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LEGAL PRINCIPLES

FOR CONSTRUCTION CLAIMS IN THE UAE


Richard Harding Q.C.
It is an unavoidable fact that contractors do not take their name from the work
they do, but from the contracts they enter into. Legal agreements provide the
foundation for all construction projects, the world over. Yet, before the ink on the
parties signatures is dry, the contract is usually squirreled away in the company
safe, with the intention that it is never seen again. Sometimes it is not needed. But
when things have already started to go wrong, it may be too late to take the
agreement out again and see what should have been done differently.
In addition, a well advised party to any significant commercial agreement needs
to know more than just what words are on the signed pages. Every system of law
adds or varies the parties rights and obligations in some way or another. It might
be said that the laws of the Middle East region1 allow less freedom to the parties
than many common law systems.
All construction claims are based on legal rights. If a party has no legal basis for
its claim, no amount of evidence, experience or expertise can prevent it failing. It
is therefore essential, at the very outset, to identify what rights it is that a party is
seeking to enforce.

A. Causes of Action
A cause of action is simply a legal basis for entitlement. It is a fundamental
element of any claim, yet it is remarkable how often this is simply overlooked,
even in high value arbitration proceedings. Claimants rely on vague concepts of
justice, when they should be looking to what the other party has agreed to do, or
not do, or to what the general law provides.
Contract based claims fall into two categories:
- Claims for breach of contract, giving an entitlement to damages;
-

Claims pursuant to the contract (sometimes known as claims under


the contract), giving an entitlement defined by the contract.

If a party is alleging that it is entitled to damages, it must specify which term of


the contract the other party has failed to comply with (i.e. breached). The fact that
1

At least those based on Abd Ar-Razzaq As-Sanhouris Egyptian Civil Code, namely: Egypt, Jordan,
Syria, Iraq, Libya, Kuwait, United Arab Emirates, Bahrain, Qatar and Sudan

at party to a construction contract has suffered loss does not mean that the other
party is responsible for that loss. It is only where that loss can be established as
being the result of a failure on the part of the other party to do what he has
agreed, that a claim can be made.
A claim pursuant to the terms of a contract is precisely that, a claim which gives
the claimant what the other party has agreed to, but nothing more, and in no
different circumstances. It is therefore essential to frame any such claim precisely
in terms of what the contract says, and not to rely on generalized interpretations.
Papers by other members of Keating Chambers will deal with specific types of
contractual claims, particularly under the FIDIC 4th edition form of contract.
This paper will therefore concentrate on rights and remedies provided by the
UAE Civil Code.

B. Additional Obligations
A contract which is subject to UAE law is not limited to its express terms. Just as
a common law contract is said to contain certain implied terms, a contract which
is subject to the UAE Civil Code effectively contains a potentially wide range of
additional obligations.

Article 246 of the Code provides as follows2:


246
. 1
2
.
(1) The contract must be performed in accordance with its contents, and in a
manner consistent with the requirements of good faith.
(2) The contract shall not be restricted to an obligation upon the contracting party
to do that which is (expressly) contained in it, but shall also embrace that which
is appurtenant to it by virtue of the law, custom, and the nature of the
transaction.

Good faith is a little like an elephant, being easier to recognize than define.
Although not a concept favoured by the common law, it is a fundamental
obligation of parties to a contract under the law of the UAE. It can be of wide
application, such as: to attack entire agreement clauses; where tender information
is misleading; and in relation to time bar provisions. A breach of the obligation of
good faith may entitle the other party to damages.
The other additional obligations are not specified in Article 246(2), but depend on
the circumstances. Generally, the type of obligations which common lawyers
would consider to be implied into a contract by the common law, would be
considered to fall within this Article. Examples might include obligations not to
2

It is always important to remember that the law of the UAE is written in Arabic, and that there is no
official translation. The law (as is said of the Koran) can never be entirely accurately translated. There
is no substitute for being able to understand the original text:

Richard Harding QC, 2010

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hinder or prevent the performance of a partys contractual obligations. As a result,


breaches of such obligations might form the basis for a contractors claim for
prolongation or disruption costs.

C. Muqawala Contracts
The UAE Civil Code contains specific provisions for contracts where one party
undertakes to make something or perform work for the other party, in return for
payment3. This includes the contracts of professionals such as architects and
engineers. Such agreements are known as muqawala contracts, and Articles 872 to
896 of the UAE Civil Code apply only to such contracts. It should, of course, be
borne in mind that muqawala contracts are still subject to the more general
provisions relating to contracts which are set out elsewhere in the Civil Code.
The muqawala section sets out many rights and obligations which will be familiar
to those with experience of construction contracts in other jurisdictions, and the
majority of these provisions are uncontroversial and rarely referred to. However,
there are certain specific articles which can impose significant liabilities.
The prime example of this is the decennial liability provisions under Articles 880883. These provide, in summary, for joint liability between the contractor and
architect/designer, for a period of ten years, for total or partial collapse of the
building, or any defect which threatens its stability, unless the life of installation
was intended to be less than 10 years. However, the really onerous part is that the
contractor and architect/designer remain liable even if the defect or collapse is the
result of a defect in the land, or if the employer consented to the defective
construction. In addition, any agreement which seeks to exempt this liability is
void and unenforceable. It is not uncommon for civil codes to impose obligations
which are mandatory, and which the parties cannot contract out of. This is to
maintain obligations which are considered to be of greater public importance than
the parties own economic interests. Decennial liability is therefore commonly
covered by specific insurance.

D. Civil Code Rights


Outside the muqawala section of the code, there are various additional rights
which parties to construction contracts may consider relying on. In this paper I
will consider the examples of: the abuse of rights, exceptional circumstances and
rights to light.
Article 106 Abuse of Rights
Article 106 of the UAE Civil Code provides that a person will be liable for an
unlawful exercise of his rights. This is different to the laisez faire attitude of the
common law. In the UAE, if a party exercises a right which is conferred on him
by the terms of the contract, but seeks to do so in a way which is unlawful, then
he may be liable for the damage suffered by the other party4. What is considered
3

See UAE Art.872


There is a school of thought which contends that Article 106 is not applicable to commercial
contracts, but in my view this is wrong. The article refers to:
which does not expressly limit the rights to which this article will apply.
4

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unlawful in this context is dealt with in Article 106(2), which sets out four
categories, namely
1. if there is an intentional infringement of another's rights;
2. where the result is contrary to the rules of Shari'a, the law, public
order, or morals;
3. if the benefits to be obtained are disproportionate to the harm that will
be suffered; or
4. if the actions exceeds the bounds of usage and custom.
Plainly, such a remedy will not be available except in cases where the abuse of
rights is significant. But parties to contracts need to consider the wider
implications of their actions, and cannot simply point to the express terms of the
contract.
Article 249 Exceptional circumstances
Until a couple of years ago, almost no-one in the UAE had heard of Article 249
of the Civil Code. Now, however, it is probably its best known and most often
quoted provision. What it permits the court or arbitrator to do, is to adjust
oppressive contractual obligations. Parties cannot contract out of the application
of this provision it is mandatory.
The reason why parties rely on this Article is so that they can contend that
elements of the contract should, in effect, be re-negotiated. They contend that it is
no longer fair that they be held to the rates, prices or other obligations in their
agreement, due to changes of circumstances which are beyond their control.
At first sight, Article 249 provides a wide and unavoidable opportunity to recover
losses due to such things as inflation or the credit crunch. However, the reality is
rather different. First, the contract has to be considered as a whole, and not
simply in relation to a loss-making element. Secondly, both parties interests have
to be taken into account, not just those of the claimant. Factors which are likely
to be relevant include: how the parties have agreed to apportion the risks (which
are an inevitable element of any construction contract); the significance of the loss
in relation to claimants resources; and the effect on the defendant of the
contractual obligations being altered. Finally, any change to the parties
obligations that is ordered is likely to reflect only the effects of what could not
have been foreseen, and not the whole of the loss. Although every case will
depend on its own circumstances, a contractor who finds that the price of certain
materials has increased over the course of a project, is unlikely to find any
assistance in Article 249.

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Rights to light
An often overlooked provision of the UAE Civil Code is Article 1139, which
gives an express right to light5. This article says (in translation): "To impede the
passage of light to a neighbour shall be deemed to be gross harm, and no person shall have
the right to make a building whereby the windows of his neighbour's house are blocked in
such a way as to prevent the passage of light to him..." The amount of light to which are
person is entitled is likely to be determined by local custom6, so that the light to
which an old building in a narrow alley is entitled, is unlikely to be the same as
that which a more modern office building could expect to receive.
The penalties for interfering with a right to light can be severe. Article 1139
provides that "it shall be permissible for the neighbour to require that the building be
removed to remove the damage." That could mean complete demolition of the
obstructive property. However the civil law does not favour self-help remedies, so
any demolition would have to be by the order of a court, which may, in
appropriate circumstances, require instead the payment of compensation7.
Where the owners of the neighbouring properties have a contractual relationship,
such as an agreement giving express permission to build, then a suitably wide
arbitration clause could arguably confer on the arbitrator jurisdiction to deal with
infringements of rights to light. However it should be borne in mind that the only
type of order by an arbitrator which is likely to be enforceable in the courts is an
order for the payment of damages.

D. Damages
Where one person has caused harm to another, the general position is that this
person will be liable to make good that harm8. In the case of breaches of
contractual obligations, the remedy may be either specific performance or the
payment of damages9. Since the remedy of specific performance is generally only
available in court10, this paper will concentrate on issues relating to damages.
The harm which a person may be required to make good can be either direct or
consequential. Where it is direct, it must be made good, but if it is consequential,
then it will only have to be made good if there was a deliberate or wrongful
element to the act11. It is therefore advisable to frame claims as being for direct
losses, where possible, and to be prepared to prove these additional elements
where the losses are not direct.

There is no direct equivalent in other Sanhouri Civil Codes, which rely on the concept of servitudes,
which are similar to common law easements. See Egypt, Article 1015; Qatar, Article 1043; Bahrain,
Article 927; Jordan, Article 1271 and Kuwait, Article 958. The equivalent provision in the UAE Civil
Code is Article 1362. Such rights can only be obtained after 15 years.
6
See, for example, Egypt, Article 1019, and UAE, Article 1367.
7
See Egypt, Article 1018(2), and UAE, Article 1365(2). How such compensation is to be ascertained is
not expressly provided for, but might take into account the diminution in value of the affected property
as a result of the loss of light.
8
UAE Article 282
9
UAE Articles 380 and 386.
10
It is thought unlikely that the court would directly enforce an order for specific performance which
was made by an arbitrator.
11
UAE Articles 283(2) and 285

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The amount of compensation is assessed on the basis of the harm suffered, and
will include any loss of profit, provided that this is a natural result of the harmful
act12.
It is, of course, open to the parties to fix the amount of any damages in the
contract13. Most commonly this is done in respect of the employers losses
resulting from delayed completion, and known as liquidated damages. However
the parties should be aware that in certain exceptional circumstances, such agreed
damages may be adjusted by the court or arbitrator14.
Causation
There is a general presumption that where, in the ordinary course of events, the
breach of contract would have caused the loss alleged, then causation does not
need to be specifically proved. However, where a defendant can prove that he did
not in fact cause the loss, and that it was due to a natural disaster, unavoidable
accident, force majeure, an act of a third party, or an act of the person suffering
loss, then he will not be liable15. However, this is not a mandatory provision of the
Code, and so is subject to any specific terms of the contract, such as terms, the
effect of which are to entitle a contractor to an extension of time, even where he is
responsible for a concurrent delay.
It is also open to a defendant to seek to establish that his fault has been
superseded by that of the claimant, in which cause the essential element of
causation is considered to be missing between the breach and the loss. Following
Egyptian jurisprudence, one partys fault supersedes that of the other, so that no
damages will be payable, in the following situations:
- Where one partys fault was deliberate for example, the employer
stopping the engineer from certifying completion;
-

Where the fault of one party has been caused by the fault of the other
for example, where an act or default on the part of the employer has
caused the contractor to complete late and hence to be in breach of his
completion obligation under the contract;

Where one party is the author of its own misfortune for example,
where the employer ignores the contractors warning that the design is
defective and time is required for remedial works.

Apportionment
It is often the case that both parties are in fact responsible, at least in part, for the
loss. For example, when a construction project is completed late, both parties
suffer losses, and each is likely to be responsible for some part of the delay. Under
12

UAE Article 292. See also Article 389, which provides: If the amount of compensation is not fixed
by law or by the contract, the judge shall assess it in an amount equivalent to the damage in fact
suffered at the time of the occurrence thereof. It may be of interest that the law of Jordan is thought to
be different in this respect, in that it does not permit the recovery of lost profits.
13
UAE Article 390(1)
14
UAE Article 390(2) another mandatory provision. This topic is considered in more detail in my
paper for the Society of Construction Law (Gulf), Making And Defending Claims For Liquidated
Damages In The United Arab Emirates, May 2006.
15
UAE Article 287

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the law of the UAE, the court or arbitrator can apportion liability between the
parties16.
These concepts are best illustrated by an example:
- A project is delayed by 10 weeks:
The contractor caused 6 weeks delay
The employer caused 4 weeks delay
-

In these 10 weeks:
The contractor incurs prolongations costs of $5m
The contract provides for LDs of $1m per week, so the
employer has a contractual right to $1m x10 = $10m

Both parties are entitled to damages, subject to apportionment


The contractor is entitled to $5m x 40% = $2m
The employer is entitled to $10m x 60% = $6m

Therefore the employers net recovery is: $6m - $2m = $4m

Limitation of Liability
It is important to note that it is arguable that UAE law does not permit parties to
exclude liability for breach of contract entirely. Article 296 states: Any condition
purporting to provide exemption from liability for a harmful act shall be void. It is
therefore prudent to include provisions which limit liability, rather than exclude it
entirely.
Generally, provisions of a contract which seek to do this will be upheld, on the
basis that Article 390(1) permits the parties to agree on the compensation payable
in the event of a breach of contract. However, this Article is subject to the
mandatory provisions of Article 390(2), which permit the court or arbitrator to
adjust the agreed compensation. This will therefore apply to limitations of liability
as much as to liquidated damages.
In addition, it is likely that in the UAE17, as in Egypt18 and elsewhere, limitations
on liability cannot be relied on where the defendant has committed a serious
fault19. Whether an act or omission is properly considered as a serious fault will
depend on various factors, including:
The seriousness of the breach As a result, a deliberate default is
more likely to fall within this category;
-

The degree of skill of the defendant The defaults of professionals


are more likely to be held to be serious faults;

16

UAE Article 290 provides: It shall be permissible for the judge to reduce the level by which an act
has to be made good or to order that it need not be made good if the person suffering harm participated
by his own act in bringing about or aggravating the damage.
17
As a result of UAE Article 383(2), which states: In all cases, the obligor shall remain liable for any
fraud or serious fault on his part.
18
Egypt Article 225
19
- This is often mis-translated as gross negligence, but the concept is quite different to that
of gross negligence under the common law.

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The extent of the harm caused The greater the harm, the greater
the likelihood that the fault will be considered to be sufficiently
serious.

Each case will necessarily depend on its own facts and the judgement of the court
or arbitrator, but, as an example, a professional who commits a deliberate breach
of his contract, the consequences of which are extensive, is unlikely to be able to
rely on any pre-agreed limitation on his liability. This can be an important factor
when considering the level of insurance cover which is required.

Richard Harding Q.C. is a barrister and arbitrator, with an MA in Arabic and Persian from
the University of Oxford. He practices from Keating Chambers, and specialises in
construction and engineering disputes involving Middle Eastern parties. He is currently
Chairman of the Society of Construction Law (Gulf).

This paper has been published for the purpose of raising general awareness of issues of law in
the Gulf region. The contents must not be relied upon or applied without taking appropriate
professional advice.

Stop, oh my friends, let us pause to weep over the remembrance of my beloved.


Here was her abode on the edge of the sandy desert between Dakhool and Howmal.
The traces of her encampment are not wholly obliterated even now;

For when the South wind blows the sand over them the North wind sweeps it away.
The courtyards and enclosures of the old home have become desolate;
The dung of the wild deer lies there thick as the seeds of pepper.

On the morning of our separation it was as if I stood in the gardens of our tribe,

Amid the acacia-shrubs where my eyes were blinded with tears by the colocynth.
As I lament thus in the place made desolate, my friends stop their camels;

They cry to me "Do not die of grief; bear this sorrow patiently."

The Muallaqa of Imru al Qays20

20

These are the first few lines of a poem which is considered by many to be one of the greatest
masterpieces of ancient Arabic literature. It is one of seven Pre-Islamic Arabic poems known as 'AlMuallaqat', a name which comes from the story that they were written on parchments using golden ink,
and hung on the walls of the Ka'ba in Mecca. Imru al Qays was the son of Hujr, the last king of Kindah
which is part of the present Republic of Yemen. He was born around 501 and died around 544 AD.

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