FIDIC contracts in a civil law framework: guarding against inoperability
The civil codes of almost all the countries of the Middle East are derived from the Egyptian civil code, itself based on French civil laws. It is therefore quite ironic that most of the countries in the Middle East whose legal framework consists of a mixture of civil law and the Shar’ah have based their construction contracts on FIDIC standards. This despite the fact that FIDIC contracts are largely adapted to the principles of common law.
The market value of FIDIC stems from its global acceptance and the fact that it is used by the World Bank for its project around the world. However, global use and operation in different jurisdictions comes with their own challenges. The situation becomes somewhat tricky when FIDIC contracts operate under a civil law framework like the United Arab Emirates.
To ensure that changes to FIDIC contracts are enforceable in the United Arab Emirates, it is important to understand the civil code provisions under the United Arab Emirates Civil Code (Code) that have the potential to override them. FIDIC clauses.
Clause 8.7 of the 1999 edition of the FIDIC Red Book (Red Book) provides that the Contractor must pay damages to the Employer if he does not complete the work, or each part of the work, within the deadline for completion (subject to any time extension). The clause also stipulates that these “damages for delay will be the only damages owed by the Contractor for such a failure…” The rate of these damages for delay is quantified in the Annex to the Offer.
Under the Code, article 390, paragraph 1, allows the parties to agree in advance on a fixed amount of damages. Section 390 (2) allows the court, on the written request of the injured party, to decrease or increase the amount of damages to reflect the actual loss suffered. The power of the courts to increase the amount of damages presents a considerable risk to an Entrepreneur who goes to court.
It should be noted, however, that courts in the United Arab Emirates require convincing evidence that there is a gap between the actual loss suffered and the level of contractual compensation.
In 2004 UAE Federal Supreme Court case 103, the court ruled that the contractually agreed rate of damages was grossly overstated in relation to the damages suffered by the party imposing damages and therefore should be reduced.
A party can also invoke Article 290 of the Code as a defense which provides that the court can reduce the liability or not award damages, if the victim contributed to the events which caused the damage, or increased the shame.
Article 287 of the Code presents another means of defense and specifies that if the party can prove that the damage caused is due to a foreign element beyond its control, such as a fortuitous event, an unforeseen event, a case of force major, the act of a third party, or the act of the victim, he is liable for the damage only if the law or convention provides otherwise.
Limitation periods on claims by the contractor
Clause 20.1 of the Red Book states that the contractor must notify any claim, whether for time or money, no later than 28 days after he knew, or should have known, of the cause giving rise to such a claim. The contractor runs the risk of losing his right to extra time or money if he does not notify this.
The Contractor must then submit a “fully detailed claim including all supporting details” within 42 days of becoming aware of the event or circumstance (please note that this is not within 42 days). days following the notice).
Article 20.1 of the Red Book is often amended to restrict the notification deadlines and attach deadlines to the mentions as well as to the initial notice. Another common practice of employers is to specify that the notice must “be described” as a notice under section 20.1. This prevents the entrepreneur from relying on other documents, such as meeting minutes, as notice.
Article 20.1 should be read together with Article 8.4 of the Red Book. Clause 8.4 defines when, for the purposes of clause 20.1, the contractor might “consider itself entitled to an extension of time” and, therefore, when the 28 day notice period begins to run. The key is where completion “is or will be delayed” by any of the events listed in clause 8.4.
However, in the United Arab Emirates, failure to comply with a notice provision of a contract will not, in and of itself, limit the pursuit of claims. The principles of good faith under section 246, causing disproportionate harm under section 106 and unjust enrichment under sections 318 and 319 conflict with such limitation clauses and allow for courts to grant relief to a party who is unable to comply with the statute of limitations. When all of these factors are combined, a court will likely act with caution when asked to dismiss a claim for an alleged breach of a contractual notice regime.
Limitation of Liability
Clauses limiting liability may not be applicable under local laws. Clause 17.6 of the Red Book states that: “The total liability of the contractor towards the owner, under or in connection with the contract other than under sub-clause 4.19 [Electricity, Water and Gas], Sub-clause 4.20 [Employer’s Equipment and Free-Issue Materials], Sub-clause 17.1 [Indemnities] and sub-clause 17.5 [Intellectual and Industrial Property Rights] must not exceed the amount indicated in the Special Conditions or (if an amount is not indicated) the Amount of the Accepted Contract. This sub-clause will not limit the liability for fraud, willful default or reckless fault of the defaulting party.
Subject to a small number of exclusions, an entrepreneur can be reassured to enter into a contract in the belief that their liability is capped. This may not be true in the United Arab Emirates.
Article 880 (1) provides that a contractor and a prime architect (who, where the context allows, may designate the prime contractor) are jointly and severally liable to indemnify the employer for a period of ten years from the date of receipt of the project, if the building suffers (a) total collapse, or (b) partial collapse, or (c) there is a defect that threatens the stability and safety of the building . The parties may not agree to a shorter period as it is a mandatory obligation.
Ten-year liability (as this liability is known) exists as a strict liability even if there is a defect in the land itself or even if the employer has consented to the construction of the defective buildings. However, a claim for compensation must be made within three years of the collapse or discovery of the defect.
Any modification of the FIDIC contract intended to limit the liability of the contractor with regard to the safety of the building or to limit the liability for any loss or damage to the period of liability for defects (such period of liability for defects which is less than ten years) must be null by virtue of article 880 of the code.
Article 16.2 of FIDIC 1999 provides for termination in the event of default by the employer. It states that if the engineer fails to issue a payment certificate within a specified time, if the contractor does not receive the amount due under a payment certificate within a specified time, or if the employer goes bankrupt or becomes insolvent, or goes into liquidation, the entrepreneur has the right to withdraw from the contract.
In addition, clause 16.2 also provides for termination if the employer substantially breaches its obligations under the contract, or if the employer fails to comply with the provisions of the contractual agreement (clause 1.6) or the provisions of the assignment ( clause 1.7), or if there is an extended suspension which affects all of the work as described in clause 8.11.
However, the most striking feature of clause 16.2, which allows the contractor to terminate the contract, is clause 16.2 (a) which states that “if the contractor does not receive reasonable evidence within 42 days of having given notice under clause 16.1 [contractor’s entitlement to suspend work] in the event of non-compliance with clause 2.4 [employer’s financial arrangements]. ”
However, the practical reality is not as straightforward as the conditions envisioned in a contract. The issue of unilateral termination of a contract is a very controversial subject in the United Arab Emirates and the subject of much litigation.
The general position under section 267 of the Code is that a contract can be terminated in three ways: mutual consent; court order; or by force of law. While strong arguments can be made (for example, under Articles 246 and 258) regarding the legality and validity of unilateral termination where the contract provides for such a mechanism, if a challenge is made it will often be referred to the courts. .
It is permissible to agree that a contract will be deemed terminated, without a court ruling being necessary. To avoid the hassle associated with obtaining a court decision in the event of termination of the contract, a statement specifying that any termination of the contract is deemed to have been exercised within the meaning of mutual consent as envisaged by Articles 218, 267 and 892 of the Code and without the need to obtain a court decision under Article 271.
Appropriate modifications and additions are required from a UAE law perspective when performing a FIDIC contract in the UAE. Many times the entrepreneur and employers, in order to save time and legal costs, have to use a contract (based on the FIDIC form) executed in the UK, USA or Australia as the source document. for a project in the United Arab Emirates. Such a contract does not take into account the requirements of local law and is a recipe for disaster.
Although FIDIC contracts have been the number one choice of parties in the United Arab Emirates, it is essential to reconcile the provisions adapted to common law with the Code to avoid risks and ensure the proper execution of the project. Parties to a FIDIC contract should not hesitate to seek professional legal advice when executing construction contracts to ensure that the contract complies with local laws.