by Dennis Brand

 Until late last year I was frequently asked by those visiting the UAE and seeing the amount of construction being undertaken, when I thought the construction bubble in the UAE would burst.

My often repeated answer was that I did not think the bubble would burst as such, but would over time slowly deflate; how wrong I was. What we have seen over recent months as a result of what the experts tell us is result of the world wide economic downturn has resulted in an unprecedented number of projects and therefore contracts being suspended.

Whether those projects were being constructed or still in the planning stage, those who had signed contracts for design, engineering or construction or any sub-contractor or supplier providing services, will have reached for their respective contracts and agreements to remind themselves, some perhaps for the first time (!), as to their rights should the client or employer suspend performance of the services.
Based on FIDIC

Many of the contracts used in the construction and engineering industries in the UAE are based on FIDIC. If those contracts are based on the FIDIC Fourth Edition for works of civil construction, first published in 1978, which is still in use today, or the 1999 edition, one will find in the published or unmodified versions provisions which allow for the engineer to suspend part or all of the works, namely the employer’s right to suspend the works (Clause 40.1 Fourth Edition or Clause 8.8 (FIDIC 1999).

I use the term ‘unmodified’ because it is not at all unusual to see a contract which is based on the original FIDIC text, but where the client or employer has modified the provisions because of the perception that the original provisions favour the contractor unnecessarily, and the client or employer thereupon tries to redress the balance.

Such modifications will often take the form of limiting the contractor’s right to receive compensation for an extension of time as a result of a change made by the client or employer, or allowing the client or employer more time for prolonged suspension, thus delaying the contractor’s right to suspend the works, which otherwise would exist at an earlier time.

Contractor’s side

From the contractor’s side, however, there is often a very limited right to suspend, and sometimes none at all. Where the contractor has a limited right to suspend, it is usually for non-payment certified by the engineer as being due.

The Fourth Edition of FIDIC (Clause 69.4) allows the contractor to suspend if the employer has failed to pay within 28 days an amount certified by the engineer. If the contractor suspends his work under this provision, then he will be entitled to both an extension of time and any likely resulting cost.

However, where a contract is entered into that is subject to UAE law, the UAE Civil Code gives some limited comfort to the contractor. First of all, I should make it clear that, under the UAE Civil Code, there is no express right for one party to suspend its obligation(s) towards the other. However, having said that, Article 247 provides: “In contracts binding upon both parties, if the mutual obligations are due for performance each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to do.”

Article 247

Put simply, where the employer has an obligation to pay the contractor – for example, in the case where the engineer has certified a payment and the employer fails to make that payment – then, subject to the provisions of the contract, or if there is no such provision in the contract relating for suspension for non-payment, then the contractor has the right to suspend his services.

Note, however, that Article 247 gives the contractor the right to refuse to perform his obligation(s); it does not go further and allow the contractor to terminate the contract. Termination under the UAE Civil Code is dealt with by Article 892: “A contract for Muqawala shall terminate upon the completion of the work agreed or upon the cancellation of the contract by consent or by order of the court.”

UAE Law

In a contract governed by UAE Law, if there is no provision that allows a contractor the right to suspend for non-payment of services, suspending such services on the basis of the provision of Article 247 will not necessarily prevent an employer from taking the view that the contractor, by not performing his obligations – that is, by suspending his services – has breached the terms of the contract, and therefore will allow the client or employer to seek to terminate the contract for the contractor’s breach.

However, having said that, a court or arbitrator, in dealing with a contract subject to UAE law, must take account of the provisions of Article 247 of the Civil Code, particularly if the contract does not provide for suspension for non-payment or at all.

Where suspension is being considered in respect of a contract in circumstances where there is an absence of a suspension provision, I would not recommend that the contractor simply rely on Article 247, but seeks legal advice.

Construction week

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