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UAEConstructionLaw PDF
UAEConstructionLaw PDF
INTRODUCTION
1. What is the substantive and procedural legal framework relevant to construction
disputes in the UAE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
6. What is the time limit for bringing a claim against the Contractor for defects
discovered or collapse of a building or fixed installation? . . . . . . . . . . . . . . . . . . . . . . . .3
7. Would a clause setting out a time limit to issue arbitration proceedings bar a
Contractor from commencing these proceedings against the Employer after the
passage of that time bar? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
8. How soon should a claim arising out of a construction contract be lodged and what
is the time limit for doing so under UAE Law ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
9. How soon should a Contractor notify the Employer that unit rates and quantities
need to be increased for the completion of the project or of one of its aspects ? . . . . . . .4
10. Is a Contractor entitled to claim loss of profit as part of its claim against
the Employer? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
11. Can a Subcontractor claim directly against the Employer for anything that is
due to him from the Contractor? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
12. Should a Subcontractor be paid upon of the completion of its work irrespective of
whether or not the Main Contractor has been paid ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
15. What are the most important aspects of an Arbitration Clause in a construction
contract or subcontract? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
16. What UAE law procedural aspects should parties to a construction contract or
subcontract be aware of during arbitration proceedings? . . . . . . . . . . . . . . . . . . . . . . . . .7
17. In construction disputes resolved through arbitration, what is the time frame for
issuing an arbitration award under UAE Law ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
18. How can an arbitral award resolving a construction dispute be enforced on the
loosing party’s assets? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
19. Are legal costs and relevant expenses incurred in arbitration proceedings
recoverable by the successful party to a construction dispute? . . . . . . . . . . . . . . . . . . . . .8
• Articles 870 to 896 of the UAE Civil Law No. 2 of 1987 (the “Civil Code”) relating
to construction works, as well as general maxims and principles set out in the
same law, form the basis of the legal framework relating to construction.
• Specialised laws and Decrees - such as Law No. 6 of 1997 relating to contracts
with Government Departments in the Emirate of Dubai.
• Articles 203 - 219 of the Civil Procedure Law (Law No. 11 of 1992) (the “CPL”)
relating to Arbitration and appointment of arbitrators as well as authentication
of arbitral awards.
In addition, construction contracts can also have the form of one party’s standard
terms and conditions (for example, the Dubai Municipality’s Conditions of
Contract). Whatever the form of the construction contract, it is important for the
parties to factor in all aspects of the UAE construction industry and of the
governing law of the contract in addition to all the procedural details of the dispute
resolution method chosen by them.
Defects liability periods under most standard form contracts are usually considered
as extension of contract periods and are for one to two years. However, Article 880
of the UAE Civil Code states that the Contractor and the Engineer (if the plans were
6. WHAT IS THE TIME LIMIT FOR BRINGING A CLAIM AGAINST THE CONTRACTOR FOR DEFEETS
DISCOVERED OR COLLAPSE OF A BUILDING OR FIXED INSTALLATION ?
Article 883 of the UAE Civil Code states that the time limit for this type of claim will
be three years from the date of the collapse or discovery of the defects.
Breach of a procedure set out in a clause of the contract would normally not bar the
Contractor from instituting arbitration proceedings under UAE law. The time bars
that relate to the bringing of legal actions (before the UAE Courts or a UAE based
Arbitral Tribunal) are set out by Federal Laws and the parties cannot normally
contract out of them to the extent that such time bars constitute mandatory UAE
law.
There are various time limits involved from the date a claim is formed until it is
filed in the form of arbitration proceedings or a Court action. Most FIDIC form
contracts include an elaborate procedure for submission of claims before the
Engineer within a specific number of days. The Engineer would normally consider
the merit of those claims and will then issue his decision accordingly. If one of the
parties is not satisfied with the Engineer’s decision within a further prescribed
number of days the concerned party is free to submit a notice for arbitration.
The UAE Commercial Transactions Law (CTL) under Article 95 specifies a time
limit of ten years for an action to be commenced in relation to obligations of one
9. HOW SOON SHOULD A CONTRACTOR NOTIFY THE EMPLOYER THAT UNIT RATES
AND QUANTITIES NEED TO BE INCREASED FOR THE COMPLETION OF THE PROJECT
OR OF ONE OF ITS ASPECTS ?
Article 886 of the UAE Civil Code states that :
“If a contract is made under an itemised list on the basis of unit prices and it
appears during the course of the work that it is necessary for the execution of the
plan agreed substantially to exceed the quantities on the itemised list, the
Contractor must immediately notify the Employer of this, setting out the increased
price expected, and if he does not do so he shall lose his right to recover the excess
cost over and above the value of the itemised list.”
Although Article 886 only refers to unit rates it may apply to any additional costs
or time that a Contractor needs to incur and then claim in order to complete the
works. FIDIC contracts often vary the period of time during which the Contractor
has to request the Engineer for a variation and any time frame agreement between
the parties that would depart from the above provision is usually recognised as
valid by UAE law.
UAE law normally does not provide grounds for claimants to successfully pursue
loss of profit claims or financial loss/economic loss claims. In addition, this type of
claim is normally excluded in the FIDIC standard forms of contract.
Article 891 of the Civil Code expressly precludes the Subcontractor from claiming
directly from the Employer for any amounts that are properly claimed against the
Contractor unless the Contractor has given an assignment of its rights against the
Employer to the Subcontractor. In addition, standard clauses are often included to
reflect this. For example, Clause 4.3 of the FIDIC Conditions of Subcontract for
works of Civil Engineering Construction, states:
A recent Court of Cassation judgment has held that during the Subcontract a
Subcontractor will only be entitled to proportional payment during the
performance period from any payment received by the Main Contractor from its
client. However, it was also held that the same does not apply when a
Subcontractor has completed all its works and delivered the project to the Main
Contractor. It was held that in such circumstances a Subcontractor has no
obligation to wait for payment until such time as the Main Contractor has been
paid.
“ARTICLE - 216
1. In the following instances, the opposing parties may apply for the annulment of
an Arbitrator’s ruling when the court is examining whether to validate it:
(b) If the ruling has been given by arbitrators not appointed according to the law,
or if given by some of them without being so empowered in the absence of
the others, or if given under deed of arbitration in which the subject of the
dispute is not stated, or if given by someone not competent to agree to
arbitration or by an arbitrator who does not fulfill the legal requirements.
(c) If there is something invalid in the ruling or in the procedures affecting the
ruling.
Ultimately, the award will take the form of a judgment and as such it is imperative
to ensure that it is as legally sound as possible so that its nullification by the UAE
Courts is avoided and that throughout the Arbitration procedure (in fact from the
stage of drafting the arbitration clause or arbitration agreement) attention is
focused on the ultimate validity of the arbitration award.
The Claimant needs to ensure that the arbitration award, when issued, will
“survive” any attempt made by the Defendant through the three tiers of the UAE
judicial system (Court of First Instance, Court of Appeal, Court of Cassation) to
nullify it on the basis of lapse of procedure or breach of a mandatory provision of
UAE law.
Some of the basic points that the parties should bear in mind in this respect, include
the following:
• Jurisdiction of Arbitration
As the UAE have not yet signed the 1958 New York Convention on mutual
enforcement of arbitration awards, it is important for a party potentially interested
in enforcing an arbitration award on UAE based entity/security, to avoid agreeing
a foreign (i.e., non-GCC) arbitration clause. However, there are some bilateral
agreements with certain countries (e.g. France) making enforcement of arbitration
awards issued in those countries possible.
The arbitration clause or agreement should specify the rules under which any
dispute resolution by way of arbitration should be conducted. These may be the
Rules of the Dubai Chamber of Commerce & Industry, Dubai Municipality Rules,
UNCITRAL, ICC etc. For a more effective supervision and conduct of arbitration
proceedings held in the UAE it is advisable to agree to local (as opposed to
international) rules. This will facilitate the certification of the award by the
supervising body and subsequently its authentication through the UAE Courts. In
addition, it is preferable that the parties to the dispute, rather than their lawyers,
sign any arbitration agreement. This is because in most cases, although a Power of
Attorney gives a lawyer rights to conduct an arbitration on behalf of his client,
occasionally it may not include an express right for the lawyer to sign binding
arbitration agreements.
Very often this issue is left unclear in arbitration clauses or agreements that are part
of a Construction contract or Subcontract and becomes the object of a separate
dispute. The options available are essentially three:
• three Arbitrators, one appointed by each party and the third appointed by the
two arbitrators or a neutral entity, the majority of whom will determine the
dispute or finally
• two Arbitrators one appointed from each party and an Umpire who will only
determine the dispute if the two Arbitrators disagree on their findings.
• Powers of Attorney
It is essential under UAE law that, parties are represented by authorised attorneys
who should carry with them during all arbitration hearings a letter of authorisation
or ideally, a Power of Attorney appointing them as legal representatives of the
parties with powers to draft pleadings (written submissions), attend hearings and
perform advocacy on their behalf.
If arbitrators exceed the limits of the powers given to them in the arbitration
clause/agreement, paragraph 1(a) of Article 216 of the UAE Civil Procedures Law
(set out above under 14) clearly states that the award will be invalid - at least to the
extent that it includes decisions that have been made beyond the powers of the
arbitrators as these are set out in the arbitration clause / agreement.
• Arbitrators should not violate or overlook any of the Rules of Arbitration agreed to
by the parties.
Paragraph 1(c) of Article 216 of the UAE Civil Procedures Law sets out the 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.
The time limit for issuing an arbitral award is usually six months, but can often be
extended up to another six months or more by mutual agreement. Any time
extensions need to be agreed upon at an early stage. Time extensions need to be in
compliance with the agreed rules of Arbitration and Article 210 of the UAE Civil
Procedures Law, which states:
“ARTICLE - 210
(1) If the opposing parties do not specify a time for a ruling to be given in the
arbitration agreement, the arbitrator is to give his ruling within six months from
the date of the initial arbitration hearing, otherwise any of the opposing parties
may raise the dispute to the court or may pursue it before the court if already
raised.
(2) The opposing parties may explicitly or implicitly agree to extend the date
prescribed by agreement or by law, and they may empower the arbitrator to
extend it to a particular date. At the request of the arbitrator or one of the
opposing parties, the court may extend the date specified in the foregoing
paragraph for such period as it deems appropriate for a settlement of the
dispute.
(3) The period shall be interrupted whenever the proceedings are interrupted or
suspended, and shall be resumed from the date on which the arbitrator becomes
aware that the cause of the interruption or suspension has been eliminated. If the
remaining period is less than a month, it shall be extended to a month.”
As in most jurisdictions, an award needs the authentication of the local courts for it
to be equivalent to a Court judgment and to be enforceable against the Defendant’s
assets. This involves an application to the Court of First Instance, the judgment of
which is then appealable within 30 days before the Court of Appeal. Thereafter, the
Court of Appeal judgment can be appealed within 30 days before the Court of
Cassation, the judgment of which is final. During the process of this authentication,
the UAE courts cannot consider the merits of the arbitrators’ findings. This is
clearly stated in paragraph 1 of Article 217 of the UAE Civil Procedure Code, which
states that arbitrator’s rulings may not be contested in any way. There have also
been a number of Dubai and Abu Dhabi Court of Cassation rulings confirming that
appeals against the merits of arbitrators’ awards are not permissible.
Although legal costs are not generally recoverable by the successful party under
UAE Law, in some cases, the successful party will be awarded a greater portion of
its actual expenses and legal costs than it would have done had it resolved its
dispute through litigation. For example, Article 48 of the Dubai Chamber of
Commerce & Industry Rules for Arbitration and Conciliation states that:
In addition, it is possible for both parties at the beginning of the Arbitration to agree
on bearing their own legal costs or that these will be borne by the losing party. The
higher costs that are generally involved in arbitration coupled by the inevitable
legal and court fees of the subsequent litigation (for authentication of the arbitration
award) can mean that the ultimate cost exposure to the successful party in
arbitration may be substantially greater than in litigation.
The claiming party may file a case with the court even where the contract contains
an Arbitration clause, but this will be subject to the Defendant expressly referring
to the Arbitration clause at the first court hearing in accordance with Article (203/5)
of the Civil Procedures Law. Upon the Defendant so doing, the Court will refer the
matter to Arbitration. Conversely, if the Defendant fails to object and refer to the
Arbitration clause at the first court hearing, the Court will assume that the
arbitration clause has been waived by both parties and will continue with the
resolution of the dispute through litigation. The Plaintiff in such approach should
bear in mind that it may lose the court fees and advocacy charges if the Defendant
successfully raises the Arbitration clause defence at the first hearing.
Conciliation Clause:
Arbitration Clause :
WHEREAS:
B. The Guarantor has agreed to guarantee the due performance of the Contract in
the manner hereinafter appearing.
2. The payment by the Guarantor will only be made if, prior to the earlier of the
date of issue of the Performance Certificate or .......................(“the End Date”), the
Guarantor has received:
(a) Written notice from both the Employer and the Contractor that the amount
of damages payable to the Employer is agreed between the Employer and the
Contractor; or
(c) a legally certified copy of a decision of the Dispute Adjudication Board under
the Contract in respect of which no notice of dissatisfaction has been given
by either the Employer or the Contractor within twenty eight days of the
decision under the Contract stating an amount due to the Employer.
4. This Guarantee shall not be assignable by the Employer and upon it ceasing to
be in full force and effect the Employer shall return the same to the Guarantor
within 14 days.
5. Words and expressions defined in the Contract shall so far as the context admits
bear the same meaning in this Guarantee.
WHEREAS the Contractor has entered into a written Agreement with the Employer
dated the ...... day of ...19.... for ......[name of Contract] in accordance with the
documents listed therein, which are by reference made part hereof and are
hereinafter referred to as the Contract.
NOW, THEREFORE, the Condition of this Obligation is such that, if the Contractor
shall promptly and faithfully perform the said Contract (including any
amendments thereto) then this obligation shall be null and void; otherwise it shall
remain in full force and effect. Whenever the Contractor shall be, and declared by
the Employer to be, in default under the Contract, the Employer having performed
the Employer’s obligations thereunder, the Surety may promptly remedy the
default, or shall promptly:
(1) complete the Contract in accordance with its terms and conditions; or
(2) obtain a tender or tenders from qualified tenderers for submission to the
Employer for completing the Contract in accordance with its terms and
conditions, and upon determination by the Employer and the Surety of the
lowest responsive tenderer, arrange for a Contract between such tenderer and
Employer and make available as work progresses (even though there should be
a default or a succession of defaults under the Contract or Contracts of
completion arranged under this paragraph) sufficient funds to pay the cost of
completion less the Balance of the Contract Price; but not exceeding, including
other costs and damages for which the Surety may be liable hereunder, the
amount set forth in the first paragraph hereof. The term “Balance of the Contract
Price”, as used in this paragraph, shall mean the total amount payable by
Employer to Contractor under the Contract, less the amount properly paid by
Employer to Contractor;
(3) Pay the Employer the amount required by Employer to complete the Contract in
accordance with its terms and conditions up to a total not exceeding the amount
of this Bond.
The Surety shall not be liable for a greater sum than the specified penalty of this
Bond.
Any suit under this Bond must be instituted before the issue of the Performance
Certificate.
No right of action shall accrue on this Bond to or for the use of any person or
In testimony whereof, the Contractor has hereunto set his hand and affixed his seal,
and the Surety has caused these presents to be sealed with his corporate seal duly
attested by the signature of his legal representative, this ........ day of ....... .
Gentlemen:
No claim may be made by you under this guarantee until we have received notice
in writing from you specifying the amount of each advance payment which has
been paid to the Contractor pursuant to the Contract.
Our outstanding liability under this guarantee will reduce by such amounts as may
be notified to us in your authorised writing and stated to be the reduction of this
guarantee required to be made in accordance with the Contract by reason of the
This guarantee shall remain valid and in full effect from the date of the first advance
payment under the Contract until ......... [name of Employer] receives full
repayment of the same amount from the Contractor.
Address: .........................................
.........................................
.........................................
Date: .........................................
TO:
GENTLEMEN,
....................................... ............ ......... ......... ......... ......... ......... ...... ...... ...... ... ...... ............
............ ................. .............................. ..................... ..................... ............... .....................
..................... ......................
We accept your suggestions for the appointment of the Dispute Adjudication Board,
as set out in Schedule. ......[We have completed the Schedule by adding our
suggestions for the other members of this three-person Board, but these suggestions
are not conditions of this Tender].*
We agree to abide by this Tender until................... and it shall remain binding upon
us and may be accepted at any time before that date. We acknowledge that the
Appendix forms part of our Tender.
Unless and until a formal Agreement is prepared and executed this Tender, together
with your written acceptance thereof, shall constitute a binding contract between
us.
We understand that you are not bound to accept the lowest or any tender you may
receive.
Yours faithfully
......................................................................................................
Address .......................................................................................................
......................................................................................................
Date ............................................
* If the Tenderer does not accept, this paragraph may be deleted and replaced by:
We do not accept your suggestions for the appointment of the Dispute Adjudication
Board, and propose that we jointly agree upon the appointment after the Effective
Date (unless previously agreed) in accordance with Sub-Clause 20.3 of the
Conditions of Contract. [OPTIONAL: Our Proposal includes our suggestions for
this appointment, but these suggestions are not conditions of this Tender.]
[Note: with the exception of the items for which the Employer’s requirements have
been inserted, the following information must be completed before the Tender is
submitted]
Sub-Clause
Time for submission of programme... 4.14 ....... Days after the effective Date
Liquidated damages for the Works..... 8.6 .............% of the Contract Price
per day, in the proportions of
currencies in which the Contract
Price is payable.
Limit of liquidated damages for delay... 8.6 .......% of the Contract Price
Start repayment of advance payment.... 13.2(a) When payments are 10% of the
Contract Price
Payment Certificates.......................
&
Number of members of
* These percentages shall also be applied to the first half of the Retention Money
under Sub-Clause 13.9
Whereas the Employer desires that the Works known as ..................... should be
designed and executed by the Contractor, and has accepted a Tender by the
Contractor for the design, execution and completion of such Works and the
remedying of any defects therein,
1. In this Agreement words and expressions shall have the same meaning as are
respectively assigned to them in the Conditions of Contract hereinafter referred
to.
2. The following documents shall be deemed to be for and be read and construed
as part of this Agreement:
In witness whereof the parties hereto have caused this Agreement to be executed
the day and year first before written in accordance with their respective laws.
Signature____________ Signature____________
1. In this Subcontract Agreement words and expressions shall have the same
meanings as are respectively assigned to them in the Conditions of
Subcontract hereinafter referred to.
Seal In witness whereof the parties hereto have caused this Subcontract
if Agreement to be executed the day and year first written in
any accordance with their respective laws.
or
Sub-Clause
(Notes: All details in the list above shall be inserted before issue of Offer
documents. Where a number of days is to be inserted, it is desirable. For consistency
with the Conditions of Subcontract that the number should be a multiple of seven.
(c) a bonus
From 200,001 1,000 2,000 3,000 + 1.5% of the amount 15000 + 6% of the amount exceeding
upto 500,000 exceeding 200,000 200,000
From 500,001 1,500 3,500 7,500 + 1% of the amount 33,000 + 4% of the amount exceeding
upto 1,000,000 exceeding 500,000 500,000
From 1,000,001 2,000 5,000 12,500 + 0.5% of the amount 53,000 + 2% of the amount
upto 2,500,000 exceeding 1,000,000 exceeding 1,000,000
From 2,500,001 3,000 10,000 20,000 + 0.3% of the 83,000 + 1.5% of the amount
upto 5,000,000 amount exceeding 2,500,000 exceeding 2,500,000
From 5,000,001 4,000 15,000 27,500 + 0.2% of the 120,500 + 0.8% of the amount
upto 10,000,000 amount exceeding 5,000,000 exceeding 5,000,000
From 10,000,001 5,000 20,000 37,500 + 0.1 % of the 160,000 + 0.4% of the amount
upto 20,000,000 amount exceeding 10,000,000 exceeding 10,000,000
20,000,001 7,500 25,000 47,500 + 0.5% of the amount 200,000 + 0.2% of the amount
upto 50,000,000 exceeding 20,000,000 exceeding 20,000,000
More than 10,000 30,000 62,500 + 0.02% of the amount 260,000 + 0.1% of the amount
50,000,000 exceeding 50,000,000 exceeding 50,000,000