UAE Construction Law

TABLE OF CONTENTS INTRODUCTION 1.

What is the substantive and procedural legal framework relevant to construction disputes in the UAE? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

2.

What is the form of a Construction contract ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

3.

Is the Engineer a party to a construction contract ? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

4.

Is the contractually agreed duration of a defects liability period binding under UAE Law? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

5. 6.

What is the Contractor entitled to claim if a project of works is not completed ? . . . . . .3 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

13. 14.

Are construction disputes referred to arbitration in the UAE? . . . . . . . . . . . . . . . . . . . . .5 Can an arbitral award resolving a construction dispute be challenged or nullified before the UAE Courts at the request of the losing party? . . . . . . . . . . . . . . . . . . . . . . . .5

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

20.

Can one of the parties go to Court in a dispute on a Construction contract with an Arbitration Clause? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

ANNEX A:

MODEL CLAUSES OF CONCILIATION AND ARBITRATION . . . . . . . . . .9

ANNEX B:

EXAMPLE OF PERFORMANCE GUARANTEE FORM . . . . . . . . . . . . . . . . .9

ANNEX C:

EXAMPLE OF SURETY BOND FOR PERFORMANCE FORM . . . . . . . . . .11

ANNEX D:

EXAMPLE OF GUARANTEE FOR ADVANCE PAYMENT FORM . . . . . . .12

ANNEX E:

EXAMPLE OF TENDER FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 APPENDIX TO TENDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

ANNEX F:

MAIN CONTRACT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19

ANNEX G:

SUBCONTRACT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21 APPENDIX TO SUBCONTRACTOR’S OFFER . . . . . . . . . . . . . . . . . . . . . . .22

ANNEX H:

RULES OF COMMERCIAL CONCILIATION AND ARBITRATION OF THE DUBAI CHAMBER OF COMMERCE & INDUSTRY : . . . . . . . . . . . . .23

UAE CONSTRUCTION LAW AND DISPUTE RESOLUTION INTRODUCTION Construction contracts form an integral part of the economy and development of many countries including the United Arab Emirates (UAE). It is essential that such contracts should be undertaken on conditions that hold a fair balance between the interests of the employer and the contractor and which reflect the role of independent consulting engineers. Construction disputes are generally complex with many interwoven issues involving multiple claims and counter claims which arise mainly because of the uniqueness of the construction contract itself. Construction disputes normally involve large sums of money and this results in the parties’ attempts to pursue vigorously all issues and engage in extensive legal arguments to overcome technical shortcomings. The number of construction projects and related contracts has increased substantially in the UAE over the last decade. This has inevitably given rise to significant numbers of claims either between contractors and owners / employers or between contractors and subcontractors. These disputes are resolved either by way of conciliation or arbitration predominantly held in the English language, with specialist arbitrators appointed due to the technical nature of the aspects involved Litigation is a less preferred mode of dispute resolution in the construction industry, although there are a number of Court rulings on important aspects of construction law. As a consequence of this, focus on construction law is increasing. We address below some of the most often encountered issues in construction law related disputes.

1.

WHAT IS THE SUBSTANTIVE AND PROCEDURAL LEGAL FRAMEWORK RELEVANT TO CONSTRUCTION DISPUTES IN THE UAE? • 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. In addition, the provisions of the UAE Commercial Transactions Law No. 18 of 1993, (the “CTL”) would also apply to the extent that the parties to a construction claim can be defined as traders carrying out commercial business in accordance with Articles 6 and 11 of the CTL. • 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. • Various Rules of Arbitration and Conciliation as promulgated by Abu Dhabi, Dubai or Sharjah Chambers of Commerce & Industry, Dubai or other Municipalities, International Chamber of Commerce, etc. • There are discussions for the promulgation of a Federal Construction Law implementing a “building code” the absence of which has been identified as a major handicap within the local construction industry.

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2.

WHAT IS THE FORM OF A CONSTRUCTION CONTRACT ? Construction contracts are usually set out in FIDIC (Federation Internationale des Ingenieurs Conseils - International Federation of Consulting Engineers) forms. These are standard forms of contract that are periodically revised (e.g. the FIDIC 1998 Conditions) tailored to broad areas of construction (such as Mechanical Works, Electrical works, Subcontracting etc). They are usually amended to suit the more specific needs of the parties, or the peculiarities of a specific project or legal framework of a certain jurisdiction. FIDIC contracts also contain appendixes for the parties to complete (such as dates, names of parties, arbitration clause, percentage of performance bonds, rates etc). In general FIDIC forms are set in Parts I and II: Part I of the conditions is intended to provide a general framework for the Construction Contract. Part II contains blank sections for the parties to fill in accordance with the particular requirements of the work. Part II also contains the specific details of any modifications required by the parties to the general provisions of Part I. For the avoidance of any doubt in the interpretation of the parties’ intentions, the contract should also provide that in the event of a conflict between the provisions of Part I and Part II, those of Part II are to prevail. 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.

3.

IS THE ENGINEER A PARTY TO A CONSTRUCTION CONTRACT ? Although the role of the Engineer is very critical throughout the duration of a construction contract (he supervises and authorises the works carried out, issues certificates that officially confirm the fulfillment of various stages, considers validity of claims, variation orders, etc.) it is not in fact a party to the construction contract, which is usually an agreement exclusively between a contractor and an employer (owner of the project in question). The engineer is only a party to a contract it has entered into with the employer. The engineer operates as a representative of the employer throughout the construction contract and therefore any actions he carries out are, in law, considered as those of the Employer. To the extent the Engineer has acted beyond the scope of his contract with the Employer, it is the Employer who has a cause of action against the Engineer and not the Contractor. However, it is possible, although relatively rare, to have multi party arbitration proceedings where all relevant parties are present in an all embracing dispute resolution process.

4.

IS THE CONTRACTUALLY AGREED DURATION OF A DEFECTS LIABILITY PERIOD BINDING UNDER UAE LAW? It is important when signing a FIDIC based or other construction contract to always be fully aware of the potentially relevant mandatory UAE law provisions, as they will override anything in the contract that contravenes 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

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produced by it) will be jointly liable for a period of 10 years to compensate the Employer for any total or partial collapse of the works to the extent these relate to a building or other fixed installation. This period of time can be extended by contract but cannot be reduced. The provision does not apply to installations that are intended to remain in place for a period of less than 10 years. This liability of the Contractor is unconditional and can not be circumvented even if it is proved that the defect or collapse of the construction in question arose as a result of the defect in the land or even as a result of the Employer’s consent to the construction of defective buildings or installations.

5. WHAT IS THE CONTRACTOR ENTITLED TO CLAIM IF A PROJECT OF WORKS IS NOT COMPLETED ? If the cause of preventing the works from being completed is not attributable to the Contractor, Article 894 of the UAE Civil Code states that the Contractor will be entitled to the value of the work which it has completed and the expenses it has incurred in the performance of that work up to the amount of the benefit that the Employer has derived from that work.

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.

7.

WOULD A CLAUSE SETTING OUT A TIME LIMIT TO ISSUE ARBITRATION CONTRACTOR FROM COMMENCING THESE PROCEEDINGS AGAINST THE EMPLOYER AFTER THE PASSAGE OF THAT TIME BAR? PROCEEDINGS BAR A

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.

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 ? Most construction contracts specifically state that the Contractor/Subcontractor can not suspend its obligations under the contract, simply because a claim has arisen. Therefore, in practice, most Court actions and arbitration proceedings commence after completion of works and it is very rare to see a dispute resolution process taking place before the Courts or the arbitrators whilst works are still in progress. 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

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party towards the other. Over and above the time limits that are described within a construction contract (none of which is sufficient to bar a claim from being heard before an arbitral tribunal or a Court under UAE law) this ten year time limit usually forms the basic time bar for most construction law related claims.

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.

10. IS A CONTRACTOR ENTITLED TO CLAIM LOSS OF PROFIT AS PART OF ITS CLAIM AGAINST THE EMPLOYER? 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.

11. CAN A SUBCONTRACTOR CLAIM DIRECTLY AGAINST THE EMPLOYER FOR ANYTHING THAT IS DUE TO HIM FROM THE CONTRACTOR? 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: “Nothing herein shall be construed as creating any privity of contract between Subcontractor and the Employer”.

12. SHOULD A SUBCONTRACTOR BE PAID UPON THE COMPLETION OF ITS WORK IRRESPECTIVE OF WHETHER OR NOT THE MAIN CONTRACTOR HAS BEEN PAID ? 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. 4

Construction Law in the United Arab Emirates

13.

ARE CONSTRUCTION DISPUTES REFERRED TO ARBITRATION IN THE UAE? Arbitration is gradually becoming a popular construction dispute resolution mode in the UAE. An important factor influencing parties’ decision to opt for arbitration, as a dispute resolution process is the fact that English is the widely accepted and agreed language of conducting arbitration proceedings. The benefits arising out of this factor are substantial: not only do parties save costs in translating voluminous documentation but, more importantly, specialised English speaking experts from various fields of the construction industry are appointed as arbitrators. They are usually very familiar with the technical aspects of a construction dispute and they possess a wealth of experience on the basic principles of construction 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 Procedures Law renders arbitration an increasingly preferred option for construction dispute resolution.

14. CAN AN ARBITRAL AWARD RESOLVING A CONSTRUCTION DISPUTE BE CHALLENGED OR NULLIFIED BEFORE THE UAE COURTS AT THE REQUEST OF THE LOSING PARTY? It is possible to challenge an arbitral award but only on specific procedural grounds. These are set out in Article 216 of the UAE Civil Procedures Law, which states that: “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: (a) If given without a deed of arbitration or if based on an invalid deed, or if lapsed through prescription, or if the arbitrators have exceeded the limits of the deed. (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. 2. Acceptance of invalidity shall not be inhibited by the opposing party abandoning his right thereto before the Arbitrator’s ruling is issued.” 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.

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15. WHAT ARE THE MOST IMPORTANT ASPECTS OF AN ARBITRATION CLAUSE IN A CONSTRUCTION CONTRACT OR SUBCONTRACT? 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.

•

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. 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.

•

Determination of whether the dispute will be resolved by one or three Arbitrators. 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: • 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, 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.

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16. WHAT PROCEDURAL ASPECTS OF UAE LAW SHOULD PARTIES TO A CONSTRUCTION CONTRACT OR SUBCONTRACT BE AWARE OF DURING ARBITRATION PROCEEDINGS? •

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.

•

Arbitrators’ limits under the arbitration clause / agreement. 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.

17. IN CONSTRUCTION DISPUTES RESOLVED THROUGH ARBITRATION, WHAT IS THE TIME FRAME FOR ISSUING AN ARBITRATION AWARD UNDER UAE LAW ? 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.”

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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, an agreement for extension is obtained as soon as possible.

18. HOW CAN AN ARBITRAL AWARD RESOLVING A CONSTRUCTION DISPUTE BE ENFORCED ON THE LOOSING PARTY’S ASSETS? 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.

19. ARE LEGAL COSTS AND RELEVANT EXPENSES INCURRED IN ARBITRATION PROCEEDINGS RECOVERABLE BY THE SUCCESSFUL PARTY TO A CONSTRUCTION DISPUTE?

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: “The costs of conciliation or arbitration shall include charges of the Chamber, remuneration and actual expenses of the conciliator’s or arbitrators, fees and expenses of the experts and the translators if any, normal expenses incurred by the parties in preparation of their pleadings, any administrative expenses relating to meeting-rooms rentals, typing, recording, photocopying and others incurred in the course of the conciliation or arbitration proceedings.” 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.

20. CAN ONE OF THE PARTIES GO TO COURT IN A DISPUTE ON A CONSTRUCTION CONTRACT WITH AN ARBITRATION CLAUSE? 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.

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ANNEX A: MODEL CLAUSES OF CONCILIATION AND ARBITRATION The DCCI Centre for Commercial Conciliation & Arbitration recommends the parties wishing to resolve their disputes under the DCCI Rules of Commercial Conciliation and Arbitration include in their contracts one of the following clauses according to their choice of dispute resolution mode: Conciliation Clause: “Any dispute arising from this contract shall be referred to conciliation in accordance with the provisions set forth in the Rules of Commercial Conciliation and Arbitration of the Dubai Chamber of Commerce & Industry.” Arbitration Clause : “Any dispute connected with the formation, performance, interpretation, nullification, termination or invalidation of this contract or arising therefrom or related thereto in any manner whatsoever shall be referred to arbitration in accordance with the provisions set forth in the Rules of Commercial Conciliation and Arbitration of the Dubai Chamber of Commerce & Industry”. Conciliation and Arbitration Clause: “Any dispute connected with the formation, performance, interpretation, nullification, termination or invalidation of this contract or arising therefrom or related thereto in any manner whatsoever shall be referred to conciliation in accordance with the provisions set forth in the Rules of Commercial Conciliation and Arbitration of the Dubai Chamber of Commerce & Industry.” If the Dispute is not settled by conciliation, it shall be referred to arbitration in accordance with the provisions set forth in the said Rules.

ANNEX B:

EXAMPLE OF PERFORMANCE GUARANTEE FORM

THIS AGREEMENT is made on the ........ day of ....... 20........................... BETWEEN: (1)

................................... ....... [name of bank surety or insurance company] of .................................... [address] (hereinafter called “the Guarantor”); and

(2)

.................................................. [ name of Employer] of ............................................... [address] (hereinafter called “the Employer”).

WHEREAS: A. This agreement is supplemental to a contract (hereinafter called “the Contract”) made between (1) the Employer and (2) [name of Contractor] of ....................[address of Contractor] (hereinafter called “the Contractor”) whereby the Contractor agreed and undertook to design and execute and complete and remedy any defects in the Works of ........................................ [name of Contract and brief description of the works] for the sum of ........................ [amount in Contract currency] being the Contract Price ; and B. The Guarantor has agreed to guarantee the due performance of the Contract in the manner hereinafter appearing.

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IT IS HEREBY AGREED as follows: 1. Subject to Clause 2 if the Contractor (unless relieved from the performance by any clause of the Contract or by statute or by the decision of a tribunal of competent jurisdiction) shall in any respect fail to execute the Contract or commit any breach of his obligations thereunder then the Guarantor will indemnify and pay the Employer the damages sustained by him as a consequence of such failure or breach not exceeding the aggregate sum of ......... [amount of guarantee] ............ [in words], such sums being payable in the types and proportions of currencies in which the Contract Price is payable. 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 (b) A copy of a notice of arbitration issued by either the Employer or the Contractor under the Contract which is subsequently followed (whether before or after the End date) by a legally certified copy of an award issued in arbitration proceedings carried out in conformity with the Contract that the amount of the damages is payable to the Employer; 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. 3. The Guarantor shall not be discharged or released from his Guarantee by an arrangement between the Contractor and the Employer, with or without the consent of the Guarantor, or by any forbearance on the part of the Employer, whether as to payment, time, performance or otherwise, and any notice to the Guarantor of any such arrangement, alteration or forbearance is hereby expressly waived. 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. 6. This Guarantee shall be governed by the laws of ................

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Signed by ....................................

Signed by ....................................

For and on behalf of ......................

For and on behalf of ......................

On (date) ..................................

On (date) ..................................

in the capacity of .........................

in the capacity of .........................

and in the presence of ....................

and in the presence of ....................

Seal (where applicable)

Seal (where applicable)

Construction Law in the United Arab Emirates

ANNEX C: EXAMPLE OF SURETY BOND FOR PERFORMANCE FORM By this Bond..................................................[name and address of Contractor] as Principal (hereinafter called “the Contractor”) and ........................... [ name, legal title and address of surety, bonding company or insurance company] as Surety (hereinafter called “the Surety”), are held and firmly bound unto ..............................[name and address of Employer] as Obligee (hereinafter called “the Employer”) in the amount of ...... [amount of Bond] ..................................................[in words], for the payment of which sum well and truly to be made in the types and proportions of currencies in which the Contract Price is payable, the Contractor and the Surety bind themselves, their heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. 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

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corporation other than the Employer named herein or their heirs, executors, administrators, successors and assigns of the Employer. 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 ....... . Signed by ..................................

Signed by ....................................

For and on behalf of .....................

For and on behalf of ......................

On (date). .................................

On (date) ..................................

In the capacity of .........................

In the capacity of .........................

and in the presence of ....................

and in the presence of ....................

Seal (where applicable)

Seal (where applicable)

ANNEX D: EXAMPLE OF GUARANTEE FOR ADVANCE PAYMENT FORM To:....................................... [name of Employer] ................................................ [address of Employer] ............................................. [name of Contract] Gentlemen: In accordance with the provisions of the Conditions of Contract, Sub-Clause 13.2 (“Advance Payments”) of the above mentioned Contract, ..............[name and address of Contractor] (hereinafter called “the Contractor”) shall deposit with .....................[name of Employer] a bank guarantee to guarantee his proper and faithful performance under the said Clause of the Contract in an amount of ................. ..........[amount of guarantee] ...........[in words]. We, the ..........................[bank or financial institution], as instructed by the Contractor, agree unconditionally and irrevocably to guarantee as primary obligor and not as Surety merely, the payment to ..........................[Name of Employer] on his first demand without whatsoever right of objection on our part and without his first claim to the Contractor, in the amount not exceeding ........................[amount of guarantee] ..................................[in words]. We further agree that no change or addition to or other modification of the terms of the Contract or of Works to be performed thereunder or of any of the Contract documents which may be made between ........[name of Employer] and the Contractor, shall in any way release us from any liability under this guarantee, and we hereby waive notice of any such change, addition or modification. 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

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Construction Law in the United Arab Emirates

repayments made by the Contractor. 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. Yours truly,

.........................................

Signature and Seal :

.........................................

Name of Bank:

.........................................

Address:

......................................... ......................................... .........................................

Date:

.........................................

ANNEX E: EXAMPLE OF TENDER FORM NAME OF CONTRACT : TO: GENTLEMEN, We have examined the Conditions of Contract, Employer’s Requirements, Schedules, Addenda Nos...... ......... ........ and the matters set out in the Appendix hereto. We have understood and checked these documents and have not found any errors in them. We accordingly offer to design, execute and complete the said Works and remedy any defects, fit for purpose in conformity with these documents and the enclosed Proposal, for the fixed lump sum of (in currencies of payment) ....................................... ............ ......... ......... ......... ......... ......... ...... ...... ...... ... ...... ............ ............ ................. .............................. ..................... ..................... ............... ..................... ..................... ...................... 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.

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If our Tender is accepted, we will provide the specified performance security, commence the Works as soon as reasonably possible after receiving the Employer’s Representative’s notice to commence, and complete the Works in accordance with the above-named documents within the time stated in the Appendix to 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

Signature ............................................. in the capacity of ............................

Duly authorized to sign tenders for and on behalf of ............................................. ...................................................................................................... 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.]

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Construction Law in the United Arab Emirates

APPENDIX TO 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 Employer’s name and address .........

1.1.2.1 ............................................ & 1.8

Contractor’s name and address ........

............................................

1.1.2.2 ............................................ & 1.8

............................................

Name and address of

1.1.2.3 ............................................

The Employer’s Representative .......

& 1.8

............................................

Time for notice to commence .........

8.1

...................................... days

Time for completion of the Works ....

1.1.3.4 ...................................... days

If Sub-Clause 13.15 does not apply:

Foreign Currency / Currencies .........

1.1.5.3 as named in the TENDER

Law of Contract .........................

1.4

..............................................

Ruling language .........................

1.4

.............................................

Language for communications.........

1.4

.............................................

Electronic transmission systems ......

1.8

.............................................

Confidential details .....................

1.12

.............................................

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Time for access to the Site.............

2.2

...days after the Commencement date

Amount of performance security......

4.2

....................% of the Contract Price, and in the proportions of currencies in which the Contract Price is payable.

Time for submission of programme...

4.14

....... Days after the effective Date

Normal working hours..................

6.5

..............................................

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

If Clause 11 applies:

11.4

Liquidated Damages for failing Tests after Completion (details of test failure) ......................

.............................................

(details of test failure)......................

.............................................

Total amount of advance payments......

13.2

.................% of the Contract Price

Number and timing of installments......

13.2

..............................................

Start repayment of advance payment....

13.2(a) When payments are 10% of the Contract Price

Repayment amortization of advance payment. 13.2(b) ........................................25%

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Construction Law in the United Arab Emirates

Percentage of retention ...................

13.3

..........................................%

Limit of Retention Money................

13.3

.................% of the Contract Price

If Sub-Clause 13.5 applies:

13.5

....................................[list]

13.6

................% of the Contract Price.

Plant and Materials for payment When delivered to the Site.......

Minimum amount of Interim Payment Certificates.......................

If Sub-Clause 13.15 applies:

1.1.5.3 &

Payments in local and Foreign Currencies. 13.15

Currency Unit

Percentage payable in

Rate of exchange: number

such Currency

of Local per unit of Foreign

Local: ____________[name] _____________________

1.000

Foreign: __________[name]

_____________________

_____________________

___________[name]

_____________________

_____________________

If there are Provisional Sums:

Percentage for adjustment of

14.5(b) ...........................................%

Provisional Sums ..........................

Amount of insurance for design.........

18.1

..............................................

Amount of third party insurance.........

18.3

..............................................

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Periods of submission of insurance:

18.5

(a) evidence of insurance ......

.................................. days

(b) relevant policies ............

................................... days

Number of members of Dispute adjudication Board ..............

20.3

Member of Dispute Adjudication Board

...........................................

The President of FIDIC or a person

(if not agreed) to be nominated by.......

20.3

appointed by such President

Arbitration rules ...........................

20.6

..............................................

Number of arbitrators......................

20.6

..............................................

Language of arbitration....................

20.6

..............................................

Place of arbitration.........................

20.6

..............................................

20.6

..............................................

If ICC rules are NOT to apply - Either:

Arbitration rules to be administered by, Or: Arbitrator (if not agreed) to be nominated by

Description

Value (percentage of

Time for completion

Liquidated Damages

(Sub-Clause 1.1.6.9)

Contract Price) *

(Sub-Clause 1.1.3.4)

(Sub-Clause 8.6)

_____________

_____________

_____________

_____________

_____________

_____________

_____________

_____________

_____________

_____________

_____________

_____________

* These percentages shall also be applied to the first half of the Retention Money under Sub-Clause 13.9 Initials of signatory of Tender ____________________________________________ 18

Construction Law in the United Arab Emirates

ANNEX F: MAIN CONTRACT AGREEMENT This Agreement made the ................................day of ..........................................19 ...... Between .............................of............................(hereinafter called “the Employer”) of the one part, and ....................of ......................(hereinafter called “the Contractor”) of the other part. 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,

The Employer and the Contractor agree as follows:

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:

(a) The Letter of Acceptance dated ............ (b) The Employer’s Requirements (c) The Tender dated ........... (d) The Conditions of Contract (Parts I and II) (e) The Addenda nos............. (f) The completed Schedules, and (g) The Contractor’s Proposal.

3. In consideration of the payments to be made by the Employer to the Contractor as hereinafter mentioned, the Contractor hereby covenants with the Employer to design, execute and complete the Works and remedy any defects therein, fit for purpose in conformity with the provisions of the contract. 4. The Employer hereby covenants to pay the Contractor, in consideration of the design, execution and completion of the Works and remedying of defects therein, the Contract Price or such other sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract. 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.

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Authorised signature Seal

of Employer

(if any)

20

Authorised signature Seal

of Contractor

(if any)

In the presence of:

In the presence of:

Name ______________

Name ______________

Signature____________

Signature____________

Address ____________

Address ____________

Construction Law in the United Arab Emirates

ANNEX G: SUBCONTRACT AGREEMENT

This Subcontract Agreement made the ............ .................. .................. ......... day of .................................................... 19 .......................................... Between ............................................................................................... Of ...................................................................................................... .....................................(hereinafter called the “Contractor”) of the one part and .................................................. of ...................................................... (hereinafter called the “Subcontractor”) of the other part Whereas the Contractor is desirous that certain Subcontract Works should be executed by the Subcontractor, viz ....................................... and has accepted a Subcontractor’s Offer for the execution and completion of such Subcontract Works and the remedying of any defects therein. Now this Subcontract Agreement witnesseth as follows: 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.

2.

The following documents shall be deemed to form and be read and construed as part of this Subcontract Agreement, viz: (a) The Contractor’s Letter of Acceptance; (b) The Subcontractor’s Offer; (c) The Conditions of Subcontract (Parts I and II): (d) The Subcontract Specification; (e) The Subcontract Drawings: and (f) The Subcontract Bill of Quantities

(3)

In consideration of the payments to be made by the Contractor to the Subcontractor as hereinafter mentioned the Subcontractor hereby covenants with the Contractor to execute and complete the Subcontract works and remedy any defects therein in conformity in all respects with the provisions of the Subcontract.

(4)

The Contractor hereby covenants to pay the Subcontractor in consideration of the execution and completion of the Subcontract Works and the remedying of any defects therein the Subcontract Price or such other sum as may become payable under the provisions of the Subcontract the times and in the manner prescribed by the Subcontract.

Seal if any

In witness whereof the parties hereto have caused this Subcontract Agreement to be executed the day and year first written in accordance with their respective laws. The common Seal of ............................................................................................

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................................................................................................................................. was hereunto affixed in the presence of : or Seal

Signed Sealed and Delivered by the

if

said .............................................................................................

any

in the presence of:

APPENDIX TO SUBCONTRACTOR’S OFFER

Sub-Clause Amount of security (if any) ....................

2.2

______________percent of the Sub contract Price

Time for issue of notice to commence .........

7.1

_________ days

Subcontractor’s Time for Completion .........

7.1

_________ days

Percentage of invoice value of listed

16.1(c) _______ per cent

materials and plant ............................... Percentage of Retention .........................

16.3

_______ per cent

Minimum amount of Statement ................

16.3 (a) ______________

Initials of Signatory of Offer ................... (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. [Additional entries are necessary where provision is included in the Subcontract for: (a) completion of Sections (b) liquidated damages (c) a bonus (d) an advance payment

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Construction Law in the United Arab Emirates

ANNEX H: Rules of Commercial Conciliation and Arbitration of the Dubai Chamber of Commerce & Industry :

Table of Chamber’s Administrative fees and Arbitrator’s remunerations The Chamber’s * The Disputed Administration Fees Amount In Dirhams Conciliation Arbitration Up to

500

1,000

Arbitrators Remunerations in Dirhams and in Percentage Minimum Amount 3,000

Dhs.200,000 From 200,001

1,000

2,000

1,500

3,500

2,000

5,000

upto 2,500,000 From 2,500,001

3,000

10,000

upto 5,000,000 From 5,000,001

4,000

15,000

5,000

20,000

7,500

25,000

upto 50,000,000 More than

7,500 + 1% of the amount

33,000 + 4% of the amount exceeding

exceeding 500,000

500,000

12,500 + 0.5% of the amount

53,000 + 2% of the amount

exceeding 1,000,000

exceeding 1,000,000

20,000 + 0.3% of the

83,000 + 1.5% of the amount

27,500 + 0.2% of the

120,500 + 0.8% of the amount

amount exceeding 5,000,000 exceeding 5,000,000

upto 20,000,000 20,000,001

200,000

amount exceeding 2,500,000 exceeding 2,500,000

upto 10,000,000 From 10,000,001

3,000 + 1.5% of the amount 15000 + 6% of the amount exceeding exceeding 200,000

upto 1,000,000 From 1,000,001

7.5% of the amount subject of dispute (Maximum amount shall be 15,000)

upto 500,000 From 500,001

Maximum Amount

10,000

50,000,000

30,000

37,500 + 0.1 % of the

160,000 + 0.4% of the amount

amount exceeding 10,000,000

exceeding 10,000,000

47,500 + 0.5% of the amount 200,000 + 0.2% of the amount exceeding 20,000,000

exceeding 20,000,000

62,500 + 0.02% of the amount

260,000 + 0.1% of the amount

exceeding 50,000,000

exceeding 50,000,000

* Registration Fee for conciliation and arbitration claims is Dhs.200 non-refundable

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