the way with which they may be treated by UAE Courts. 6. Legal consultation may help in identifying such potential delaying events. the responsibility for which has not been dealt with in the contract. 8. “Back to back” contracts – it’s not that simple Very often subcontracts are drafted on a “back to back” basis and this phrase is 7 . 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. 7.CONSTRUCTION LAW government laws applicable in a specific emirate.

As such. One of the reasons why disputes. are eventually referred to arbitration or litigation is because their wording has been unclear. intentions are identified clearly and with heed to UAE Law – the ultimately determining factor of rights. “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. This could be limited (and occasionally altogether avoided) if.CONSTRUCTION LAW abundant in various parts of a subcontract. 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. arising out of construction contracts. 8 . inadequately drafted and has not clearly reflected the true intentions of the parties. following legal advice. such as an arbitration clause. perceived intentions become the object of interpretation and disagreement leading up to legal battles. certain clauses. obligations and amounts awarded locally.

unless the contract specifies a longer period. D oes an architect have as much exposure as a contractor when it comes to issues of liability? More worryingly. 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. 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. 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 architect’s obligation to compensate for the damage caused shall remain. 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. 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. 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.CONSTRUCTION LAW Architect’s liability under UAE Law A look at how UAE Law treats architectural liability for both design and supervision. to be carried out by the contractor under his supervision. the plans for which are made by an architect. 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. as well as how the two are differentiated. 9 . and for any defect which threatens the stability or safety of the building.

In practice. the liability period for which can be contractually agreed between the parties. this means that the employer can commence a legal action or arbitration proceedings for any major defect affecting stability or safety of a structure. 3. the most important of which for architects are the following: 1. Independent or Court appointed experts could determine the nature of a defect and establish its importance. 2. . or that only one of the two parties is liable.” In circumstances where it is clear that the architect’s/designer’s 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. 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. both against the architect/designer and the contractor without being obliged to decide whether the defect is of a designing or structural nature. 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). In this respect. the architect’s/designer’s liability will be limited to purely architectural/designing errors in the plans and any structural error would be the responsibility of the contractor. The outcome of a Court action or arbitration proceedings could be either that liability is apportioned between designer and contractor.CONSTRUCTION LAW 10 There a number of issues arising as a result of these provisions. The decennial defects liability period will only apply to major defects affecting the stability or safety of a structure. he shall be liable for defects in the plans. Decennial liability is joint both for the architect (designer) and the contractor. In practice and under UAE Law. An exception to the architect’s/designer’s 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. 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. 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. The decennial liability period will not affect minor defects.

” The three major elements arising out of this provision are as follows: The contractor’s 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. causing a major defect lies with the contractor. With regard to minor defects. unpredictable weather related events. These can be acts of war. 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. the UAE legal position on limitation of contractor’s liability is more flexible and allows all parties to engage in an enforceable contractual agreement reflecting their wishes. but he shall not be liable if it arises out of an event which could not have been prevented.CONSTRUCTION LAW 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 882 of the UAE Civil Law states that: 11 . 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.

” Although the above provision does not specify for which type of defects the contractor’s liability is unlimited.CONSTRUCTION LAW 12 “ Any agreement the purport of which is to exempt the contractor or the architect from liability. possible to limit liability for defects that are minor and do not affect stability or safety of the structure. It is. in practice the parties cannot limit or contract out of defects liability provisions relating to major defects only. or to limit such liability shall be void. however. 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. .

However. the maximum exposure with which the contractor would be faced is a fixed percentage (typically 10%) of the contract price. There is also a provision stating that any agreement the purport of which is to exempt the contractor or the architect from liability. It follows on from other 13 . it is best to have a brief look at how a contractor’s liability is dealt with under UAE Law. However. he may be tempted to find ways of breaking that limit. Is this possible and does UAE Law allow it? A Before dealing with this question. This clause is usually headed “Liquidated damages” or “Limitation of Liability”. only prohibits limitation of liability for major defects affecting stability or safety of a structure. this last provision.CONSTRUCTION LAW BUT I THOUGHT WE AGREED…! Can a contractor’s limit of liability be broken? cornerstone to any construction contract from the contractor’s point of view is a clause giving the perceived comfort that regardless of what goes wrong. in circumstances where the employer feels that the contractor has caused him to suffer losses far exceeding the agreed limit of liability. 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. shall be void. or to limit such liability. when read within the context of the surrounding provisions.

In a construction contract this is referred to as “limitation of liability”. 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. A specific provision states that parties can fix in advance a specified level of compensation to be paid in lieu of losses incurred. 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. . 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. Whilst it is not expressly stated in these provisions. by the process of elimination it is generally accepted that a contractor’s liability can be limited by agreement with regard to minor defects not affecting stability or safety of a structure. 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). 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. 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. 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. Is there any bad news? There could be.CONSTRUCTION LAW 14 articles of the law that expressly refer to issues of defect liability. This is usually reflected in the “Maintenance period” or “Defects liability period” section of a standard construction contract.

by replacing the delaying contractor with another.g. Prove that he has limited his loss (e. Secondly whether the difference. the loss claimed would not have been incurred). Point out a substantial difference between the loss incurred and the contractually agreed limit of liability. Link the contractor’s liability for delay directly to the loss he incurred (for example technical expert evidence that.CONSTRUCTION LAW Is this discretion entirely arbitrary? There is no formal list of criteria on how this discretion is to be exercised. omitting to sign contracts bearing penalty provisions once it became obvious that the project would be delayed.g. However. etc. 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. 15 .). 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 contractor’s limit of liability. the more likely it could be that the judge may exercise his discretion). The employer should have to at least: Provide details of his loss (e. were it not for the contractor’s delay. the position could depend on two issues: firstly how far the loss claimed is from the contractual limit of liability (the greater the difference. if substantial. 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).

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. Judges will often be reluctant to vary an agreed limit of compensation and instances where this has been carried out are comparatively rare. . serve contractors well to ensure that such an allegation appears one sided when compared with the mutually agreed and detailed wording of the contract.CONSTRUCTION LAW 16 So is there any point in agreeing a limit at all? Absolutely. therefore. 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. It would. Extreme reliance by the contractor on such clauses could prove hazardous in certain cases. it is advisable that the wording of the clause that stipulates what that limit will be. 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. Therefore. it will always make sense for the limit of compensation to be included. However.

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. voluminous correspondence is produced and extended statements of claim are drafted. above all. who would be. This procedure can apply substantial pressure on the employer. all in preparation for a grand trial or arbitration. interested in finalising the works as quickly as possible to avoid penalties arising from relevant project finance.CONSTRUCTION LAW Benefits and drawbacks for contractors in commencing arbitration / litigation prior to completion of works M ore often than not the dispute resolution process related to construction contracts commences after the works are completed. 17 . 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. 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. Lawyers are instructed.

DRAWBACKS Dispute Resolution Process may effect progress of works One important element within the duration of the works is the relationship between the parties. it is advisable that legal assistance is sought as soon as a dispute arises whether arbitration / litigation proceedings will be commenced or not. In any event. 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. If such satisfactory resolution does not take place.CONSTRUCTION LAW 18 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. 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. commencing the dispute resolution early will not necessarily guarantee that such dispute will be successfully resolved to a satisfactory degree for both parties. in terms of finalising the works in the envisaged time frame and the contractor. the parties’ relationship may be damaged to such a degree that termination of a contract may also be envisaged. In all probability the dispute resolution process if commenced swiftly. . This is because. increase of costs etc. at an early stage. This will ultimately have delay repercussions. 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. 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 terms of obtaining swift certification of applications for payment. ultimately leading to issuance of final certificate of payment. In addition. which will affect both the employer.

CONSTRUCTION LAW 19 If the relationship with the employer is damaged substantially. man hours and materials/bills of quantities measured and adjusted. In addition. 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. 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. from the commencement of arbitration or litigation proceedings prior to the completion of works and without principled negotiation having taken place. 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 . ultimately resulting in more money being spent in the pursuit of its claim than is being recovered through the progress of the works. This can be obstructive both to the resolution of disputes and to the financial exposure involved with such resolution. . 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. 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.further disputes occur. Therefore. costs are assessed. 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. In short. it is possible that also the cash flow of the contractor may be substantially affected.

The first stage of resolving a dispute would be for the parties to negotiate. the consent of both sides will be required for ADR to take place. The principle methods widely used locally and internationally are: Alternative Dispute Resolution (to include negotiation. Alternative Dispute Resolution (ADR) An ADR option should ideally be incorporated in the contract for it to be binding on both parties. combined with speed . P arties to a construction contract may wish to resolve their dispute through a number of methods all of which have their advantages and disadvantages. mediation. conciliation and adjudication) Arbitration Litigation We examine below the benefits and drawbacks of resorting to any of the above dispute resolution methods. If it is not.CONSTRUCTION LAW 20 Advantages and disadvantages of various methods of construction dispute resolution. The benefits of negotiations are of course related to low or no costs involved.

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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 mediator’s/conciliator’s role is also to point out the strengths and weaknesses of each party’s 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.

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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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2.” . or if given under deed of arbitration in which the subject of the dispute is not stated. or if given by some of them without being so empowered in the absence of the others. as these are set out in Article 216 of the UAE Civil Procedure Code. which states as follows:“ARTICLE – 216 1. have a critical impact on the overall fair assessment of the case. the opposing parties may apply for the annulment of an arbitrator’s 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. In the following instances. or if the arbitrators have exceeded the limits of the deed. 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 award’s enforceability. (c) If there is something invalid in the ruling or in the procedures affecting the ruling. or if given by someone not competent to agree to arbitration or by an arbitrator who does not fulfil the legal requirements.CONSTRUCTION LAW 24 arguments may have very little to do with the technical merits of the dispute but they can. (b) If the ruling has been given by arbitrators not appointed according to the law. nevertheless. Acceptance of invalidity shall not be inhibited by the opposing party abandoning his right thereto before the arbitrator’s ruling is issued. or if lapsed through prescription.

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. The claimant needs to ensure that the arbitration award. Determination of whether the dispute will be resolved by one or three Arbitrators. rather than their lawyers. Dubai Municipality Rules. ICC etc. This will facilitate the certification of the award by the supervising body and subsequently its authentication through the UAE Courts. when issued. sign any arbitration agreement. will “survive” any attempt made by the defendant through the three tiers of the UAE judicial system (Court of First Instance. The options available are essentially three: 25 . however. UNICITRAL. Ultimately. vary rarely will such Power of Attorney include an express right for the lawyer to sign binding arbitration agreements. although a Power of Attorney (see below) gives a lawyer rights to conduct an arbitration on behalf of his client. 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. it is preferable that the parties to the dispute. 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. In addition. This is because in most cases. Some of the basic points that the claimant should bear in mind in this respect. 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. Court of Cassation) to nullify it on the basis of lapse of procedure or breach of a mandatory provision of UAE Law.CONSTRUCTION LAW 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. (2) Validity of award – Claimant’s perspective From the point of view of the claimant who instigates the arbitration procedure and demands resolution of its dispute. Court of Appeal. These may be the Rules of the Dubai Chamber of Commerce & Industry. Very often this issue is left unclear in arbitration clauses or agreements and becomes the object of a separate dispute.

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. 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. the majority of whom will determine the dispute. two arbitrators. with Article 210 of the UAE Civil Procedure Code. one appointed by each party and the third appointed by the two arbitrators or a neutral entity. 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 arbitrator’s award may be nullified. during all arbitration hearings. or finally. Arbitrators should not take actions that exceed the limits of their powers under the arbitration clause / agreement. if the dispute is subject to UAE Civil Procedural Law. Arbitrators should not violate or overlook any of the Rules of Arbitration agreed to by the parties. Time extensions need to be in compliance with the agreed rules of arbitration and. In practice. 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. one appointed from each party. which states: .CONSTRUCTION LAW 26 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. 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. Powers of Attorney It is essential that under UAE Law parties are represented by authorised attorneys who should carry with them. and an umpire who will only determine the dispute if the two arbitrators disagree on their findings.

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. it shall be extended to a month. the bulk of the defence submissions relates to procedural aspects.” 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. validity of Powers of Attorney. More often than not. or to prolong proceedings and force the claimant into an amicable settlement for an amount substantially lower than that demanded. If the remaining period is less than a month. and shall be resumed from the date on which the arbitrator becomes aware that the cause of the interruption or suspension has been eliminated. and they may empower the arbitrator to extend it to a particular date. otherwise any of the opposing parties may raise the dispute to the Court or may pursue it before the Court if already raised. time bars. 27 . validity of arbitration agreements. jurisdiction. 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.CONSTRUCTION LAW “ARTICLE – 210 (1) If the opposing parties do not specify a time for a ruling to be given in the arbitration agreement. This has the inevitable effect of prolongation of the arbitration proceedings. etc. an agreement for extension is obtained as soon as possible. (3) The period shall be interrupted whenever the proceedings are interrupted or suspended. (2) The opposing parties may explicitly or implicitly agree to extend the date prescribed by agreement or by law. (3) Validity of award – Defendant’s perspective Defendants very rarely submit a defence statement that deals purely with the merits of the dispute. 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. the arbitrator is to give his ruling within six months from the date of the initial arbitration hearing. This type of preliminary defence is normally accompanied by a request for one or more interim awards.

Invariably there will be extensions granted/agreed and it may be more than a year before an arbitration award is issued. The UAE courts cannot consider the merits of the arbitrators’ findings. (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 . which will subsequently give it sufficient ground to request nullification of the award before the UAE Courts. Very rarely are arbitration awards issued within the six months time limit. The result of this process. yet another trial between the same parties. 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 party’s assets. in the UAE.” In contrast to other jurisdictions. (4) Authentication through UAE Courts As in most jurisdictions. 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.CONSTRUCTION LAW 28 In addition to the prolongation. However. This is clearly stated in paragraph 1 of Article 217 of the UAE Civil Procedure Code which states: “ARTICLE . very often the defendant’s 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. it has been noted that. Thereafter. the nullification / ratification of the award becomes. effectively. This is primarily fuelled by defendants that wish to nullify the award on the basis of procedural errors. 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.217 (1) Arbitrator’s rulings may not be contested in any way. the litigation process of authentication of the award could result in an additional year’s delay before a final judgement is issued. the defendant’s objective is to identify any procedural errors committed by the arbitrators. The overall time consumed is arguably equal to and sometimes greater than the time spent before the Courts through a straightforward litigation process. the subject of a separate legal action that progresses through the process of the three tier local Court system.

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. 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. This should lead to a swift consideration by the UAE Courts of the validity of an arbitration award If these areas are addressed.CONSTRUCTION LAW if it had resolved its dispute through 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. 29 . the merits of which they would otherwise have to consider. and from the perspective of the UAE’s image as an important commercial and business centre in the Gulf. However. who would be alleviated from the increasing volume of commercial disputes. observance of all relevant procedural and mandatory laws as well as issues of public policy. quality and legal competence of the arbitrators appointed.

which states that: “ARTICLE – 216 1. or if lapsed through prescription. In the following instances.CONSTRUCTION LAW Know now your basics: Critical UAE arbitration stages. the opposing parties may apply for the annulment of an arbitrator’s 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. with often complex procedural law. It is possible to challenge and even nullify an arbitral award but only on specific procedural grounds. 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. R esolution of disputes by way of arbitration requires familiarisation. or if the arbitrators have exceeded the limits of the deed. rules and regulations of arbitrating bodies. or (b) 30 . If the ruling has been given by arbitrators not appointed according to the law. local as well as federal provisions and issues of public policy all of which can differ substantially in various jurisdictions. of all parties concerned. These are set out in Article 216 of the CPC.

Acceptance of invalidity shall not be inhibited by the opposing party abandoning his right thereto before the arbitrator’s ruling is issued. The mandatory nature of the Law is set out in Article 84 of Part 4 of Law No: 6 of 1997. 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. the Government or any of its departments. (c) If there is something invalid in the ruling or in the procedures affecting the ruling.CONSTRUCTION LAW if given by some of them without being so empowered in the absence of the others. Foreign Arbitration Clauses with Dubai Government Departments. bodies or authorities may – under a written consent from the Ruler – be exempted from abiding by this provision. 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.6 of 1997 (“ In respect of Contracts of Government Departments in the Emirate of Dubai”). institutions.” Ultimately. 2. The position with regard to foreign arbitration clauses with Dubai Government bodies is set out in Law No. Any stipulation in violation thereof shall be deemed null and void. which reads: 31 . This law is mandatory and will override any conditions in a contract with a Dubai Government Department that directly contravene its provisions. Save as the foregoing and wherever the public interest may require. 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.

institutions. 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). bodies or authorities may – under written consent from the Ruler – be excepted from abiding by this provision”. the arbitrator is to give his ruling within six months from the date of the initial arbitration hearing.CONSTRUCTION LAW 32 “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. Time extensions need to be in compliance with the agreed rules of Arbitration and Article 210 of the UAE CPL. . though not government departments as such. It could be argued that the above provisions apply also to companies that are wholly UAE Government owned. All the departments shall abide by such form and conditions”. otherwise any of the opposing parties may raise the dispute to the Court or may pursue it before the Court if already raised. the Government or any of its departments. Article 36 relating to arbitration states that: “Save as the foregoing and wherever the public interest may require. For example. 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. Any time extensions need to be agreed upon at an early stage. 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. could present the winning party with substantial enforcement problems. In circumstances where various provisions of this law are not compulsory/mandatory and the parties can contract out of them this is clearly stated. but can often be extended up to another six months or more by mutual agreement. In any event. a foreign arbitration clause. even if accepted and ratified by the Ruler’s Court. which states: “ARTICLE – 210 (1) If the opposing parties do not specify a time for a ruling to be given in the arbitration agreement.

it shall be extended to a month. 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. the Court may extend the date specified in the foregoing paragraph for such period as it deems appropriate of a settlement of the dispute. There have also been a number of Dubai and Abu Dhabi Court of Cassation rulings confirming that appeals against the merits of arbitrator’s awards are not permissible. Article 48 of the Dubai Chamber of Commerce & Industry Rules for Arbitration and Conciliation states that: . the judgement of which is then appealable within 30 days before the Court of Appeal. which states that arbitrator’s rulings may not be contested in any way. Thereafter. During the process of this authentication. (3) The period shall be interrupted whenever the proceedings are interrupted or suspended. Enforcement on losing party’s assets of an arbitral award resolving a construction dispute As in most jurisdictions. and they may empower the arbitrator to extend it to a particular date. an agreement for extension is obtained as soon as possible. the Court of Appeal judgment can be appealed within 30 days before the Court of Cassation.” 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. in some cases. This involves an application to the Court of First Instance. the judgement of which is final. an award needs the authentication of the local courts for it to be equivalent to a Court judgement and to be enforceable against the defendant’s assets. For example. If the remaining period is less than a month. and shall be resumed from the date on which the arbitrator becomes aware that the cause of the interruption or suspension has been eliminated. This is clearly stated in paragraph 1 of Article 217 of the UAE Civil Procedure Code. Legal costs and relevant expenses incurred in arbitration proceedings Although legal costs are not generally recoverable by the successful party under UAE Law. the UAE Courts cannot consider the merits of the arbitrator’s findings.CONSTRUCTION LAW 33 (2) The opposing parties may explicitly or implicitly agree to extend the date prescribed by agreement or by law. At the request of the arbitrator or one of the opposing parties.

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. Conversely. Upon the defendant so doing. 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. the Court will refer the matter to arbitration. at the beginning of the arbitration. However. if the defendant fails to object and refer to the arbitration clause at the first Court hearing. Litigation of a dispute arising out of a construction contract containing an arbitration clause. to agree on bearing their own legal costs or that these will be borne by the losing party. the defendant may expressly refer to the arbitration clause at the first Court hearing in accordance with Article (203/5) of the CPL. typing.” In addition.e.CONSTRUCTION LAW 34 “The costs of conciliation or arbitration shall include charges of the Chamber. recording. file a case with the Court) even where the contract contains an arbitration clause. photocopying and others incurred in the course of the conciliation or arbitration proceedings. normal expenses incurred by the parties in preparation of their pleadings any administrative expenses relating to meeting-rooms rentals. it is possible for both parties. 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. remuneration and actual expenses of the conciliators or arbitrators. The claiming party may resort to litigation (i. fees and expenses of the experts and the translators if any. .

ultimately.CONSTRUCTION LAW 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. when the works are completed both the main contractor and any subcontractors should be fully remunerated for work duly carried out and completed. 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. therefore. important for the main contractor and the subcontractor to agree the basis on which the risk of the employer’s inability or reluctance to pay is borne. by the employer/ owner. The main contractor will often use “pay when paid” or “pay if paid” clauses in the subcontracts (for example. In addition. no part of which will be paid until and unless such part has been received by the employer…”). It is. Ideally. 35 . A Very often the main contractor will prefer to let the subcontractor bear the burden of the employer’s inability or reluctance to pay amounts ultimately due to the subcontractor. “…the total subcontract price paid to the subcontractor shall be …. In addition to the employer’s reluctance to pay for parts of work carried out there is also the risk of non-payment as a result of the employer’s inability to pay.

If it is rejected.” In practice. not be given. Finally for maximum clarity of the true intentions of the parties a “pay if paid” clause should also be added in any event. Clause 4. 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. 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. However. . which could in many circumstances. It may. 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. 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. any clauses that exclude any privity of contract between subcontractor and the employer should be deleted from the subcontract. 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. an assignment clause in the subcontract will very often be subject to the employer’s approval.CONSTRUCTION LAW 36 Furthermore. In addition. understandably. standard clauses are often included to reflect this. For example.3 of the FIDIC Conditions of Subcontract for Works of Civil Engineering Construction. 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. Under UAE Law. 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. However. therefore. this to date has been in circumstances where there was no “pay if paid” clause in the subcontract. Although UAE Courts have so far been sympathetic to subcontractors deprived of their payment by the main contractor. risking the effect of a “pay if paid” clause may not be advisable for a main contractor.

This. 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). . it is likely that the subcontractor may not actually wish to direct his claim against the employer. Provided the assignment clause is acceptable to the employer. after the subcontract has been signed and at a stage when the works have been completed and payment is outstanding.CONSTRUCTION LAW 37 If the main contractor gives such assignment only after the event. i. 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). 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 subcontractor’s claim. combined with the possibility of the main contractor providing the subcontractor with a more tangible and attractive target to launch his claim against. In conclusion. such clause would be in compliance with UAE Law and would in all probability be upheld by arbitrators and UAE Courts.. 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.e. can mean that an assignment after the event will not assist the main contractor in discharging the burden of paying the subcontractor.

CONSTRUCTION LAW 38 All work and no pay? Can a contractor suspend works following delay in payment? C ontractors often fail to agree with the employer/engineer the pricing for additional works or variations that they feel they are perfectly entitled to. But what are the rights and obligations of a contractor under UAE Law when faced with delay in payment? Well. payment certificates are issued but not honoured at a time when: Works are not completed. Furthermore. The engineer has issued positive decisions on various extensions of time and additional payment requests. in a scenario where the employer does not honour these payment certificates. This is how UAE Law deals with this issue: . 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. as a result of which payment certificates are issued. What’s worse. certificates of payment are often not issued on time or at all. a lot will depend on what we mean by delay in payment in the first place. However.

10 within which payment is to be made.10 and to terminate under Sub-Clause 69. the law does not see any delay in payment. Anything prior to a payment certificate being issued does not qualify as a delay in payment.what now? In this instance both UAE Law and various standard contractual clauses are more sympathetic to the contractor. In addition. for as long as no payment certificate has been issued.1. The contractor has followed the agreed procedures. suspend work or reduce the rate of work. made his applications for variation orders. which were also ignored. after giving 28 days’ prior notice to the employer. strictly speaking.4 of the FIDIC General Conditions to Civil Engineering Construction. As frustrating as this may be. with a copy to the engineer. 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. subject to any deduction that the employer is entitled to make under the contract. To the contractor’s mind there is a delay in payment and consequently a feeling of being justified to succumb to the temptation of simply stopping work. At best there could be a delay in issuing a decision on whether payment is due. UAE Case Law has upheld the contractor’s right to suspend work if payment is delayed following issuance of a payment certificate. 39 . Delay in payment is only recognised as such by UAE Law if it is alleged following the issuance of a payment certificate.4 Without prejudice to the contractor’s entitlement to interest under Sub-Clause 60. but no delay in payment as such can properly be argued. states that: “Contractor’s Entitlement to Suspend Work – Clause 69. or a delay in approving payment. and his requests for engineer’s decisions. the contractor may. Hence. Payment certificate issued and still no money . which were either rejected or not dealt with. clause 69.CONSTRUCTION LAW 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”. no right to suspend works can be founded.

which states. goes so much into the heart and the purpose of a construction agreement that the above Clause 69. which shall be added to the contract price. and (b) the amount of such costs.to the general standpoint that neither party can default on its obligations pending resolution of any dispute arising in the meantime. provided that the obligations of the employer. Works legitimately suspended and still no payment – can we go to Court now? Whether litigation (i.4 is a contractual exception .CONSTRUCTION LAW 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. and shall notify the contractor accordingly. dispute resolution before the Courts) is an available option will very much depend on the contractual terms agreed. with a copy to the employer. determine: (a) any extension of time to which the contractor is entitled under Clause 44. 40 . that: “…Arbitration may be commenced prior to or after completion of the works.” The general position on the impact of commencing arbitration proceedings is reflected in Clause 67. a default in payment following issuance of a payment certificate. the engineer and the contractor shall not be altered by reason of the arbitration being conducted during the progress of the works.3 of the FIDIC General Conditions to Civil Engineering Construction.e.upheld by UAE Courts .” However. amongst other issues. after due consultation with the employer and the contractor. 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.

even for something that appears as straightforward as a debt collection from the defaulting employer. and the rights or obligations of the parties with regard to defects. refer the failure to arbitration in accordance with Sub-Clause 67. In that scenario.CONSTRUCTION LAW It must be noted that other dispute resolution methods such as conciliation or mediation are not expressly recognised in the UAE Civil Procedure Law.3. either party may.e.” So does one only have to look at the contractual clauses to see what rights each party has? Doesn’t 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. This being the legal background. the only stage that can be skipped is that of a request for an engineer’s decision and of settlement negotiations and this is confirmed in standard contractual clauses. if the other party fails to comply with such decision.2 [i.1 [i. It is in relation to clauses that go into the merits of liabilities (and especially exclusion or limitation thereof). any awards or opinions issued pursuant to these methods are not enforceable against the losing party. if an arbitration clause is in place. delays etc that one needs to be aware of mandatory UAE Law provisions overriding any conflicting contractual clause. amicable settlement] shall not apply to any such reference.1 and the related decision has become final and binding. 41 . engineer’s decision] and 67.e.4 of the FIDIC General Conditions to Civil Engineering Construction states: “Failure to Comply with Engineer’s Decision – Clause 67. As such. Clause 67. and without prejudice to any other rights it may have. going to Court may not be an option. In essence.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. UAE Civil Procedure Law recognises two basic dispute resolution methods: arbitration and litigation. The provisions of Sub-Clauses 67.

In this case. he shall not have the right to retain it pending payment of the consideration. nor shall he be entitled to the consideration. The provision appears to be more tailored for circumstances where. he may retain it until the consideration due is paid. he shall be liable in the same manner as if he had misappropriated it. 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. there is a real inability on the part of the employer to pay the contractor. 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 contractor’s claim are advisable to exercise and under which conditions. . Furthermore. In short. which states that: “(2) If his work produces no (beneficial) effect on the property. 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. although physically doing so may involve additional labour costs and defeat the purpose it is meant to serve.” In circumstances. 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.CONSTRUCTION LAW 42 What else can the contractor do to force the employer’s 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. it is important to differentiate between an employer’s delay in agreeing that payment is due and a delay in honouring a payment certificate. exercising the right set our in Article 879 of the UAE Civil Law may prove to be superfluous. and if it is lost in his hands prior to payment of the consideration. he shall not be liable to the loss. where the employer’s financial status may not be in question. rather than a possible dispute in payment. and if he does so and the property is lost.” This is a form of a lien that the contractor may exercise on the property.

Some of 43 . as the quantum of losses. compulsory insurance provisions have become an inseparable part of UAE contracts within the designing industry. Insuring for an architect’s 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. is invariably imposed by employers in UAE contracts for architectural or consultancy services. Knowing what type of optional insurance to take presupposes knowledge of the exposure to local legal liability and of the potential quantum involved. set out any obligation for either the architect or the employer to obtain insurance cover. Neither the general provisions of the UAE Civil Law nor the more specific and stringent provisions of Law No. Professional indemnity insurance UAE Construction Law liability provisions can be quite onerous for the architect. claims and arbitration awards increases. and provide satisfactory evidence of having done so. Some of the more common types of optional insurance available worlwide are the following: 1. As a result.6/97 in relation to Contracts with Government Departments in the Emirate of Dubai.CONSTRUCTION LAW INSURING A DESIGN AND DESIGNING AN INSURANCE The pros and cons of providing adequate cover for an architect’s contractual liabilities n architect’s obligation to insure for designing errors. 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. A Under UAE Law.

2. the insurer has no liability to pay out. If the insured wins the case. 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. 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. For any design responsibility. .CONSTRUCTION LAW 44 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. its liability will be contained only to any purely designing errors (always affecting stability or safety). Having said this. insuring for it can be very expensive. the insurer will pay both sides’ legal costs. However. under UAE Law recovery of such premium by the successful litigant is unlikely. If the designer’s/architect’s work does not include supervision of execution of the works. In certain cases. it is essential to take out professional indemnity insurance covering legal liability for negligence in design. Input from insurance brokers is highly advisable before a legally binding contract is signed. the precise level of an architect’s designing liability is not always obvious.. the potential liability can also be insured. Limitation of liability for major designing defects would be held as invalid. it may be possible (and in some jurisdiction compulsory for lawyers to advise their client) to obtain “after the event” insurance. Otherwise. If “fit for purpose” designing liability is involved.e. 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. 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. Architects should consider taking out insurance to cover legal expenses incurred in defending a designing errors liability action. loser does not pay winner’s cost). However. it is essential to consider taking out legal expenses insurance. or a settlement is reached which is in favour of the insured. If legal expenses insurance has not been placed.

needs to be insured for. To this extent the designing architect also acts 45 . For example. It is important to be aware of the current health and safety regulations and relevant legislation to determine any insurance cover.” Environmental insurance can pose a substantial cost exposure to the architect because various assessments are usually carried out at the architect’s expense.CONSTRUCTION LAW 3. Even so. throughout the course of the works. A third party liability policy may provide cover for one incident of pollution but an additional policy may be required if gradual pollution liability. to determine the level of the risk and the type of likely pollution. or harm the resources and ecological systems. plants or animals. 4. inclusive of clean up costs. liability for designing defects affecting the safety of a structure is set out in UAE Civil Law. it is important to at least assess whether an environmental risk is likely and to what extent. Environmental liability insurance UAE Federal law No. in view of the strict liability provisions set out in UAE Law. the Dubai Municipality has recently issued strict rules with which construction companies need to comply relating to safety and applicable to all private. Insurance for health and safety liability As indicated. poses substantial penalties for “the natural or non natural contamination of the environment resulting from introduction of pollutants directly or indirectly.24/99 for the Protection and Development of the environment. deliberately or non deliberately by man to the natural elements of the environment which may jeopardise the health of humans. local and federal establishments as well as free zones.

This can lead to disputes and loss of time. Of these the most fundamental are the following: The obligation of the insured to declare at the time the insurance policy is drawn. policies invariably do not allow recovery of the same insured loss more than once. It is therefore essential for architects wishing to insure their potential liabilities that no duplication exists in policies taken out. it would need to be part of a separate (arbitration) agreement. This will also ensure that the cost exposure to insurance premium is kept to a minimum. 5. 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. This is in line with the internationally adopted principle of an insurance contract being one of utmost good faith. all information. If many different types of insurance policies are taken out. The insurers will seek to only contribute their proportion of the insured loss. it can at the same time prove to be a valuable risk management tool for potential losses. . knowledge of which is of concern to the insurer for estimation of the risk assumed. Although taking out the right type of insurance is an additional administrative burden for architects. Taking out health and safety liability insurance should also be considered by architects. An arbitration clause built into an insurance policy will be invalid. UAE Insurance Law principles UAE Civil Law sets out the general principles of insurance. 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. For an arbitration clause to be valid.CONSTRUCTION LAW 46 as supervising engineer ensuring that safety measures are correctly implemented.

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.CONSTRUCTION LAW So what have you lost? Can an employer deduct and keep liquidated damages if a contractor is in delay? I nvariably a construction contract will include a clause entitled “liquidated damages”. in the minds of both parties. A penalty is a more strict imposition of an amount regardless of whether a loss has been incurred or not. 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. Very often. 47 . We examine below whether this is indeed the case under UAE Law. 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.

would be subject to substantiation of any corresponding losses incurred. by adopting the view that the loss incurred by the employer cannot be less than the amount deducted by way of liquidated damages. 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. 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. In essence. any provision setting out an employer’s right to deduct amounts that would otherwise be due to the contractor. usually through applications to the consulting engineer. Following this. Consequently whether worded as a penalty or a liquidated damages clause. It is normal practice for any allegation made by a party to an arbitration or litigation. 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. the contractor will try to claim back his money by following a contractually agreed procedure. culminating in a notice to refer matters in dispute to arbitration. to carry with it the burden of substantiating the veracity of such allegation. 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. at least in general terms. . In doing so. that these amounts did not equate to undue enrichment nor to a penalisation of the contractor in delay. 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 contractor will allege that the employer should not have deducted the amounts stipulated in the liquidated damages clause because no proportionate loss was incurred.CONSTRUCTION LAW 48 UAE jurisprudence has taken a stricter stance on whether and how liquidated damages can be imposed by an employer.

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. 49 . 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. between the claimed loss and normal limits of overall liability. How easy would it be for an employer to do this? The greater the difference. However. the door is open for the employer to build a case by submitting evidence that points to actual. is a liquidated damages clause without an overall limit enforceable? Usually. the more likely it could be that the judge may award losses actually incurred. 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. 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.CONSTRUCTION LAW Assuming a loss can be substantiated. to 10% of the contract price. no. 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. As previously reported. 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. if loss of profit or consequential losses have not been expressly ruled out in the contract. Whilst the employer would have to substantiate his losses. However. 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.

. 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. Prove that he has taken active steps to minimise his loss. to include in the liquidated damages clause. 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.CONSTRUCTION LAW 50 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.

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). which states that: “When denied. and without lawful excuse. 51 .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. unless the law provides for a lesser period. 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. 1. 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.” 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 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.

the plans for which are made by an architect. (c) Article 886 (1) of the UAE Civil Law In addition to the statutory time bars mentioned above.” . 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. the contractor must immediately notify the employer thereof. The decennial liability period will not effect minor defects the liability period for which can be contractually agreed between the parties.” This article sets out the decennial liability applicable only for major defects affecting stability or safety. 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. (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. unless the contract specifies a longer period. 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.CONSTRUCTION LAW 52 (b) Article 880 of the UAE Civil Law states that: This article sets out the contractor’s decennial liability and states that: “ (1) If the subject matter of the contract is the construction of buildings or other fixed installations. (3) The period of ten years shall commence as from the time of delivery of the work. setting out the increased price expected. to be carried out by the contractor under his supervision. The above shall apply unless the contracting parties intend that such installations should remain in place for a period of less than ten years.

e. In such circumstances. the matter may still be resolved 53 . (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. However. in practice. This three-year time limit may. 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. 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.CONSTRUCTION LAW 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. 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.” This article sets out a three year time limit for the employer to start the contractually agreed mode of dispute resolution (i. 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. 2. 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. 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.

CONSTRUCTION LAW 54 by way of arbitration. 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). are generally upheld by UAE Courts in circumstances where the parties intended to time bar the right to arbitrate. 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. Failing this. 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. 3. Court procedure time bars After the issuance of an arbitration award. The parties should therefore ensure that such time bars and procedures are very closely monitored and observed. a recent Dubai Court judgment highlighted three important issues. All the contractually agreed time bars and procedures in a construction contract. that party would not be entitled to either rely on the arbitration clause or avoid litigation before the Courts. . that activate the right to commence arbitration. authentication of it will be required by the UAE Courts although there is no specific time bar for that purpose. In this respect. the party wishing to rely on arbitration clause needs to follow the contractually agreed procedure even if that party is a defendant. If a dispute arises. 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.

In the first scenario.” 55 . 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. The failure to obtain certificates of payment either on time or at all.CONSTRUCTION LAW TO SUSPEND WORKS OR NOT TO SUSPEND WORKS? The contractor’s perenial dilemma T 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. or by order of the Court.

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. if it allowed for the termination of the contract. 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. this option is in practice no different from the first one. This option is rarely used in practice. should also include any compensation he is entitled to for continuing the works. 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. However. completion is evidenced by a taking over certificate. the contractor would have to continue with the works and only rely on the final Court order which. Obtaining a Court order is the third option available to the contractor. should it require the contractor to be removed . 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. the position does not become litigious or acrimonious. In the meantime. inability to agree on additional works pricing or to any other major breach of the construction contract by the employer. in practice.CONSTRUCTION LAW 56 Completion of the works may at first glance seem a comfortable option. Obtaining a Court order is a relatively easier process for the employer (although still very time consuming and potentially costly). 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. Obviously if both the employer and the contractor are in agreement on termination of the works. Consent of both parties is a seemingly less problematic option. The reasons that would be raised by the contractor before the Court could vary from lack of payment. The objective of this option would be for the contractor to be legally allowed to cease the works. 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. However.

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. to be a real option for the employer but an academic one for the contractor. As such. Contractual provisions In practice. 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 arbitrator’s powers. therefore. 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 contractor’s right to suspend depends on: a sum of money falling due under the contract 57 . the contractor will have no practical option but to finance any operations required for the additional work and variations of the employer/engineer. In an application for termination filed by the contractor. in addition to the legal obligations set out by mandatory provisions of the UAE Civil Code. This in practice means that a full trial will take place during which the contractor will have to continue with the works. 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. In the meantime. or rely on a formal dispute resolution process (usually arbitration or litigation and sometimes conciliation) to recover its dues. the contractor is also obliged contractually to carry out additional work. 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 right to terminate through a Court order seems. comply with a very strict procedure for claims for additional time or additional payment and then. The Court is therefore more likely to look into the merits of the contractor’s reasons for termination before it issues an order. either hope that its claims will be approved by the supervising engineer.

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. In the UAE. Accepting highly onerous terms or overlooking provisions that seek to compel completion of extra works in any event. it would have complied with mandatory law and possibly contractual provisions. 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. the position internationally and in the UAE seems to be that if there is any burden on the employer. the onus on the contractor is substantial. can have serious financial implications for the contractor that could eliminate its profit margin and expose it to additional costs at the employer’s benefit. . Conversely. 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. by doing so. In short. Appreciating and limiting the pitfalls relating to variations and additional works in a construction contract is crucial for the contractor. However. 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.CONSTRUCTION LAW 58 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. and the requirements with which it needs to comply are numerous and complex.

CONSTRUCTION LAW PREPARING EARLY FOR WORKS THAT MAY BE LATE: Effective documentary management for UAE delay and disruption claims H 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. CONTRACT MANAGEMENT Applying effective contractual procedures The effectiveness of contract administration systems is crucial for both the employer and the contractor. it is compliance with the contractual provisions and regular management of documentation that will secure a watertight claim submission. 1. Efficient 59 . The first step is to engage into a contract with clear and comprehensive terms but thereafter. 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. A. and how these are dealt with under UAE Law.

. 3. Article 888 of the UAE Civil Law states: “If the consideration for the work is not specified in a contract. 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. The intention of the parties on contractual time limits is clearly defined. the contractor shall be entitled to fair remuneration. In circumstances where variations depart considerably from the initial specifications the delaying impact on the completion date will be substantial.CONSTRUCTION LAW 60 contract management should ideally ensure that: 1. 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. In practice. and that 4. The delaying effect. 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. 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. The parties seek as soon as possible to agree on such assessment. not many contractors can allocate the necessary resources to achieve this in parallel with normal work progress. the existing agreement with the contractor must be observed in connection with such variation or addition”. 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. failing which. if any. those time limits are strictly complied with. of every variation order is assessed and communicated promptly through contractually agreed mechanisms. together with the value of the materials he has provided as required by the work”. UAE Law stipulates that variations should generally be proportionate to the initial specifications of the contract.

Contractors are expected to produce and continuously update a critical path analysis. once the dispute resolution process has commenced. In that case. A non-exhaustive list of such documentation will include: Daily communications by fax or e-mail. B. Cost analysis for hiring equipment. The more complete the technical support available and the more specialised the contractor’s personnel is. plant etc. the employer would also need to have implemented equally effective claims handling resources so that it can properly reject or accept the contractor’s claims. In doing so. To achieve this. Signed minutes of meetings by all parties attending. Having said this.CONSTRUCTION LAW 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. Progress reports. the more accurate the information supporting a claim will be. Notices given in accordance with the contractual method agreed. it will inevitably have to produce substantiating evidence in support of its decision to do so. 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. DOCUMENTS MANAGEMENT The bedrock of any delay and disruption claim is the documentation available to support it. 61 . 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. Countersigned timesheets or other man-hour measuring document relevant to the dispute. the contractor may defer the calculation until such point in time as the position becomes clearer and more easily quantifiable.

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. potentially controversial correspondence (alleging delays. such as notifications for an anticipated increase in bills of quantities. 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. instructions on site on aspects that could affect a critical path are given verbally. 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. 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. potentially. correspondence generated by representatives of the employer. the engineer or the contractor. may have major legal or contractual implications at a later stage. in their earlier settlement. setting out the increased price expected. the contractor must immediately notify the employer thereof. Very often. Even if such instructions are given in writing. The accuracy and completeness of any data in support of a delay and disruption claim is also dependent upon the contractor’s quality control system. attributing fault to factors that have not yet been assessed or inadvertently admitting liability where the position should be reserved) before it is generated. 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. 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”. It is therefore important to review from a legal and contractual perspective. UAE Law demands swift action on the part of the contractor.CONSTRUCTION LAW 62 Monitoring from an early stage. . they are invariably generated by an unauthorised party. Conversely. 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. On some occasions.

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