• Search

The Guide to Construction Arbitration

The Nuts and Bolts of Construction Arbitration in the MENA: Principles and Practice

Introduction

The MENA region, from the Arabian Gulf to the Atlantic Ocean, has witnessed progression and development in the construction industry and infrastructure projects over the past two decades.[2] Statistics show that foreign direct investment in the region is growing fast.[3]

Various commonalities exist among the legal systems of Arab countries throughout the MENA region, owing to them having a similar constitutional and legal framework, where Islamic shariah forms the basis for legislation in the region. Having the oldest existing and most influential legal system in the MENA region, Egypt has impacted and influenced the laws of other civil law Arab countries, including Algeria, Bahrain, Kuwait, Libya, Oman, Qatar, Syria and the UAE.

Given the importance of the construction industry in the MENA region, it would be useful to briefly scrutinise certain legal principles pertinent to construction contracts that regularly surface in construction disputes in the MENA region. These principles, which are largely influenced and shaped by Egyptian law and practice, include good faith,[4] implied terms,[5] abuse of right,[6] liquidated damages,[7] exceptional circumstances (imprévision),[8] force majeure,[9] contractual liability[10] and decennial liability.[11]

It is also common knowledge that the construction industry is dispute-rich and claims-oriented. Construction projects seldom end without dispute; disputes are common and not unexpected. Usually, such disputes revolve around time, cost, variations, liability or quality issues. Construction disputes are complex, multi-faceted, time-consuming and dynamic depending on the nature of the project (as delivered, as planned, as built), the type of contract (fixed lump sum or re-measured) and the specific sector involved (energy, telecommunications, hospitality, real estate, etc.)

Construction disputes also involve multiple parties (employers, contractors, subcontractors, suppliers, insurers, funders, etc.) with divergent interests, risks and expectations. Such disputes may have adverse consequences on not only the specific project but the status of foreign investment from the region and beyond on the long run.[12] Arbitration remains the MENA region's effective and preferred dispute resolution process for the entangled web of intricate legal issues and risks arising from construction contracts. However, a framework of international principles and standards that allow for more certainty and visibility is much desired. It is in this context that the FIDIC forms of contract offer a working model utilised by employers and contractors throughout the region for diverse projects across all sectors involving construction works.

That said, this chapter aims to provide an overview of certain legal principles invoked in construction-related disputes in the MENA region, so that the specificities of these legal principles and their application can be properly addressed and considered in construction arbitrations governed by the laws of certain MENA region countries.

The role of FIDIC in the construction industry in the MENA region

The FIDIC forms of contract have been used in the MENA region since 1970.[13] While these forms are English common law-based texts, they have, nonetheless, been widely adopted and applied in Arab states in the MENA region, where legal systems are primarily civil law and Islamic shariah-based. The public sector has led the way for the adoption of FIDIC forms of contract in the region in response to tendering laws and the requirements set by governmental entities.[14]

However, owing to the codification of civil legal principles throughout the MENA region, certain tension or concerns may arise regarding the application of the FIDIC conditions of contract and the legal principles prevailing under civil law in certain jurisdictions. Among the disputes that regularly arise in this context and in relation to projects proliferating throughout the MENA region are:

  • the engineer's administration of works and specifically the likelihood of late approvals, incorrect or insufficient instructions;
  • lack or delayed determination on extension of time (EoT);
  • cost;
  • changes and variations to the stipulated obligations, contractual breaches by the employer or contractor;
  • non-payment;
  • defective construction and performance;
  • non-conformity of materials;
  • warranties and representations;
  • concurrent delay;
  • force majeure and hardship (imprévision);
  • termination; and
  • liquidated damages.

It is in this context that FIDIC offers an effective contractual regime that has been tested and applied with success throughout the region. Nevertheless, it is not always the case that the agreed contractual model offers a framework that is consistent with the applicable law and norms, hence the need to ascertain and distill the applicable legal principles and how they apply in the context of construction contracts and disputes throughout the MENA region.

Construction contracts and disputes in the MENA region - civil law principles

The French Civil Code has influenced the civil codes of many MENA countries including Egypt, which in turn is viewed as the source and model on the basis of which many Arab countries have modelled their laws.

Construction contracts often involve issues arising from the interpretation of the various documents forming part of the contract.[15] As previously stated, the most common type of FIDIC form of contract used in the MENA region is the Red Book, and it is submitted that among the legal issues and principles at the heart of construction disputes governed by MENA region civil laws are: good faith, abuse of rights, estoppel, force majeure and imprévision, global claims, accelerated claims, delay damages, implied terms and decennial liability, which are addressed below.

Good faith

Good faith is a sacrosanct principle of law recognised all throughout the MENA region.[16] It is a prevailing principle in the laws of Arab states, where it governs all aspects of a contractual relationship starting from the negotiation phase, through the conclusion of the contract, its performance, and to its termination.

It is submitted that the duty of good faith is generally not limited to the performance of contracts but extends to the pre-contractual negotiations.[17] Indeed, once the parties agree to enter into negotiations, such agreement to negotiate must be performed in good faith. The duty of negotiation in good faith has several variants including, an obligation to negotiate transparently,[18] as well as an obligation not unilaterally revoke what has been agreed.[19]

Acting in ‘good faith' involves certain constraints and positive duties including:

  • an obligation of cooperation among the parties for the proper execution of a contract;
  • an obligation to transparently disclose any matter or event that may impact or influence the performance of the contract;
  • an implied obligation to avert any act or omission that may adversely impact the performance of the contract;[20]
  • an obligation to act reasonably and avert abuse of discretionary power or rights;[21]
  • an obligation not to misrepresent any fact pertaining to the performance of the contract;[22]
  • an obligation to notify the other contracting party within a reasonable period of time;
  • an obligation to avert dilatory and surreptitious behaviour;
  • an obligation to act consistently with prudence and observe commercial standards of dealing;[23]
  • an obligation to act in accordance with the objective or objectives of the contract and the justified [legitimate] expectations of the parties;
  • an obligation to avert deviation from the purpose the right was prescribed for [24] (i.e., achievement of a serious and legitimate interest);[25]
  • an obligation to abandon strict adherence to a literal interpretation if the latter leads to absurd results contrary to the spirit of the contract, its proper performance and the parties' common intention;
  • an obligation to mitigate damage or harm if sustained by either party;
  • an obligation to avoid any third-party communications and dealings that jeopardise or adversely impact the existing contract;[26] and
  • an obligation to avoid reaping the greatest advantage from the contract at the expense or to the detriment of the other party by choosing to implement its right in a prejudicial way to its counterparty.[27]

The variants of the principle of good faith have been further considered by an arbitral tribunal applying Egyptian law in the specific context of a construction contract, where the tribunal ruled that:

It is accepted in all international construction contracts that: (a) whereas it is the duty of the contractor to do what the contract requires to be done (as designed and specified by the employer, the employer shall allow the contractor to do that which is to be done without hindrance; and a party cannot benefit of its breach to the detriment of the injured party … (b) Whereas a contract provides for a date for completion of the works, but the employer through its acts or omissions prevents the contractor from achieving that date and there is no entitlement to extensions of time under the contract in such event the time for completion is nullified. This in turn means that the employer loses his right to levy liquidated damages and, while the contractor's obligation to complete the Works remains, he must do so only within a reasonable time.[28]

Good faith extends to administrative contracts (including public works construction contracts), where the Egyptian Supreme Administrative Court concluded that good faith requirements equally apply to administrative contracts. The Court held that:

It is also established that a performance of the contract in accordance with its content and in a manner conforming to good faith requirements, is a general principle which applies to administrative contracts, same as it applies to all civil contracts ….[29]

It is submitted that good faith involves both acts and omissions (passive and active duties), and necessitates the absence of bad faith. In the specific context of construction contracts, an arbitral tribunal has tackled good faith, essential mistake and fraudulent misrepresentation in the conclusion of the contract and stated that if one party knew of a mistake pertaining to the conclusion of the contract and refrained from communicating it to the other party, the former shall be deemed to be acting in bad faith.[30] As previously alluded to, good faith does not solely concern refraining from acts or omissions of bad faith, but supposes in addition, respecting a cooperation obligation when it comes to the implementation the contract.

The question of identifying the criteria of good and bad faith is left to judicial discretion,[31] to verify whether each party's conduct was in good or bad faith.[32] In the performance of construction contracts, a party will be considered to be acting in bad faith if it is determined to perform or terminate the contract with a bad intention or for a bad purpose. In this context, one may distinguish between three types of situations:

  • The first situation is the case where a party to the contract is determined to take a positive action or to refrain from acting in a certain manner while being absolutely aware that such action or omission will cause detriment to its counterparty. In such circumstances, such person is acting in bad faith.
  • The second situation is the case where a party to the contract is determined to take a positive action or to refrain from acting in a certain manner, while being unaware that such action or omission may be detrimental to its counterparty. In this case, it may be difficult to discern that the said party was acting in bad faith, as this will largely depend on whether such party was acting with an understanding that this constitutes a breach of the contract or not, irrespective of whether such breach will cause a detriment to the other contracting party.
  • The third situation concerns the case where a party to the contract acts or refrains from acting in a certain manner, while it is foreseen that such action or omission may cause the other contracting party certain detriment, yet the former chooses to act in this way. In that case, while the acting party had no intention or purpose to cause any detriment to its counterparty, it actually foresaw the possibility of detriment and accepted, in view of the benefit that it may reap, that such detriment may materialise. Accordingly, that party may (depending on the facts and circumstances) have contravened good faith, since it knowingly proceeded while foreseeing the likely prejudice that may ensue and which outweighs the benefit it desires to reap.

In manifestation of the duty of cooperation, it is submitted that an employer is expected to exert all possible efforts to allow the contractor to complete the works without impediment.[33] If the works require the intervention of the employer, it shall do so within the contractually agreed period or within the period customarily required for that specific type of work.[34] That said, the parties remain under an obligation of cooperation during the performance of the contract (as a variant of good faith), even if the contract does not specifically include all its manifestations.

Implied terms

Consistent with the good faith obligations, Arab laws include legislative provisions dealing with implied terms, where a contract is not exclusively limited to its express terms, but extends to cover implied terms.[35] Article 148(2) ECC, which inspired many similar provisions proliferating throughout the MENA region,[36] states: ‘A contract must be performed in accordance with its content, and does not only bind the contracting party to its content, but also to all that which is a necessary sequel thereof, in accordance with the law, custom and equity.'

Since pacta sunt servanda is overarching fundamental principles, it is worth noting that the doctrine of implied terms is not inconsistent with pacta sunt servanda, as the sequels of a contract remain subject to the parties' agreement and are intended to complement and supplement the same. This means that implied terms may not amend, contradict or override the express terms of a contract agreed by the parties.[37] Nevertheless, it should be noted that even a detailed and sophisticated construction contract may possibly be silent on a certain matter or circumstances and even the nature of the obligations and their proper performance, in good faith, may warrant the inclusion of certain implied terms as a matter of law, custom or equity. Thus, if the parties' agreement is silent on a certain provision, whether because the parties have failed to agree thereon or did not envisage the same, then the necessary sequels of a contract could intervene to fill the gap.

That said, it is not uncommon to imply terms in construction contracts, such as the duty of cooperation, which is also a variant of good faith. Similarly, even if it is not expressed in the contract, a contractor is expected to perform the works as deemed fit for the intended purpose, and the employer is subject to an implied obligation not to impede or interfere with the contractor in the performance of its obligations under the contract or the progress of the works.

Abuse of right

A person is entitled to use his or her rights as mandated by the law or as agreed in a contract. However, a person is not entitled to use its right in an illicit or abusive manner.[38] While not expressly included in legal provisions regulating contracts, nothing prevents utilising abuse of right, where necessary, in the context of contractual arrangements, especially that it is arguable that non-abusive use of rights can only be characterised as an application of the overarching principle of good faith.

Article (5) ECC[39] sets the criteria for abuse of right. The first criterion deals with the illegitimacy of the pursued interests. This denotes the absence of a legitimate and serious interest.[40] Indeed, the prevailing views confirm that the provisions of Islamic shariah may have a role to play in assessing the illicit nature of the pursued interests.[41] The second criterion deals with the existence of an intention of aggression. This would be the case if a person's main intention is to inflict harm, even if its act or omission is associated with a secondary intention to achieve a benefit.[42] The third criterion denotes disproportionality between the benefits and prejudices resulting from the exercise of the right. This is the case whether the person who exercised the right was recklessly inconsiderate of the damage others may suffer for the sake of a minor benefit, or had a hidden intent to inflict harm under a pretext of a fictitious or minor benefit that is clearly outweighed by the damage sustained by another person.[43] The person exercising such right would be deviating from the usual conduct of an ordinary person, and is committing a breach for which he or she must be held liable.[44]

Estoppel

While the principle of estoppel may not be legislatively captured in civil codes throughout the MENA region, estoppel, or ‘allegans contraria non est audiendus', is a well-established legal principle derived from fundamental tenets of Islamic Shariah and forms part of the legal systems of several countries in the MENA region.[45] According to this sacrosanct principle, he or she who seeks to revoke what has been agreed, or engages in contradictory behaviour, shall be barred from doing so. Moreover, estoppel is explicitly endorsed and upheld by the judgments of Arab courts,[46] and it is validly argued that estoppel is a variant of good faith.[47]

In the specific context of construction contracts, if the employer or contractor engage in contradictory behaviour or either seeks to revoke what has been agreed or endorsed, estoppel and good faith will militate against validating such actions or omissions.

Force majeure and imprévision

The laws of Arab countries in the MENA region recognise and regulate the concepts of ‘force majeure' and ‘exceptional circumstances' (imprévision or rebus sic stantibus). Both concepts deal with unforeseen and inevitable events beyond the control of a contracting party. However, while force majeure leads to impossibility of performance, imprévision, which only operates with respect to contracts whose performance is stretched over time, renders the performance of obligations excessively onerous (but not impossible) and threatens the debtor of the obligations with exorbitant loss, if forced to specifically perform the exorbitant obligations.

Moreover, on one hand, force majeure generally leads to extinguishing the obligations that become impossible to perform, unless the parties agree in their contract to regulate the ramifications of force majeure differently by allocating the risk of impossibility among themselves as they deem fit.[48] On the other hand, imprévision does not lead to extinguishing obligations, but to the possible moderation thereof by restoring the excessively onerous obligations to reasonable limits through a court judgment or an arbitral award. This could be achieved by awarding compensation or reasonably reducing the limit and scope of the cumbersome obligations. Imprévision also requires the unforeseen and inevitable supervening events to be of a general character (i.e., not exclusive to the debtor).

Unlike force majeure, imprévision is generally subject to an overriding mandatory legislative regulation that does not allow the parties to a contract to derogate from such mandatory regulation by agreement.[49]

It is of utmost importance to note that, in the context of construction contracts, both force majeure and imprévision are subject to specific legislative provisions. By way of illustration, Article 664 ECC regulates force majeure (in the specific context of construction contracts) and states: ‘A contract for works [construction contract] is extinguished if the performance of the work for which the contract was concluded becomes impossible.' [50],[51]

With respect to imprévision, Article 658(4) ECC, which exclusively applies to ‘lump sum' construction contracts (not re-measured contracts such as the FIDIC forms) states:

However, if the economic equilibrium between the obligations of the employer and the contractor collapses, due to exceptional events of general character, which were unforeseen at the time of contracting, causing the basis for the monetary valuation of the contract to fizzle, the Court may order an increase in payment to the contractor or the rescission of the contract.[52]

Obviously, Article 658/4 ECC is a special application of the general principle enshrined in Article 147/2 ECC. They share the same conditions of application, yet the court or arbitral tribunal is not entitled to rescind the contract under Article 147/2, but can so order under Article 658/4 ECC in the specific context of lump sum construction contracts.

Finally, a conventional loss cannot trigger imprévision, even if such conventional loss is large in value;[53] only an exorbitant loss (naturally exceeding loss of profit) can trigger imprévision.

Global claims

An exceedingly pertinent question in relation to construction disputes subject to the civil laws in the MENA region is whether global claims are recognised under Arab laws. While global claims are well-established and regulated in common law countries, the terminology ‘global claim' is alien to MENA region arbitrations subject to civil law principles. However, the inexistence of a specific terminology or specific legislative rules to address global claims does not mean that such claims are not capable of being analysed and assessed under the prevailing civil law principles.

Global claim occurs when the claimant alleges two or more breaches and says that those breaches cumulatively caused the loss or losses, but does not specify the proportion of that loss that is attributable to each breach. As mentioned above, Arab laws and provisions governing construction contracts make no express reference to global claims. However, this does not mean that they are inadmissible outright. The matter ought to be carefully scrutinised under the prevailing principles of contractual liability and specifically causation.

That said, a global claim may be permissible and may succeed as a matter of law under the generally applicable legal principles of contractual liability,[54] if the employer's breaches were interdependent, interconnected and inseparable to an extent that it is impossible or impractical to segregate or separate same. In such event, if the contractor is able to prove that such interdependent and intertwined breaches had a cumulative effect and contributed altogether to the occurrence of the damage, without any separation, then the contractor's claim may be accepted, provided that the contractor can show that the breaches claimed are all attributable to the employer. In such case, the burden of proof would shift to the employer to avoid liability and disprove what the contractor established.

Accordingly, global claims in construction may be admissible as a matter of civil law, if the all three elements of contractual liability are satisfied, namely: the fault (breach), the damage and the causation,[55] and if it is established that the breaches attributable to the employer are inseparable.

Constructive acceleration

‘Constructive acceleration' is a common construction claim derived from the common law jurisprudence, and involves, in essence, the speeding up of the progress of the works on the inferred or tacitly expressed instruction of the employer.[56] As to the law regarding acceleration, there are implied grounds for assertion of a claim. This has become known as ‘constructive acceleration'.

The doctrine of constructive acceleration is well recognised in the United States, and is gaining traction in other legal jurisdictions around the world, including England and Canada. The trend in addressing constructive acceleration is to look solely to whether:

  • delays were excusable;
  • the contractor was ordered to accelerate; and
  • that actual acceleration caused the contractor to incur extra costs.

Most civil law jurisdictions do not recognise the term ‘constructive acceleration' and Arab laws do not have legislative provisions addressing such claims. However, alternative routes to recovery exist, where the contractor is in excusable delay, but is not given corresponding schedule relief and is ordered to accelerate, and so incurs additional costs. In these situations, the contractor may recover damages under different legal principles, such as breach of contract, implied terms, mitigation of delay and damages.

In principle, it is established that a FIDIC contract does not necessarily oblige the contractor to accelerate and make up for the delay, if the delay is an act of, and caused by, the employer. Nevertheless, as a manifestation of good faith and cooperation in the performance of construction contracts, the contractor may effect ‘constructive acceleration'. Furthermore, if the contractor fears (notwithstanding a valid EoT claim) being penalised through the imposition of liquidated damages, the calling of its security bonds or termination, it will have to accelerate and then attempt to claim the costs of acceleration from the employer, assuming that the latter is wholly responsible for the delay. In such case, the contractor may have a claim for breach of contract provided that:

  • the employer breached its obligations of good faith in the performance of contracts by not granting an EoT;[57]
  • the contractor suffered damages (i.e., additional costs incurred due to accelerating the works); and
  • a direct causality exists between the breach and damage.

Again, it is worth noting that the sheer inexistence of express legislative provisions on a specific matter such as ‘constructive acceleration' does not necessarily imply that such matter is inexistent or illegal; the matter ought to be carefully scrutinised under the prevailing principles of contractual liability and other pertinent civil law principles to ascertain whether it, or an equivalent thereof, can be recognised under the applicable law.

Maintaining the economic equilibrium in administrative public works contracts

A large part of constructions contracts in the MENA region come in the form of public works administrative contracts that may be subject to specific principles and norms not necessarily encountered in a standard civil law context. Given the proliferated use of FIDIC in state contracts and the inherent difficulty associated with characterising a contract as administrative (noting that not all state contracts are administrative contracts), it is worth shedding some light on the specificity of administrative construction contracts as a feature of the MENA region.

Generally, it is submitted that the classification of a contract as administrative relies on the collective fulfillment of three conditions, namely:

  • the administration (public entity) must be a party to the contract;
  • the contract must relate to a public utility; and
  • the contract must include exceptional conditions anomalous to private law contracts.

In this context, the Egyptian Supreme Administrative Court held that a contract is administrative if the administration's intention to apply public law principles appears by the inclusion of one or several anomalous conditions to private law contracts.[58] In principle, there are two types of exceptional conditions:

  • conditions reflective of public authority privileges; and
  • conditions in application of public law principles.[59]

In brief, the contract must reflect the state's intention to showcase its jus imperii powers and to uphold public law principles in its contract.[60] In the context of construction (public works) contracts, several legal principles may come into play, especially in the context of maintaining the economic equilibrium of the contract. It is in this specific situation that the administrative theories of fait du prince and imprévision gain importance.

As a general rule, fait du prince is defined as an act or measure, whether public or private (targeting only the opposing contracting party), issued or undertaken by a contracting public authority without fault or breach on its part, and which results in increasing the contractual burden of a contracting party in an administrative contract. In such case, the contracting authority is bound to compensate the other party for the damage sustained (loss suffered).[61]

The Egyptian Supreme Administrative Court upheld this doctrine, in its judgment of 11 May 1968, and ruled that ‘the interference of the Administrative Court to achieve the financial equilibrium of the administrative contract for the application of the doctrine of ‘fait du prince' presupposes/requires the satisfaction of its conditions'.[62] These conditions that must be collectively fulfilled are:

  • the existence of an administrative contract;
  • the act is issued from the contracting authority and it is presumed that the contracting authority is not in default or breach by undertaking such act;
  • a harm results from the act and is suffered by the contracting party (i.e., without need for a specific degree of gravity of harm);
  • the act is unforeseen; and
  • the damage suffered by the contracting party is specific so that others (third parties) are not affected.

Additionally, the Egyptian Supreme Administrative Court upheld the doctrine of imprévision in the context of administrative contracts,[63] where imprévision remains subject to the same conditions discussed herein above. However, in an administrative public works contract, the remedy would be compensation, whereas, in civil law, the courts have broader powers to restore the cumbersome obligation to reasonable limits. Nevertheless, imprévision is not intended to compensate a contractor for all its losses; it only aims to restore the excessively onerous obligation to reasonable limits, so that the employer's utility is not affected and the contractor is not severely harmed.

Delay damages

It is common knowledge that delay damages or liquidated damages are the employer's strong tool and remedy for the contractor's breaches, and they are regularly invoked and flagged in construction-related arbitrations. Liquidated damages are also an area where common law and civil law principles collide, and where administrative law principles intervene to distinguish penalties from delay damages.[64]

  • In civil law contracts, a party may avoid damages by proving:
  • it committed no breach;
  • the breach is attributable to an alien cause or the other party's acts or omissions;
  • the inexistence of a causal link; and
  • no loss or harm was suffered or sustained by the aggrieved party.

Generally, a contractor is under an obligation to achieve completion of the works by the agreed time and his or her obligation to complete the works is an obligation to achieve a result.[65] Thus, the contractor's liability for delay in completion cannot simply be obviated by establishing that the contractor has exercised the due care of a reasonable person. Nevertheless, a contractor may avoid liability for delay by proving that the reason for such delay was beyond the contractor's control, such as force majeure, supervening events beyond the contractor's control, an act of a third party or the employer's own fault.

In addressing damages in general, Article (170) ECC grants courts a broad authority in quantifying damages,[66] and empowers courts and tribunals to quantify compensation, through the mechanism set out in Articles (221) and (222) ECC.[67]

Moreover, it is also common in construction contracts that capped liquidated damages are agreed in respect of a contractor's failure to achieve the contractually specified and agreed performance standards.[68],[69] Capped liquidated damages clauses work to save the employer the need to prove loss in events of delay by the contractor, and also to keep contractors informed about the magnitude of their potential exposure resulting from delay in performance. Accordingly, the general principle would be that courts or tribunals would uphold the agreed liquidated damages clause insofar as:

  • liability is not avoided;
  • the harm or damage is existent; and
  • the amount of liquidated damages is not excessively exaggerated.

Arab laws recognise and incorporate provisions regulating capped delay damages or liquidated damages, and such laws are largely influenced by Egyptian law. Article 224 ECC states:

(1) Damages fixed by agreement are not due, if the debtor establishes that the creditor has not suffered any loss. (2) The judge may reduce the amount of these damages, if the debtor establishes that the amount fixed was grossly exaggerated or that the principal obligation has been partially performed. (3) Any agreement contrary to the provisions of the two preceding paragraphs is void.

While most Arab laws[70] provide for equivalently similar provisions of equal overriding mandatory nature, the new Omani Civil Code of 2013 offers a wider discretion to Omani courts. Article (267) Omani Civil Code, also encapsulating an overriding mandatory norm, stipulates:

(1) If the object of the obligation was not an amount of money, the contracting parties may determine in advance the value of compensation by stipulating same in the contract or a subsequent agreement. (2) The Court may, in all events, based on a request by one of the parties, amend such agreement to make the quantification equal to the damage. Any agreement to the contrary shall be null and void.

Consequently, as a matter of Omani law, a party can apply to the court or arbitral tribunal to override contractually agreed compensatory arrangements and adjust the specified compensation to equate it to the actual damage or harm suffered.[71] The court's moderation of the obligation to pay liquidated damages can also be sought on different grounds such as exceptional general events, where partial or total discharge of the obligation may be also sought on grounds of force majeure causing partial or complete impossibility of performance, where applicable.

Decennial liability

Decennial liability is a mandatory strict regulation of a certain construction-specific liability. In the context of construction contracts, MENA region construction-related regulation includes mandatory strict decennial liability in the civil codes of countries such as Algeria, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Syria and the UAE.[72]

Decennial liability imposes the joint and several liability of contractors, architects and engineers regarding any defects affecting the structural integrity of the building or causing total or partial collapse. This decennial liability operates as a mandatory overriding provision that may not be derogated from by agreement or choice of a foreign law, if such choice of foreign law (in relation to construction contracts relating to immoveables) is legally permissible in the pertinent jurisdictions.

Under decennial liability, architects, engineers and contractors are jointly liable for partial failure or total collapse of constructions or other installations for a period of 10 years from the date of handover. The burden of proving that the collapse resulted from an external event beyond the jointly liable persons lies with such persons.

It is worth noting that the liability period generally extends to 10 years, unless the parties intend to keep the building for a shorter period,[73] or the pertinent civil law provides for a shorter period, such as the former Bahraini rule providing for a five-year period.[74] Following the enactment of the Bahrain Civil Code in 2001, the liability period was extended to 10 years, as is the case in other Arab states.[75] Furthermore, any clause intending to limit or exclude the decennial liability shall be null and void.

The MENA jurisdictions share the following features of decennial liability:

  • it runs from handover and lasts for a period of five or 10 years or such lesser period, depending on the jurisdiction and whether the building is intended to last for a shorter period;
  • it arises notwithstanding that the collapse or defect resulted from a defect in the land;
  • it is joint and several, where the employer can proceed against the contractor, the engineer or the architect for the full amount of the claim; and
  • it is considered of an overriding mandatory nature and so cannot be excluded or limited by contractual arrangements or possibly choice of foreign law (assuming such choice is permissible).

Concluding remarks

The construction industry in the MENA region is booming and constructions contracts and associated disputes are on the rise,[76] and the majority of construction projects burgeoning throughout the MENA region adopt the FIDIC form of contracts with noticeable proliferation of the FIDIC Red Book form of contract.

However, the business, economic and legal reality confirms the existence of a direct relationship between the proliferation of construction contracts in the MENA region and the increase in construction disputes arising from said contracts. It has been suggested that the top causes of construction disputes in the MENA region include:[77]

  • failure to properly administer a contract;
  • failure to make interim determination of EoT and compensation;
  • employer-imposed change;
  • contract selection was not a ‘best fit' when compared to the project's characteristics; and
  • third-party events (force majeure, imprévision, etc.).

Construction contracts are complex agreements and require special expertise to negotiate, draft, prosecute and hear disputes arising therefrom. This complexity is further compounded in the MENA region owing to:

  • certain gaps and possible friction between the agreed terms and conditions and certain applicable civil law principles;
  • the top causes of construction disputes, given above;
  • the outdated legislative regulation of construction contracts in Arab laws;
  • relative (unwarranted) avoidance of the needed in-depth scrutiny of the applicable legal principles;
  • the existence of a bipolar (civil law-administrative law) system existing in certain Arab jurisdictions, which largely affects the characterisation and performance of construction agreements; and
  • prevailing misconceptions on the specificities of the MENA region laws.

It is in this context that the present contribution invites scholars, counsel, judges and arbitrators to carefully scrutinise the applicable civil law principles, so as to ensure that they are capable of proper implementation and adaption to the specificities of construction contracts and disputes. It remains for courts and arbitral tribunals to innovate and safeguard the application of the pertinent legal principles under the governing law regime that may not be ignored, overlooked or weighed under a totally alien legal system that may not be relevant to the applicable laws.

Legal principles in the civil laws of the MENA region are capable of accommodating the specificities and intricacies of the construction industry and catering for the disputes arising thereunder, in due consideration of the fact that arbitration is the prominent dispute resolution mechanism and the most favoured option for settlement of construction-related disputes in the region. It has indeed been seen that the principles of good faith, implied terms, abuse of right, estoppel, global claims, constructive acceleration, force majeure and imprévision, delay damages and decennial liability are among the concepts that are regularly invoked in arbitral proceedings, and so careful consideration as to their possible application and scope is required.

For ease of reference, the summary table below captures the specific construction law sections in Arab laws, as well as the pertinent arbitration legislation.

 

Egypt

Libya

Morocco

Tunisia

Oman

Kuwait

UAE

Civil Law (Code)

131/1948

1953

1913

1906

29/2013

67/1980

5/1985

Construction provisions

646-673

645-666

723-729 759-780

828-834 866-887

626-650

661-697

872-896

Arbitration law/civil procedures

27/1994

1953*

1974**

42/1993

47/1997

38/1980***

11/1992****

 

Qatar

Lebanon

Algeria

Jordan

Syria

Iraq

Bahrain

Civil Law (Code)

22/2004

1932

58/1975

43/1976

84/1949

40/1951

19/2001

Construction provisions

682-715

624-628 657-689

549-570

780-804

612-633

864-890

584-620

Arbitration law/civil procedures

2/2017

90/1983*****

9/2008

31/2001

4/2008

83/1969

9/2015

*Civil Procedures Law, Articles 739-777; ** Civil Procedures Law, Articles 306-327; ***Civil Procedures Law, Articles 173-188; ****Civil Procedures Law, Articles 203-218; *****Civil Procedures Law, Articles 762-821.

In specific reference to construction disputes, it is also clear that the International Chamber of Commerce and the London Court of International Arbitration remain the leading arbitral institutions that administer, inter alia, large-scale construction disputes and arbitrations in the MENA region. Other notable regional arbitral institutions are the Bahrain Chamber for Dispute Resolution, the Cairo Regional Centre for International Commercial Arbitration, the Dubai International Arbitration Centre, the Abu Dhabi Commercial Conciliation and Arbitration Center, and the up-and-coming newly established Casablanca International Mediation and Arbitration Centre.

Finally, it is always preferable in the context of construction to adopt measures and techniques for dispute avoidance. In this respect, it is advisable that the contracting parties do the following:

  • carefully select the best-fit contract with proper drafting;
  • acknowledge the need for contractual balance;
  • engage in proper and careful choice of law and forum;
  • maintain a high-level team with sensible contract administration and implementation;
  • maintain efficient policies for documentation, correspondences, records and claims;
  • scrutinise legal and factual rights and follow procedures;
  • evaluate and share risks;
  • consider the proper utilisation of dispute avoidance and adjudication boards; and
  • opt for amicable settlement options prior to proceeding with fully fledged arbitration proceedings.

Notes


[1]    Mohamed S Abdel Wahab is a founding partner at Zulficar & Partners Law Firm.

[2]    The region is witnessing large-scale infrastructure projects and international events such as Qatar's 2022 World Cup and Dubai World Expo 2020, Egypt's New Administrative Capital City and mega power generation plants.

[3]    See M. Allen, ‘Global Construction Disputes: A Longer Resolution', Global Construction Dispute Report (2013), p. 2: ‘the Middle East still experienced the largest disputes at of an average US$65 million'; M.A.M. Ismail, R.A. Koura, ‘International Construction Contracts Arbitration in the MENA Region', (2015), p. xiii.

[4]    See, for example, Article 148/1 Egyptian Civil Code (ECC) (1948), Article 107/1 Algerian Civil Code (1975), Article 129 Bahraini Civil Code (2001), Article 197 Kuwaiti Civil Code (1980), Article 148 Libyan Civil Code (1953), Article 172 Qatari Civil Code (2004), Article 149 Syrian Civil Code (1949), Article 202 Jordanian Civil Code (1976) and Article 246 UAE Civil Code (1985).

[5]    See, for example, Article 148/2 ECC, Article 107 Algerian Civil Code (1975), Article 127 Bahraini Civil Code (2001), Article 195 Kuwaiti Civil Code (1980), Article 148 Libyan Civil Code (1953), Article 156 Omani Civil Code (2013), Article 172 Qatari Civil Code (2004), Article 149 Syrian Civil Code (1949), Article 202 Jordanian Civil Code (1976) and Article 246 UAE Civil Code (1985).

[6]    See, for example, Article 5 ECC, Article 124 Algerian Civil Code (1975), Article 28 Bahraini Civil Code (2001), Article 30 Kuwaiti Civil Code (1980), Article 28 Libyan Civil Code (1953), Article 59 Omani Civil Code (2013), Article 63 Qatari Civil Code (2004), Article 6 Syrian Civil Code (1949), Article 66 Jordanian Civil Code (1976) and Article 106 UAE Civil Code (1985).

[7]    See, for example, Article 224 ECC, Article 184 Algerian Civil Code (1975), Article 226 Bahraini Civil Code (2001), Article 303 Kuwaiti Civil Code (1980), Article 226 Libyan Civil Code (1953), Article 266 Qatari Civil Code (2004), Article 225 Syrian Civil Code (1949) and Article 390 UAE Civil Code (1985).

[8]    See, for example, Article 147/2 ECC, Article 107 Algerian Civil Code (1975), Article 130 Bahraini Civil Code (2001), Article 198 Kuwaiti Civil Code (1980), Article 147(2) Libyan Civil Code (1953), Article 159 Omani Civil Code (2013), Article 171 Qatari Civil Code (2004), Article 148 Syrian Civil Code (1949) and Article 249 UAE Civil Code (1985).

[9]    See, for example, Article 373 ECC, Article 307 Algerian Civil Code (1975), Article 364 Bahraini Civil Code (2001), Article 437 Kuwaiti Civil Code (1980), Article 360 Libyan Civil Code (1953), Article 339 Omani Civil Code (2013), Article 402 Qatari Civil Code (2004), Article 371 Syrian Civil Code (1949) and Article 472 UAE Civil Code (1985).

[10]   See for example, Article 157 ECC; Article 171 Omani Civil Code (2013), Article 159 Libyan Civil Code (1953), Article 119 Algerian Civil Code (1975), Article 192 Kuwaiti Civil Code (1980), Article 140 Bahraini Civil Code (2001) and Article 272 UAE Civil Code (1985).

[11]   See for example, Article 650 ECC, Article 553 Algerian Civil Code (1975), Article 615 Bahraini Civil Code (2001), Article 667 Kuwaiti Civil Code (1980), Article 651 Libyan Civil Code (1953), Article 688 Qatari Civil Code (2004), Article 616 Syrian Civil Code (1949), and Article 877 UAE Civil Code (1985).

[12]   ‘Construction Arbitration in the Middle East', Article available at www.globalarbitrationreview.com/chapter/1036967/construction-arbitration-in-the-middle-east, published on 20 April 2016.

[13]   M. Grose, Construction Law in the United Arab Emirates and the Gulf  Wiley (2016) p. 6.

[14]   www.fidic.org/sites/default/files/FIDIC%20in%20the%20Middle-East.pdf. The public sector has adopted and modified to some extent the FIDIC forms of contract in countries such as Algeria, Tunisia, Iraq, Oman, Qatar, Saudi Arabia and Kuwait. Furthermore, international institutions such as the World Bank have adopted the FIDIC conditions when entering into contracts with MENA countries to fund engineering and infrastructure projects. See generally www.worldbank.org. See also M. Bell, ‘Will the Silver Book become the World Bank's new gold standard? The interrelationship between the World Bank's procurement policies and FIDIC construction contracts', International Construction Law Review (2004), p. 164.

[15]   J. Bailey, Construction Law Routledge (2011), p. 131 [3.20].

[16]   The principle of good faith forms part of the Islamic shariah principles, where the maxim that ‘no harm and no reciprocated harm' unequivocally remains a fundamental tenet in a contractual and non-contractual relationships.

[17]   See R. Karim, Negotiating the Contract, First Edition, (2000), pp. 416-417, also see R.R. Abdel Rahman Sheikh, The Consequences of Bad Faith in Bilateral Contracts in Civil Law (2015), p. 65.

[18]   See R. Karim, Negotiating the Contract, First Edition, (2000), pp. 424, 426, 428, where he states: ‘In order to act in good faith, the negotiating party shall disclose information to the other party in full transparency without any dissimulation, and without keeping the latter deceived by a matter known by the former. He/She shall inform the other party of all acquired information without concealment or hiding as long as such information is important for the purpose of contracting in order to ensure that the negotiations are based on transparency and sincerity.'

[19]   Most importantly, the duty to negotiate in transparency and to offer advice is derived from Islamic shariah, which binds a negotiating party to enlighten [inform] the other party of the reality of the subject matter of negotiation and disclose its vices before its benefits: See R. Karim, Negotiating the Contract, First Edition, (2000), pp. 474-475.

[20]   More specifically, acting in good faith necessitates the consideration of honesty, moderation and care so that the performance of the contracts does not adversely impact the interests of the other party. See S. Morkos, Explanation of the Civil Law, Volume 2, Fourth Edition, (1987) p. 509.

[21]   Egyptian Court of Cassation, Challenge No. 3473 of judicial year 75, hearing session dated 27 April 2006.

[22]   Under Egyptian law, a party who had committed, in the performance of its contract, an act of wilful misconduct or fraud is considered to be acting in bad faith, regardless of its real intentions. See A. Tolba, Explanation of Civil Law, Volume 1 (2010), p. 747.

[23]   See footnote 20.

[24]   See Egyptian Court of Cassation, Challenge No. 3473, judicial year 75, hearing session dated 27 April 2006.

[25]   See M.K. Abdelaziz, The Civil Code in light of the Jurisprudence and Doctrine, Volume 1 (1985), pp. 79-80.

[26]   Egyptian Court of Cassation, Challenges Nos. 4726 and 4733 of judicial year 71, hearing session dated 15 April 2004.

[27]   By way of illustration, this would be the case of a contractor who chooses to perform its obligations by using unnecessary expensive material within its possession in order to dispose of the same at the expense of the employer. See footnotes 20 and 26.

[28]   Case No. 310/2003. Extract from final award dated 8 August 2005, cited by Mohi-Eldin Ismail Alam-Eldin, ‘Construction Arbitral Awards Rendered Under the Auspices of CRCICA', (2010), p. 5.

[29]   The Egyptian Supreme Administrative Court, Challenge No. 1226 for hearing session dated 23 April 1996. Moreover, the General Assembly of Advice and Legislation of the Egyptian State Council concluded in one of its opinions that good faith is a prevailing principle in all contracts whether in the context of determination of its subject matter or the manner of its performance. See State Council, General Assembly for Advice and Legislation, Session No. 157, dated 6 June 2007.

[30]   See Mohi-Eldin Ismail Alam-Eldin, ‘Construction Arbitral Awards Rendered under the Auspices of CRCICA,' Case No. 43/1995 dated 15 November 1995, p. 228 et seq.

[31]   Challenge No. 3473 of judicial year 75 for hearing session dated 27 April 2006 and Challenge No.163 of judicial year 32 for hearing session dated 15 November 1966.

[32]   Challenge No. 811 of judicial year 43 for hearing session dated 16 June 1977, and Challenge No. 323 of judicial year 37 for hearing session dated 9 May 1972.

[33]   See A. Sanhoury, Al Wasit in the Explanation of the Civil Code, Volume 7 (2010), pp. 122-123.

[34]   Furthermore, it is established that the employer shall issue the required licences within a reasonable time so that completion is not delayed. If the employer is required to submit the construction material or equipment, it shall do same within reasonable time in order to allow the contractor to complete the works. If the works shall be performed according to the drawings or data provided by the employer, the latter shall submit the same within the contractually agreed period, or within reasonable time. See footnote 33, p. 123.

[35]   See S. Morkos, El Wafi in the Explanation of Civil Law, Volume 2 (1987), pp. 502-503. See Mohamed Kamal Abd AlAziz, The Civil Codification in light of the Judiciary and Doctrine, Volume 1 (1985), p. 428.

[36]   See Article 107 Algerian Civil Code (1975), Article 127 Bahraini Civil Code (2001), Article 195 Kuwaiti Civil Code (1980), Article 148 Libyan Civil Code (1953), Article 156 Omani Civil Code (2013), Article 172 Qatari Civil Code (2004), Article 149 Syrian Civil Code (1949) and Article 246 UAE Civil Code (1985).

[37]   See S. Morkos, El Wafi in the Explanation of Civil Law, Volume 2 (1987), p. 503.

[38]   Qatari Court of Cassation, Challenge No. 176 of judicial year 2013, hearing session dated 7 January 2014.

[39]   Article (5) ECC provides that: ‘Usage of right shall be illicit in the following cases: (a) if it was only intended to harm a third party, (b) if the interests pursued are of minor importance, so that they are manifestly disproportionate to the harm caused to a third party, (c) if the interests pursued are illicit.' Article (63) Qatari Civil Code (2004) added to the ECC's criteria: ‘if the usage of right would cause outrageous unfamiliar harm'. Article Omani Civil Code (2013) added to the ECC's criteria: ‘if the usage of right exceeds customs and habit'. Article 104 UAE Civil Code (1985) considers usage of right abusive if it contradicts Islamic shariah principles, laws, public policy or morals. 

[40]   See M.K. Abdelaziz, The Civil Code in light of the Jurisprudence and Doctrine, Volume 1 (1985), pp. 79-80.

[41]   M.K. Abdelaziz, The Civil Code in Light of the Jurisprudence and Doctrine, Volume 1 (1985), p. 83, citing the Preparatory Works of the ECC.

[42]   See A. Sanhoury, Al Wasit in the Explanation of the Civil Code, Volume 2 (1998), pp. 758-759.

[43]   See footnote 42, p. 761.

[44]   Egyptian Court of Cassation, Challenge No. 2 of judicial year 46, hearing session dated 25 April 1981.

[45]   Egyptian Court of Cassation, Challenge No. 171 of judicial year 20, hearing session dated 17 April 1952; Egyptian Court of Cassation, excerpts of Challenge No. 76 of judicial year 73, hearing session dated 13 March 2007; Kuwaiti Court of Appeal, Appeal No. 14 of judicial year 87, hearing session dated 16 November 1987.

[46]   See the Kuwaiti Court of Cassation, challenges No. 59, 64, 65, 71 of judicial year 1995, hearing session dated 12 December 1995. In this regard, the Kuwaiti Court of Cassation held that: ‘the principle of fraus omnia corrumpit … is founded on moral and social considerations combating fraud, deceit and cheating, as well as considerations of non-deviation from the principle of good faith that should be generally upheld in transactions and dealings in order to safeguard the interests of people and the society. The court deciding the dispute enjoys the discretion to infer satisfaction of elements of fraud from the facts supporting it. … In this regard, the Explanatory Memorandum has elaborated that good faith and honorable dealing invalidate a contract not only with regard to its content, but also with regard to its means of performance. This is indeed in application of the principle entailing that ‘a person attempting to revoke what has been endorsed thereby shall be barred from succeeding in this attempt'. See also the Cairo Court of Appeal Case No. 35, 41, 44 and 45 of judicial year 129, hearing session dated 5 February 2013: ‘In Arbitration practice, in compliance with the overarching principle of good faith, prevailing in the commercial arena, the ‘Estoppel' doctrine has become fortified and well-vested. According to the said doctrine, it is possible to frustrate an opponent's efforts to benefit from its contradicting statements, behavior, and legal positions in order to acquire privileges to the disadvantage of its counterparty. The aforementioned principle - noting the different classification according to the legal system in application - has become explicitly and directly applied, and even a rule of thumb, as one of the primary legal principles, which may not be disregarded or denied, or else this shall be a serious encroachment on the values of justice, which any community considers indispensable.'

[47]   Ibid.

[48]   Article 373 ECC states: ‘An obligation is extinguished if the debtor establishes that its performance has become impossible by reason of causes beyond his control.' Similar provisions can be found under Article 307 Algerian Civil Code (1975), Article 364 Bahraini Civil Code (2001), Article 437 Kuwaiti Civil Code (1980), Article 360 Libyan Civil Code (1953), Article 339 Omani Civil Code (2013), Article 402 Qatari Civil Code (2004), Article 371 Syrian Civil Code (1949) and Article 472 UAE Civil Code (1985).

[49]   Article 147(2) ECC states: ‘If, however, as a result of exceptional and unforeseen events of a general character, the performance of the contractual obligation, though not impossible, becomes excessively onerous in such a way as to threaten the debtor with exorbitant loss, the judge may, according to the circumstances, and after weighing the interests of both parties, reduce the onerous obligation to reasonable limits. Any agreement to the contrary is void.' Similar provisions could be found under Article 107 Algerian Civil Code (1975), Article 130 Bahraini Civil Code (2001), Article 198 Kuwaiti Civil Code (1980), Article 147(2) Libyan Civil Code (1953), Article 159 Omani Civil Code (2013), Article 171 Qatari Civil Code (2004), Article 148 Syrian Civil Code (1949) and Article 249 UAE Civil Code (1985).

[50]   See Article 567 Algerian Civil Code (1975), Article 608 Bahraini Civil Code (2001), Article 685 Kuwaiti Civil Code (1980), Article 663 Libyan Civil Code (1953), Article 646 Omani Civil Code (2013), Article 704 Qatari Civil Code (2004), Article 630 Syrian Civil Code (1949) and Article 892 UAE Civil Code (1985).

[51]   The FIDIC Red Book, which had its origin in the common law system used the doctrine of ‘Frustration' until its fourth edition when Clause 66 was renamed ‘Release from Performance'. In its 1999 Edition, FIDIC shifted to the civil law concept of force majeure. In 2008, FIDIC abandoned both concepts in favour of having these events identified as exceptional risks in its Gold Book.

[52]   See Article 561 Algerian Civil Code (1975) and Article 657(4) Libyan Civil Code (1953).

[53]   See A. Sanhoury, Al Wasit in the Explanation of the Civil Code, Volume 1 (2010), p. 556.

[54]   Articles 163 and 169 ECC deal with the situation where multiple tortfeasors are jointly and severally liable in compensating the loss or harm sustained. Liability shall be apportioned equally between them, unless the judge can attribute the contribution of each to the loss or harm. The same logic can apply in the context of contractual liability. If the judge cannot finally estimate the final amount of compensation, he or she can preserve the right for the aggrieved party to ask, within a prescribed period, for a recalculation of compensation. For an overview of all pertinent legislative provisions regarding the joint liability of tortfeasors and allocation of compensation, see Articles 163, 169 and 170 ECC; Articles 46, 176, 200 and 180 Omani Civil Code; Articles 50, 51, 166, 167 and 172 Libyan Civil Code; Articles 47, 48, 124, 126 and 131 Algerian Civil Code; Articles 77, 78, 94 and 99 Moroccan Civil Code; Articles 192, 227-29, 303-4 Kuwaiti Civil Code; Articles 124, 140, 160 and 166 Bahraini Civil Code; Articles 272, 282-85, 290-91 UAE Civil Code.

[55]   In some civil law jurisdictions, such as Egypt, the aggrieved party need only prove the existence of the breach and the damage or harm and causation would be presumed. The burden then shifts to the other party to prove the inexistence of the breach, damage or harm, or causation. 

[56]   R.W.W. Ray, ‘Constructive acceleration', available at www.corporate.findlaw.com/litigation-disputes/constructive-acceleration.html.

[57]   An employer's breach of good faith would be established by the fact that: (i) the delay was excusable (i.e., caused by the employer or otherwise not attributable to the contractor); (ii) the contractor should have been granted its extention of time under the contract but was denied such right; and (iii) the contractor was forced to take acceleration measures, in aversion of the employer's threatened sanctions or penalties.

[58]   Egyptian Supreme Administrative Court, Challenge No. 576 of judicial year 11 for hearing session dated 30 December 1967.

[59]   Exceptional and anomalous conditions include: the administration's right to unilaterally amend or terminate the contract, the administration's stringent monitoring and supervisory rights, the administration's right to impose contractual penalties (fines) or perform certain obligations at the expense of the other contracting party, the administration's right to revoke the contract without notifying the other contracting party, the administration's right to inspect the contractor's works anytime, the administration's exclusive and unilateral right to amend the contract's provisions or granting the administrative courts the power to amend the contract to best suit the public utility.

[60]   For example, in Challenge No. 3128 for judicial year 35, hearing session dated 24 January 1995, the Egyptian Supreme Administrative Court held that ‘It is established in the practice of this Court that an administrative contract is concluded by public law entities with an intention of administering a public utility, or in the course of operating same, and the intention of such entities in upholding public law methods is demonstrated by the inclusion of contractual condition(s), which are anomalous to private law contracts. It is well established in administrative law doctrines that the implementation of public law methods is the key condition in distinguishing administrative contracts. While the pertinence of the contract concluded by the administration to a public utility is a prerequisite for its administrative nature, it does not solely suffice to characterise the contract as such.'

[61]   See S. El Tamawy, The General Principles of Administrative Contracts (2008), pp. 598, 602.

[62]   See Supreme Administrative Court in Cases No. 1562 of judicial year 10 and 67 of the judicial year 11, hearing session dated 11 May 1968.

[63]   See Supreme Administrative Court, Challenges No. 549 and 801 of judicial year 35, hearing session dated 4 April 1993.

[64]   The Abu Dhabi Cassation in Challenge No. 426 for judicial year 18, hearing session dated 17 February 1998, stated that delay damages in private moqawala [construction] contracts are different from: ‘[T]he amount specified in moqawala contracts concluded by the administration, which is payable by the contractor in case of delay, which is in fact, one of the monetary penalties to which the administration resorts, as a penalty imposed on the other contracting party in case of default and negligence, irrespective of any damage suffered by the administration, and does not require a prior notification, because in administrative contracts, damage materialises upon occurrence of the delay, as it deprives the beneficiaries of those utilities from the intended benefit'. Thus, the Abu Dhabi Court of Cassation carefully differentiates between ‘delay damages in private contracts' and ‘delay penalties in administrative contracts', where the damage or loss is irrebuttably presumed. This does not apply if the contractor's delay has not prevented the use of public utility by the beneficiaries. The above distinction made by the Abu Dhabi Court of Cassation may be slightly different from the approach taken by the Egyptian Supreme Administrative Court. While the Egyptian Supreme Administrative Court equally differentiated between delay penalties in administrative contracts and delay damages in private construction contracts, the Court still denied liability if the party (in a contract with the administration) was able to prove that he or she has not committed a breach or fault. The Supreme Administrative Court in Challenge No. 1226 for Judicial Year 35, hearing session dated 23 April 1996, stated: ‘It is established in the doctrine of administrative law that the delay penalty in administrative contracts is prescribed to guarantee performance of such contracts during the agreed duration to ensure the uninterrupted and systemic operation of public utilities. Legal characterisation of delay penalty as a form of agreed compensation is different from an agreed compensation in private law, owing to the existence of special terms, the most important of which is that damage is presumed upon occurrence of the delay. However, the other party may prove the absence of breach or fault, and once one of the conditions of liability is negated, there is no room to exercise the administration's right to receive compensation owing to the lack of the legal basis thereof.'

[65]   Prof Dr Al Sanhoury, Al Wasit in the Explanation of the Civil Code, Part 7, Volume 1 (2010), p. 64.

[66]   Article (170) states: ‘The judge shall quantify compensation for the damage(s) suffered by the aggrieved party in accordance with Articles (221) and (222) taking into consideration the circumstances. If the judge was unable, at the time of judgment, to finally quantify the compensation, he may reserve for the aggrieved party the right to request revisiting the quantification within a specified period.'

[67]   Article (221) of the ECC stipulates that: ‘(1) if compensation was not quantified in the contract or by a provision in the law, the judge shall quantify it. Compensation shall include the loss suffered, and profit lost by the creditor, provided that they are a natural result of the non-fulfillment or delay in fulfilment of the obligation. A damage shall be considered a natural result if the creditor could not have avoided it by exerting reasonable efforts. (2) However, if the obligation originates from the contract, a debtor not involved in fraud or gross negligence shall not be liable save for compensation of damage commonly foreseeable at the time of contracting.' Moreover, Article (222/1) of ECC states that: ‘(1) Compensation shall include moral damages, however, in such case it may not be transferred to a third party unless specified by an agreement or claimed by the creditor before courts.'

[68]   J. Jenkins and S. Stebbings, International Construction Arbitration Law, Volume 1 (2006), p. 43.

[69]   Clause 8.7 of the FIDIC Red Book 1999 edition (Red Book) provides for the contractor to pay delay damages to the employer if it fails to complete the works, or each section of the works, by the time for completion (subject to any extensions of time). The clause also states that such ‘delay damages shall be the only damages due from the contractor for such default.' The rate of such delay damages is quantified in the Appendix to Tender: www.fidic.org/node/911, accessed on 22 Feb 2017.

[70]   See, for example, Article 184 Algerian Civil Code (1975), Article 226 Bahraini Civil Code (2001), Article 303 Kuwaiti Civil Code (1980), Article 226 Libyan Civil Code (1953), Article 266 Qatari Civil Code (2004), Article 225 Syrian Civil Code (1949) and Article 390 UAE Civil Code (1985).

[71]   D. Courtney-Hatcher, S. Tee, D. Hamilton and J. Barton, Dentons & Co, Construction and projects in Oman: Overview. Available at: www.uk.practicallaw.com/7-519-6003?source=relatedcontent#.

[72]   See, for example, Article 651 of the ECC, Article 554 Algerian Civil Code (1975), Article 870 Iraqi Civil Code (1951), Article 788 Jordanian Civil Code (1976), Article 692 Kuwaiti Civil Code (1980), Article 668 Lebanese Civil Code (1932), Article 650 Libyan Civil Code (1953), Article 634 Omani Civil Code (2013), Article 711 Qatari Civil Code (2004), Article 617 Syrian Civil Code (1949) and Article 880 UAE Civil Code (1985).

[73]   See Article 651 ECC.

[74]   See Article 13(b) repealed Bahraini Buildings Organization Law No.13 of 1977.

[75]   See Article 615 Bahraini Civil Code (2001).

[76]   ‘The Middle East and Africa (MEA) region's construction industry will grow by 6.9 per cent annually in 2016-20, according to Timetric's Construction Intelligence Center (CIC)'; See www.venturesonsite.com/news/the-middle-east-and-africa-mea-regions-construction-industry-will-grow-by-6-9-annually-in-2016-20/, accessed on 22 March 2017. Presentation on Middle East and North Africa Regional Economic Outlook; 19 October 2016, accessed on 22 March 2017.

[77]   EC Harris Global Construction Dispute Report 2013.

Practical insight from experts on the ground