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Construction Arbitration

Last verified on Friday 7th July 2017

Saudi Arabia

Nasser Al-Hamdan and Anwar Ouazzani

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?

    1. The Kingdom of Saudi Arabia’s legal system is based on Shari’ah principles, which is the overarching law of the Kingdom. The sources of Shari’ah principles include the Qur’an, sunnah (teachings of the Prophet Muhammad), ijma (scholarly consensus on the interpretation of the Qur’an and sunnah) and qiyas (analogies applied to the Qur’an, sunnah and ijma). In Saudi Arabia, Shari’ah is construed on the basis of the Hanbali school and its rules of interpretation. 

      Notwithstanding Saudi Arabia’s deep attachment to the Hanbali school, Saudi Arabia keeps an eye on international standards and practice when promulgating new laws. The Arbitration Law, enacted by Royal Decree No. M/34 published in the Official Gazette on 8 June 2012 (the New Arbitration Law 2012), for instance, is broadly modelled by the UNCITRAL Model Law. The effects of the UNCITRAL Model Law may also be felt at the enforcement stage. In 2013, the UNICTRAL-based New Arbitration Law 2012 lead to the enactment of a new enforcement law (the Enforcement Law). The new laws had visible effect shortly after their enactment. By mid-2016, a Riyadh enforcement court agreed to enforce an ICC foreign award within three months of lodging the request for enforcement. The decision to enforce the foreign arbitral award, including the speed of the decision, has drawn applause from practitioners who now widely perceive the 2016 decision as the beginning of a new era in the Saudi international arbitration practice.

      As it is the supreme law of Saudi Arabia, Shari’ah plays an overarching role in the preparation and issuance of regulations, with the exception of banking regulations, which are enacted by royal decrees and ministerial resolutions. Royal decrees and ministerial resolutions must be issued in compliance with (and are subordinate to) Shari’ah principles. Royal decrees are regularly published in Umm al-Qura (the Official Gazette). Shari’ah can also operate to fill the gap if the law is silent on an issue, or the regulatory framework does not address a specific legal issue. 

      Legislative authority is shared by the King, the Council of Ministers and the Majlis Al-Shura (the Consultative Council); however, true legislative authority can only be held by God.

      Generally, regulations do not have retrospective effect, except as otherwise indicated in the law. To the extent that a law has any retroactive effect, such law would generally provide a grace period for compliance purposes. 

    Contract formation

  2. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?

    1. Generally, Shari’ah principles require the following elements for the formation of a contract (including construction contracts): 

      • offer (iyjaab); 
      • acceptance (qabul); 
      • certainty and identification of subject matter and price; 
      • capacity of contracting parties (ahliya al-muta'qideen); and 
      • the purpose and terms of the contract must be in accordance with Shari’ah law. 

      Construction contracts are classified as istisna’a contracts. Under Shari’ah, an istisna’a contract is a building contract whereby parties enter into a contract when the subject matter of the contract is not in existence. As Shari’ah generally prohibits entering into contracts over assets that are not in existence at the time of signature (the prohibition against Gharar), Shari’ah principles recognise istisna’a contracts whereby a party undertakes to produce or construct an asset according to certain specifications at a specified price and fixed date of delivery. Generally, an istisna’a contract may be valid and enforceable if it satisfies certain conditions, including that the purpose, type, amount, price and specifications be fixed from the outset. Moreover, an istisna’a contract is exempted from the prohibition against Gharar.

      With regards to public works contracts with the Saudi government, a standard form of contract is mandatory. However, there are some exceptions for major projects, including where project finance is involved. Additionally, state-owned agencies or companies may establish their own terms and conditions, provided always that their contracts comply with Shari’ah principles. International law firms usually assist with the preparation of such agreements. Examples include contracts for the Water Electricity Company and the projects of Saudi Aramco and Ma’aden which may use an international form of contract. Nonetheless, Saudi courts and arbitral tribunals may set aside or refuse to enforce provisions that are contrary to Shari’ah principles.

      A letter of intent from an employer to a contractor will be given contractual effect if it is intended to be binding and is in a binding form. In the case of a complex construction contract, the letter of intent would need to be very comprehensive and clearly written in order to satisfy these requirements and be given effect. More recently, Saudi government agencies have followed the international trend of issuing a letter of award and notice to proceed, rather than a letter of intent.

    Choice of laws, seat, arbitrator and language

  3. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?

    1. The New Arbitration Law 2012 allows parties to choose the governing law of their contract, the law of the arbitration agreement, the seat of the arbitration, arbitration rules, the selection of the arbitrator(s) (subject to the arbitrator(s) meeting certain conditions specified in the New Arbitration Law 2012) and the language of the arbitration. Nonetheless, international arbitration awards must comply with Shari’ah in order to be enforced in Saudi Arabia. Saudi courts will refuse to recognise or enforce an arbitral award if it determines that the award runs contrary to Shari’ah. The New Arbitration Law 2012 excludes Saudi government agencies, although will still apply to state-owned private enterprises.

      In early 2016, a Saudi enforcement court allowed the enforcement of a US $18.5m foreign arbitral award issued in London by the International Chamber of Commerce after it as transferred from the Board of Grievances following the enactment of the new arbitration laws. The award was originally issued in 2011 to a United Arab Emirates subsidiary of a Greek telecommunications company in arbitration with a Saudi data communications service provider. When considering the enforceability of the arbitral award, several key issues were examined by the judge: whether the Saudi courts lacked the jurisdiction to hear the underlying dispute, as a result of the arbitration clause in the agreement; whether there was a reciprocal agreement for enforcing awards in Saudi Arabia in the country where the award was rendered; whether the award was rendered following a process that was in line with due process requirements and was final in accordance to the law of the seat of arbitration; whether the award violated Shari’ah principles or any Saudi public policy and whether there were no inconsistencies between the award rendered and a judgement or order rendered by a competent authority in the Kingdom. In this case, it was determined that the arbitration clause excluded the jurisdiction of the Saudi Courts, which was upheld by the Court. The Court said that, among other things, the award complied with due process, was final, consistent with Saudi jurisprudence and was not in conflict with Saudi public policy. 

      Although the enforcement of the foreign award represents a positive step towards a more arbitration friendly practice in Saudi Arabia, the doctrine of stare decisis does not exist in Saudi Arabia. 

      Nonetheless, while this precedent is not binding, it does set a particular tone that will encourage the use of arbitration and minimise the risks that were associated with its practice in the past. As part of its initiative in improving arbitral procedures within the Kingdom, the Council of Ministers in 2014 mandated the establishment of the Saudi Centre for Commercial Arbitration (SCCA) in Riyadh, which administers domestic and international arbitration matters. The SCCA issued its Arbitration Rules, effective May 2016, which is largely based on the UNCITRAL Rules and provides parties with a clear, concise and efficient dispute resolution process. Since the SCCA only began formally accepting disputes for arbitration and mediation in October 2016, experts will monitor its progress.

    Implied terms

  4. 4.

    How might terms be implied into construction contracts? What terms might be implied?

    1. Certain terms may be implied into construction contracts, including the Shari'ah principle that parties are required to act reasonably and in good faith (hosen alnyah) and that a party has a duty to mitigate its own loss. Additionally, and consistently with Shari'ah principles, Saudi courts and tribunals have been recently awarding damages and/or non-pecuniary compensation to contractors whenever unforeseeable and materially differing site conditions arise during the course of a fixed-price construction project regardless of whether or not such fixed-price contract contains a clause governing the discovery of unforeseeable and materially differing site conditions. If a contract is silent on force majeure events, the right to be excused from performance upon the occurrence of a force majeure event may also be implied.

    Certifiers

  5. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?

    1. A certifier is always obliged to act impartially, fairly and honestly (however this does not necessarily fetter the proper exercise of any express rights under the contract itself). It is unlikely that a contractor would be able to bring proceedings directly against the certifier unless there is an allegation of fraud. A contractor may complain [to the Court] and may lodge complaints against the project owner or employer in the event that the certification causes substantial unfairness to the contractor if such contractor can prove that he has suffered direct damages.

    Competing causes of delay

  6. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?

    1. There is no clear Saudi law dealing with concurrent delay and it is best practice in these circumstances to expressly address it in the contract.  Saudi courts have permitted the appointment of an expert to determine the degree of responsibility of each party using critical path analysis, or such other method as the parties may agree.

      In public works contracts, if an employer causes a delay by way of a variation which affects the "financial equilibrium of the contract", the contractor would normally be entitled to claim compensation (article 58(2) of the Implementing Regulations for the Government Tenders and Procurement Law 2006 (Procurement Law 2006). However, this test is a high one, almost akin to the doctrine of "economic hardship", which requires a very significant impact (which was not foreseeable) to have been suffered by the contractor, and much more than merely the losses themselves. Outside of circumstances where the contract expressly deals with entitlement to an extension of time, article 52 of the Procurement Law 2006 provides that the contractor may be entitled to an extension of time if the relevant minister or the head of the relevant department decides to extend the contract term on the basis that it meets one of the following cases: 

      • if the contractor is assigned additional works in excess of those mentioned in the contract, provided that the extension is adequately set in light of the volume and nature of the additional works and the date when they were requested;
      • if a decision to suspend the works is made by the public authority for reasons not attributable to the contractor; or
      • if the funds allocated annually for the project are insufficient for completion of the works by the specified time.

      The contractor is entitled to claim an extension of time on the grounds of unforeseen circumstances or reasons that are beyond the contractor's control, provided that the contractor asserts such a claim after preliminary handover of the work. Where there is culpable delay by the contractor, delay penalties are levied for each day of delay, calculated by reference to the average daily cost of the project (ie, the contract value divided by the contract duration). Nonetheless, the maximum amount of delay penalties that the employer may levy is 10 per cent of the contract value in any and all cases.

      However, as to the effect of competing causes of delay on a contractor's entitlement to an extension, this would ultimately be a matter to be decided on a case-by-case basis at the court's discretion by reference to the terms of a contract. 

    Disruption

  7. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?

    1. In order for a disruption claim to succeed, the contractor would need to satisfy a very high burden to demonstrate that the extent and costs of disruption were mitigated and demonstrate that any loss was direct, unavoidable, fair and proportionate.

      As a general principle in Shar’iah, a party may receive damages equivalent to the direct loss actually incurred and caused by the other party.

    Acceleration

  8. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?

    1. The contractor may be able to claim costs for constructive acceleration on the grounds of fairness at the discretion of the Saudi courts.  There is no doctrine of prevention under Saudi law (as in English law), so in the case of constructive acceleration, the contractor must show that its losses were unavoidable and that it only accelerated because an extension of time that was properly due was not granted. The contractor ought also to show that it put the owner on notice of this fact and the consequences in writing prior to the acceleration.  

    Force majeure and hardship

  9. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?

    1. Force majeure provisions are recognised to a certain extent under Saudi law. However, force majeure will usually only include circumstances that make performance impossible, rather than merely unduly burdensome, with those being exceptional events beyond a party's control which excuses the obligation to perform. Civil unrest and natural events may give rise to force majeure relief under Saudi law. 

      For public works contracts, Article 51 of the Procurement Law 2006 provides that a contract will be extended and any delay penalties will be waived by the agreement of the contracting government authority and the Ministry of Finance "if the delay is due to unforeseen circumstances or for reasons beyond the contractor's control, provided that that the period of delay is proportionate to these reasons".  

  10. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?

    1. In general, an unforeseen increase in costs other than for materially differing site conditions will not give rise to an entitlement for relief for the contractor. However, in the case of public works contracts, if there is a variation in applicable customs duties, fees, tax rates or officially priced materials and services (after the bid submission date), whether by increase or decrease, the contract's value will be amended accordingly (article 43 of the Procurement Law 2006). Recently, contractors have also been entitled to relief for changes to labour policies, as Saudi Arabia's Labour Law currently does contain strict requirements for the sponsorship and employment of expatriate labour, which are subject to review if necessary.

      There is also a general doctrine of "economic hardship" that has been applied in a number of GCC countries whereby if a contractor can show that an unforeseeable increase of costs occurred that would make the contractual performance of its obligations so burdensome as to risk the very solvency of the contractor, and those costs were unavoidable and fully mitigated, then a claim may possibly be made to the court to modify the contract price on the basis of fairness. 

    Impossibility

  11. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?

    1. There is no clear doctrine of frustration under Saudi law. The Sharia’h doctrine of Gharar, meaning avoidance of excessive risk, may be applied by the court to relieve a contractor from an alleged contractual obligation, if it can be established that the obligation was not contemplated at the time of entry into the contract. While Sharia’h does forbid Gharar in transactions to protect parties from deceit, ignorance and uncertainty, some degree of Gharar may be acceptable in the Islamic framework. The application of Gharar is subject to conditions. Minor Gharar (Gharar Yaseer) may not invalidate a contract in cases where the uncertainty involved is slight, the contract is unilateral or charitable, or where there is a public need for the transaction or contract. The court will undertake an enquiry into the facts and circumstances surrounding the contract to determine the extent and effect of Gharar on the contract. If a court determines that Gharar is excessive, such as ignorance of the actual price and concealment of site conditions, it will strike down the provisions and potentially the contract in its entirety. The court will consider the parties’ knowledge and expectations during the tendering phase in considering whether to excuse performance. Therefore, a proper assessment and allocation of potential risks at the conceptual stage of a construction project is necessary to avoid cost and time overruns which will add to any existing losses.

    Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  12. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?

    1. The Saudi courts would apply Shari'ah principles to determine the effectiveness of such provisions in the particular circumstances. If any such provision was found to be fayed (which means an invalid or unacceptable term that runs contrary to the spirit of the contract), the provision would be deemed void and unenforceable and may be severed from the rest of the contract (which would remain in force). Having said this, it is common to see very harsh contracts in Saudi Arabia which are routinely enforced by local courts. The right to receive compensation in the event of unforeseeably and materially differing conditions is implied in construction contracts. 

    Duty to warn

  13. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?

    1. The contractor may have a duty to warn the employer of an error in a design provided by the employer based on the Shari’ah principle of good faith (hosen alnyah). If the contractor was aware of the error, but proceeded to work without notifying the employer, the contractor could be liable under Saudi law for the consequences. Public procurement contracts provide a statute of limitation. Contractors, however, who can prove that the employer had actual knowledge of the relevant events may assert a Shari’ah claim because, generally, Shari’ah does not recognise an agreement to waive a claim merely because of the passage of time. Therefore, the employer cannot rely on a time bar provision in a contract where the employer is in breach and had actual knowledge that his breach would cause delay to the project.

    Good faith

  14. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?

    1. Shari’ah principles contain a general duty of good faith (hosen alnyah). Shari’ah imposes an obligation for the parties to perform the contract in accordance with good faith (akin to the implied covenant of “good faith and fair dealing”). The impact this will have on a particular contract largely depends on the facts and the specific terms of the contract. For public works contracts, article 77 of the Procurement Law 2006 imposes a requirement on contractors and government authorities to implement their contracts in accordance with good faith. Although "Good faith" is not defined under the Procurement Law 2006, article 77 of the Procurement Law 2006 provides that government entities must notify the Ministry of Finance of cases of deceit, fraud, manipulation or unforeseeable circumstances immediately upon discovery. As to how the duty of good faith impacts upon the scenarios provided in the question is a matter of discretion for the Saudi courts. It is important to note however, that it rarely operates to fetter clear contractual rights that may appear on their face to be unreasonable. The Saudi courts have construed the general duty to act in good faith as an obligation to re-negotiate the parties’ contract upon the discovery of materially differing site conditions that were unforeseeable when entering into the contract. The duty of good faith may also be applied where an employer had actual knowledge of the events giving rise to a claim, but did not take any action to correct errors or misunderstandings.

    Time bars

  15. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?

    1. If the contract contains a provision barring claims that are not validly notified within a certain period, the parties will be bound by this according to the Shari'ah principle that states that the contract is the law of the parties. If there are any extenuating circumstances (for example, if the contractor was prevented from notifying the employer of the claim in the specified time period), this would be a matter of judicial discretion for the Saudi courts to assess. It is also probably possible to regulate the making of extra-contractual claims (with the important exclusion of fraud or criminal claims) by crafting the dispute resolution clause widely so that it addresses all claims arising from the contract or the works. The Saudi courts would be unlikely to enforce a time-barred claim if it would be substantially unfair to the party against whom enforcement is sought.

    Suspension

  16. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?

    1. The employer's right to suspend payment will be as set out in the contract. Saudi law will not prevent the employer from "setting off" such payments if there is nothing to the contrary in the contract between the parties. Generally, the employer does have a right to suspend works indefinitely but must pay the cost of suspension unless it is provided for in the contract or was found to be necessary for the proper execution of the works, whether it is by reason of climate conditions, or by default emanating from the contractor or for safety of the works. Similarly, the contractor's right to suspend carrying out the works will need to be set out clearly in the contract.

      In relation to public works contracts with the Saudi government, the Procurement Law 2006 specifically forbids contractors from suspending work due to the government's failure to pay. The only potential relief available to a contractor in this scenario would be to petition an ad hoc committee for relief. The Procurement Law 2006 does not provide any further guidance on this potential avenue for relief. 

    Omissions and termination for convenience

  17. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?

    1. Generally, the employer may not terminate the contract or omit works at will or for convenience so as to give work to another contractor or to carry out the works itself, unless this is expressly provided for under the contract. 

      It is important to note that, unlike English law, should there be an express power to delete works there is no implied prohibition against giving those deleted works to an alternate contractor. Where the law is silent on this issue, it is generally good practice to grant this right specifically in the contract.

    Termination

  18. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?

    1. Generally, termination events are freely determined by the parties in writing in the contract. However, if a court deems that there was a valid cause for a termination, then the termination may be valid even if the cause was not mentioned in the contract. Examples of valid causes of termination may include unjustified delay, unqualified labour and fraud.  

      In the private sector, Shari'ah principles provide that if a contract is terminated without a legitimate reason, then the contractor will be entitled to recover damages for incurred direct losses.

      In public works contracts, article 53 of the Procurement Law 2006 provides that a contracting public authority may withdraw the works from the contractor and thereafter terminate the contract or execute the works at the contractor's expense while retaining the right to claim damages in the following circumstances: 

      • if it is proven that the contractor has attempted to bribe the authority; 
      • if the contractor delays the work and fails to rectify the situation within 15 days of being notified to do so by the government authority; 
      • if the contractor assigns the contract or engages a subcontractor without the permission of the government authority; 
      • if the contractor becomes bankrupt or is under receivership; or
      • if the contractor dies and his personal qualifications were taken into consideration in the contract. 

      Public works contracts may also include additional termination events as determined by the parties, however the events listed above cannot be restricted.

      If a public works contract is terminated, the contracting government authority may execute the works at the contractor's expense while retaining the right to claim damages, as long as the termination is for one of the reasons specified in article 53 of the Procurement Law 2006. 

      If the authority decides to retain another contractor, the authority is entitled to charge any resulting increase in the contract price to the terminated contractor. Generally, any such termination results in the authority calling on the performance guarantee and retaining any money that may be due to the contractor. The government historically has not pursued terminated foreign contractors for additional damages that may have arisen as a result of their breach of contract.

      Pursuant to article 54 of the Procurement Law 2006, if a public authority terminates or suspends the contract for no legitimate reason, then the contractor will normally be entitled to claim damages.  

  19. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?

    1. According to the Shari'ah principle that the contract is the law of the parties, the parties will generally not be able to terminate a contract for a reason not mentioned in the contract. However, if a court deems that there was a valid cause for a termination, then the termination may be valid even if the cause was not mentioned in the contract. Examples of valid causes of termination may include unjustified delay, unqualified labour and fraud. Shari'ah principles provide that if a contract is terminated without a valid cause, then the contractor will be entitled to recover damages for incurred direct losses.

  20. 20.

    What limits apply to exercising termination rights?

    1. Termination rights will always be limited in the sense that they must comply with Shari'ah law principles and in particular the Shari'ah principle of the duty of good faith (hosen alnyah). Additional limits on exercising termination rights may be set out in the contract between the parties. The Saudi courts will look at the relevant facts and circumstances surrounding the termination in determining whether or not it was valid.  

    Completion

  21. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?

    1. If the employer takes beneficial possession of the works and starts using them, this will be considered to be acceptance of the works under Saudi law.  It may be construed as partial completion.

  22. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?

    1. This would be in accordance with the terms agreed by the parties in the contract pursuant to the Shari'ah principle that the contract is the law of the parties. In particular, this will depend on the warranty provisions contained in the contract. Construction contracts will usually provide that the employer is barred from raising claims outside the express warranties, upon the issuing of a certificate of final completion. An employer may, however, assert post-completion claims on the basis of latent defects that could not have been reasonably discovered before issuing the certificate of completion.

    Liquidated damages and similar pre-agreed sums ('liquidated damages')

  23. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?

    1. Generally, Shari'ah law limits liquidated damages clauses by prohibiting their application in three circumstances:

      • when the stipulated damages amount "grossly exceeds the probable damages" caused by the breach; 
      • when the scope of breach is too broad in terms of the application of liquidated damages; and 
      • when a mere delay in payment is deemed a breach of contract. 

      In Saudi Arabia, penalty clauses are unenforceable. Damages for contractual breach are strictly limited to a party's direct damages. This is based on the principle that a party should not benefit from the other party's breach by an award of punitive damages. Therefore Saudi courts do not award consequential, indirect, punitive and speculative damages. It is important to note that, in practice, the burden of proof of showing that the employer has not suffered damages at least equivalent to the liquidated damages amounts rests with the contractor. This is usually difficult to show due to a lack of available evidence. 

      If a critical delay is caused by the contractor's fraud or otherwise unconscionable behaviour, the contractor may be prosecuted under Saudi criminal law.

      In terms of public works contracts, article 48 of the Procurement Law 2006 provides that if a contractor delays the execution of the contract beyond the specified time, the contractor shall be subjected to a delay penalty not exceeding 6 per cent of the value of supply contracts and 10 per cent of the value of other contracts. Nonetheless, article 48 and 49 of the Procurement Law 2006 suggests that Saudi is unlikely to uphold a claim for any predetermined sum of liquidated damages that it determines to be excessive, regardless of any prior contractual agreement of the parties.

      Furthermore, article 84 of the Procurement Law 2006 provides that a contractor in a public works contracts who fails to complete the work within the agreed deadlines will incur a penalty calculated on the basis of the average daily cost of the project (ADC). The ADC is the total contract value, divided by its term according to a formula specified in the law. The total penalty, however, may not exceed 10 per cent of the contract value. It should be noted that the penalty may be apportioned to the delayed work only (on a proportionate basis) in the event that the delay does not affect delivered work. In addition, pursuant to article 50 of the Procurement Law 2006, the contractor will incur the expenses of project supervision during delay periods.

  24. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?

    1. The employer would probably not be entitled to liquidated damages in these circumstances as Shari’ah principles provide that a party cannot benefit from its own wrongdoing. According to Shari’ah, a party to a contract are entitled to be free from the harmful actions of the other party (“Harm shall not be inflicted nor reciprocated”). The Saudi Courts will find that an entitlement to an extension of time arises in such circumstances regardless of whether or not such provision exists in a contract. To the extent that a contract includes a “sweep up” provision, courts will disregard such provision.

  25. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?

    1. Generally, the court or arbitral tribunal would award the amount of liquidated damages specified in the contract pursuant to the Shari'ah principle that the contract is the law of the parties. However, please refer to our answer to question 23. 

  26. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?

    1. Liquidated damages are more likely than not to be construed as a cap on liability for delay. Other direct damages for separate matters are recoverable so long as they arise out of a breach of contract.

    Assessing damages and limitations and exclusions of liability

  27. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?

    1. If the contractor is liable for a defect in its works, the employer may be entitled to its lost profits if it can prove this loss to the court and that it was 'direct'. However, loss of profit is generally difficult to prove and therefore it is unlikely to be recoverable. 

  28. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?

    1. If the contractor's work is technically non-compliant, the contractor may be liable for the rectification cost except, subject always to the reasonableness of the costs incurred. On the same basis, parties are free to agree to a stricter regime than the one provided for by law. The Saudi Courts, however, would not enforce any contractual provision that is considered unjust or substantially unfair under Shari'ah.

  29. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?

    1. In relation to the private sector, construction contracts in Saudi Arabia generally provide for a defects notification period (DNP) or a warranty period of between six and 12 months. It is unclear whether a contractor will be liable after the lapse of the warranty. Whether or not a warranty period has lapsed is likely to depend on the discretion of the judge or tribunal.

      There is no limitation period for claims in Saudi Arabia. A fundamental principle in Shari'ah law is that a “just right never dies”, so a contractor may still be liable for defects which arise after the DNP. However, if the parties have agreed to a warranty period under the contract, then the parties will be bound by this limit insofar as the warranty period prescribes processes or specific rights.

      Under the public works contract, the contractor during the DNP has an obligation to cure all defects on site as demanded by the employer or, typically, its representative. Generally, the employer holds an amount up to 10 per cent of the total value of the contract, which are referred to as “retention monies”. The employer can only withhold the retention monies, subject to the 10 per cent cap, in the event the contract fails to remedy the defects. 

      In relation to public construction contracts, article 76 of the Procurement Law 2006 provides for decennial liability. Decennial liability does not apply to contracts between private parties. Article 76 provides that:

      [a] contractor shall provide a ten year warranty against partial or full collapse of what he constructs starting from the date of final handover to the Government Authority, if such collapse is due to a construction defect, unless the two contracting parties agree on a shorter period.

      The Procurement Law 2006 applies to the “collapse” of the work. The contractor provides a guarantee of the works against partial or total collapse that result from construction defects for 10 years, unless the parties agree to a shorter period. The basic principles of Shari'ah law are likely to be applied in respect of defects not involving the collapse of the work. While the construction contract would be expected to provide for a DNP, a contractor for public works may still be liable for defects after the expiry of the DNP.

  30. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?

    1. As the contract is the law of the parties under Shari’ah principles, such clauses will generally be enforceable.  

      In any event, Saudi courts will usually not grant damages that are seen to be speculative or unclear, even in cases of gross negligence where the party is clearly liable. Losses are usually only recoverable if they flow directly from the actions of the breaching party. Loss profits, for instance, are generally found to be speculative in nature and broadly excluded. It is therefore unlikely that a party would be able to successfully claim damages for indirect or consequential losses.  

  31. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?

    1. Contractual limitations of liability are commonplace in Saudi construction contracts. Their enforceability, however, is not as common. Although these limitations are acceptable under Shari’ah principles, courts frown on parties seeking to place excessive reliance on such limitations. A party will not be able to rely on limitation periods to escape liability where such party is actually guilty of negligence or misconduct. Or if the period of limitation was unreasonably short and has the effect of depriving a party of its rights, dues or other form of entitlement as arising under Shari’ah. 

    Liens

  32. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?

    1. The law in Saudi Arabia does not provide for the concept of a lien in favour of the contractor over the employer's land. The construction contract may, however, provide for a lien in favour of the contractor over the employer's land. This would be a creature of contract, would need to be in writing and would be subject to enforcement by the courts. The registration of such an instrument is likely to be extremely difficult in Saudi Arabia generally and we are not aware of such a device being successfully used. 

    Subcontractors

  33. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?

    1. Conditional payment provisions are likely to be enforced if such provisions have been clearly agreed by the parties in writing in the contract. Saudi courts are generally reluctant to intervene unless there has been misrepresentation, duress, fraud or similar facts or circumstances in violation of the protections arising from Shari’ah. In such cases, courts will disregard the non-compliant contractual provisions.

  34. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?

    1. This may be possible by way of the Shari'ah principle of transferable rights. However, the employer would have a complete defence if it paid the sums claimed to the main contractor as it would be unjust to ask the employer to pay twice for the same work. 

  35. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?

    1. Arbitration agreements in Saudi Arabia do not bind non-signatories. That a dispute between the employer and its contractor concerns a subcontractor will not invalidate the arbitration between the employer and the contractor. To the extent that litigation is within the scope of the arbitration agreement between the employer and the contractor, the contractor is unlikely to successfully require litigation including the subcontractor. It should not matter that the seat of the arbitration is outside Saudi Arabia, although in practice there may be more scope for intervention by the courts.

    Third parties

  36. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. Third parties may obtain rights under construction contracts by way of the Shari'ah principle of transferable rights. However, it would need to be very clearly stipulated in the contract. 

  37. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?

    1. On 2 May 2016, a new corporate regulatory regime commenced under Royal Decree No. M3/1437 dated 28/01/1437 H, corresponding to 10/11/2015 (the New Companies Law). The New Companies Law imposes penal and civil penalties on directors for decisions taken in bad faith in relation to the governance of a company. 

    Limitation and prescription periods

  38. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?

    1. Under Shari'ah principles, there is no limitation period for claims pursuant to the principle that "just rights never die." As noted above, decennial liability applies to contracts the subject of the Procurement Law 2006.

    Other key laws

  39. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. All laws, including contracts entered into in Saudi Arabia, are subject to, and will be interpreted in accordance with the principles of Shari'ah. Waivers and limitation periods may be challenged if they contravene Shari'ah principles. 

  40. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?

    1. An example of when the law of Saudi Arabia would apply anyway where a foreign law governs a construction contract would be the unenforceability of interest provisions for late payments due to the Shari'ah principle that prohibits interest (riba). Provisions that provide for the recovery of interest in a contract will not be enforced and should not be included in a contract.

    Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  41. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?

    1. It would be possible to enforce a binding DAB decision in Saudi Arabia. This would need to be done through the Board of Grievances. This would be subject to the oversight of the Board of Grievances, which may expose the DAB decision to re-litigation in the event that there is any question as to whether the decision is contrary to Shari'ah principles. Otherwise, the DAB decision should be enforceable (in principle) by order of the Board of Grievances.  

    Courts and arbitral tribunals

  42. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?

    1. There is no specialised construction court in Saudi Arabia. There are, however, some experienced construction and commercial judges in both the Shari'ah courts and Board of Grievances. Both courts have a commercial section.

  43. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?

    1. Construction-related matters may be heard by the Shari’ah Court, the Board for the Settlement of Commercial Disputes, Labour Courts and the Board of Grievances. Domestic arbitrations are normally overseen by the Board of Grievances. There is no doctrine of binding precedent in Saudi Arabia and Saudi courts do not customarily apply stare decisis, which is practised in the West. Traditionally, judgments have not been published and so the lack of published Saudi cases in the public domain has been another obstacle in the development of arbitration in Saudi Arabia, as it hinders the ability of Saudi legal practitioners  to determine with certainty whether a particular foreign arbitration award would be given enforceability or not in the Kingdom. In addition, the lack of case reporting does allow each judge further discretion in interpreting what is – and what is not – Shari’ah compliant which may be problematic in the predictability of certain cases.

      However, in an effort to increase the transparency of case law, promote consistent, expedient rulings and ensure a certain level of legal certainty, judgments of the High Court Council and Court of Appeal of Saudi Arabia have begun to be published more regularly.

  44. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?

    1. In practice it is not usually the case that the judge or arbitrator will raise matters with the parties that have not been put by the parties, unless the issues involve a violation of Shari'ah principles, such as duress, coercion, oppressive terms, fraud or misrepresentation.  Judges do not usually give a preliminary view as to the merits of a dispute. 

  45. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?

    1. The parties will be bound by their arbitration agreement under the New Arbitration Law 2012, which would generally prevent parallel proceedings.  One exception to this is if there are public policy grounds, such as an inconsistency with Shari'ah principles which may allow the contractor to run parallel proceedings in a Saudi Arabian Court. It should not matter that one party has shown no regard for the preconditions to arbitration as to whether that party will still be bound by the arbitration agreement.

  46. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?

    1. Not under the New Arbitration Law 2012.  The arbitration seated in Saudi Arabia will proceed regardless of proceedings commenced in other jurisdictions.

    Expert witnesses

  47. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?

    1. Experts are routinely used in Saudi construction cases. Experts can be appointed by the court to report on a particular issue, or can be appointed by the parties. Experts owe a duty to the court to act independently. 

      Article 36 of the New Arbitration Law 2012 permits the arbitral tribunal to appoint one or more experts to produce a written or oral report on certain issues to be determined by the tribunal. Each party shall provide the expert with information relating to the dispute and allow the expert to inspect and examine any documents, goods or other property relating to the dispute. Upon receiving the expert's report, the parties have the right to review and comment upon the report (as well as inspect documents upon which the expert relied). The expert shall submit his final report after reviewing both parties' comments therein. Upon submission of the expert's report, the arbitration tribunal may, at its own discretion or at the request of either party, decide to hold a hearing with the expert and allow both parties to discuss the report with him. Additionally, parties may submit their own experts' reports to the tribunal as part of their submissions pursuant to article 31.  

    State entities

  48. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?

    1. Contracts involving a public authority are considered to be "administrative". As an administrative contract, all disputes fall within the jurisdiction of the Board of Grievances.  

      The Procurement Law 2006 applies to construction contracts where the Saudi government is the employer. The Saudi government may terminate a contract under certain circumstances set out in article 53 of the Procurement Law 2006 including any delay or breach of the contract and failure to rectify the activity within 15 days of the government's notice to do so.

      Article 10(2) of the New Arbitration Law 2012 provides that a Saudi government entity may only agree to arbitration with approval of the Prime Minister, unless another law provides that the entity may agree to arbitration. A contractor carrying out work for a Saudi government authority should confirm that the authority has obtained the requisite approval before agreeing to refer disputes to arbitration. Without approval from the Prime Minister, the arbitration agreement may be invalid. A party cannot enforce an award against Saudi government assets.

      Public procurement contracts impose a spending cap on public agencies' authority to issue change orders after the issuance of a contract. Article 36 of the Procurement Law 2006 prohibits agencies from reducing the scope of work by over 20 per cent of the total contract value, or increasing it by more than 10 per cent of the total contract value.

    Settlement offers

  49. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?

    1. There is no "without prejudice" privilege in Saudi Arabia. While the evidentiary value of such material may be called into question, there is no rule of law in Saudi Arabia that prevents a party from tendering evidence of settlement offers in court.

    Privilege

  50. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?

    1. See the response to question 49.

  51. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?

    1. Legal professional privilege exists, which also applies equally to communications with in-house lawyers. 

      Although the Legal Profession Regulation (Royal Decree No. M/38 of 2001) provides that lawyers must treat information received from clients as confidential, there are no rules that apply legal privilege to communications from the lawyer to the client. The regulations do not expressly refer to the advice of in-house counsel.

    Guarantees

  52. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?

    1. The requirements of a guarantee will depend upon the terms set out in the guarantee itself. The guarantee will usually provide the amount of the guarantee. Limited liability will be as provided in the letter of guarantee (or not). Guarantees whether private or public, must be in writing and follow the form issued by the Saudi Arabia Monetary Agency.   

      The Banking Disputes Committee (BDC) (formerly known as the Committee for the Settlement of Banking Disputes) resolves banking disputes. The Secretariat General for the BDC issues decisions in respect of guarantees, loans and other banking products.

  53. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. A guarantor's liability will generally be limited to the amount provided in the underlying construction contract. 

  54. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?

    1. If the guarantee is silent, the guarantee will continue until the beneficiary releases the guarantor from its obligations. 

    On-demand bonds

  55. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.

    1. On-demand bonds and similar instruments are immediately enforceable. While generally the court will enforce the terms of the bond, a call on a bond could be challenged in either the Board of Grievances or the Shari'ah Court. In either court, the court may allow a challenge to a call on a bond on the basis that the call was against Saudi public policy. For example, if part of the call on the bond was to satisfy a claim for interest, which is prohibited under Shari'ah law, that part of the call could be resisted.

  56. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?

    1. As above, the court will generally apply the provisions of the contract, subject to public policy considerations. Nonetheless, the the court will generally not look to the underlying contract in determining whether a party ought to be restrained from calling on a bond. This is subject to public policy considerations.

    Further considerations

  57. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?

    1. At this time, we believe that this questionnaire is comprehensive.

Interested in contributing to this Know-how?

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GAR know-how provides reliable cross-jurisdictional insight to help cement the building blocks of international practice. In this section, select experienced practitioners answer commonly asked questions for key jurisdictions so allowing readers to be better-placed to solve the challenges of their working days.

Questions

    Legal system

  1. 1.

    Is your jurisdiction primarily a common law, civil law, customary law or theocratic law jurisdiction? Are the laws substantially derived from the laws of another jurisdiction and, if so, which? What instruments have legal force and effect? Who are the lawmaking bodies? How and where are new laws published? Can laws be passed with retrospective effect?


  2. Contract formation

  3. 2.

    What are the requirements for a construction contract to be formed? When is a "letter of intent" from an employer to a contractor given contractual effect?


  4. Choice of laws, seat, arbitrator and language

  5. 3.

    Are parties free to choose: (a) the governing law of their contract; (b) the law of the arbitration agreement; (c) the seat of the arbitration; (d) any arbitral rules; (e) anyone to act as arbitrator; and (f) the language of the contract and the arbitration? If not, what are the limitations on choice and what happens if the parties act contrary to them?


  6. Implied terms

  7. 4.

    How might terms be implied into construction contracts? What terms might be implied?


  8. Certifiers

  9. 5.

    When must a certifier under a construction contract act impartially, fairly and honestly? To what extent are the parties bound by certificates (where the contract does not expressly empower a court or arbitral tribunal to open up, review and revise certificates)? Can the contractor bring proceedings directly against the certifier?


  10. Competing causes of delay

  11. 6.

    If an employer would cause (eg, by variation) a two-week critical delay to the completion of the works (which by itself would justify an extension of time under the construction contract) but, independently, culpable delay by the contractor (eg, defective work) would cause the same delay, is the contractor entitled to an extension?


  12. Disruption

  13. 7.

    How does the law view "disruption" to the contractor (as distinct from delay or prolongation to the completion of the works) caused by the employer’s breaches of contract and acts of prevention? What must the contractor show for a disruption claim to succeed? If an entitlement in principle can be shown (eg, that a loss has been caused by a breach of contract) must the court or arbitral tribunal do its best to quantify that loss (even if proof of the quantum is lacking or uncertain)?


  14. Acceleration

  15. 8.

    How does the law view "constructive acceleration" (where the contractor incurs costs accelerating its works because an extension of time has not been granted that should have been)? What must the contractor show for such a claim to succeed? Does your answer differ if the employer acted unreasonably or in bad faith?


  16. Force majeure and hardship

  17. 9.

    What events of force majeure give rise to relief? Must they be unforeseeable and to whom? How far does the express or implied allocation of risk under the contract affect whether an event qualifies? Must the event have a permanent effect? Is impossibility in performing required or does a degree of difficulty suffice? Is relief available where only some obligations (eg, to make a single payment or carry out one aspect of the works) are affected or is a greater impact required? What relief is available and does it apply automatically? Can the rules be excluded by agreement?


  18. 10.

    When is a contractor entitled to relief against a construction contract becoming unduly expensive or otherwise hard to perform and what relief is available? Can the rules be excluded by agreement?


  19. Impossibility

  20. 11.

    When is a contractor entitled to relief if after the contract is concluded it transpires (but not due to external events) that it is impossible for the contractor to achieve a particular aspect of the contractual specification? What relief is available?


  21. Clauses that seek to pass risks to the contractor for matters it cannot foresee or control

  22. 12.

    How effective are contractual provisions that seek to pass risks to the contractor for matters it cannot foresee or control, for example making the contractor liable for: (a) a specified event of force majeure; (b) ground conditions that no reasonably diligent contractor could have foreseen; or (c) errors in documents provided by the employer, such as employer's requirements in design and build forms?


  23. Duty to warn

  24. 13.

    When must the contractor warn the employer of an error in a design provided by the employer?


  25. Good faith

  26. 14.

    Is there a general duty of good faith? If so, how does it impact upon the following (where they are otherwise permitted under the construction contract): (a) the level of intervention in the works that is allowed by the employer; (b) a party’s discretion whether to terminate or suspend the contract; or (c) the employer’s discretion to claim pre-agreed sums under the contract, such as liquidated damages for delay?


  27. Time bars

  28. 15.

    How do contractual provisions that bar claims if they are not validly notified within a certain period operate (including limitation or prescription laws that cannot be contracted out of, interpretation rules, any good faith principles and laws on unfair contract terms)? What is the scope for bringing claims outside the written terms of the contract under provisions such as sub-clause 20.1 of the FIDIC Red Book 1999 ("otherwise in connection with the contract")? Is there any difference in approach to claims based on matters that the employer caused and matters it did not, such as weather or ground conditions? Is there any difference in approach to claims for (a) extensions of time and relief from liquidated damages for delay and (b) monetary sums?


  29. Suspension

  30. 16.

    What rights does the employer have to suspend paying the contractor or performing other duties under the contract due to the contractor’s (non-)performance, or the contractor have to suspend carrying out the works (or part of the works) due to the employer’s (non-) performance?


  31. Omissions and termination for convenience

  32. 17.

    May the employer exercise an express power to omit work; or terminate the contract at will or for convenience, so as to give work to another contractor or to carry out the work itself?


  33. Termination

  34. 18.

    What termination rights exist? Can a construction contract be terminated in part? What are the practical and financial consequences?


  35. 19.

    If the construction contract provides for the circumstances in which each party may terminate the contract but does not expressly or impliedly state that those rights are exhaustive, are other rights to terminate available? If so, what are they and what are the practical and financial consequences?


  36. 20.

    What limits apply to exercising termination rights?


  37. Completion

  38. 21.

    Does the law of your jurisdiction deem the works to be completed (irrespective of what the contract says) if, say, the employer takes beneficial possession of the works and starts using them?


  39. 22.

    Does approval or acceptance of work by or on behalf of the employer bar a subsequent complaint? What constitutes acceptance? Does taking over the work by the employer constitute acceptance? Does this bar subsequent complaint?


  40. Liquidated damages and similar pre-agreed sums ('liquidated damages')

  41. 23.

    To what extent are liquidated damages for delay to the completion of the works treated as an exhaustive remedy for all of the employer’s losses due to (a) delay to the completion of the works by the contractual completion date; and (b) delays prior to the contractual completion date (in the absence of, say, interim milestone dates with liquidated damages for delay attaching to them)? What difference does it make if any critical delay is caused by the contractor’s fraud, wilful misconduct, recklessness or gross negligence? If so, what constitutes such behaviour and can it be excluded by agreement?


  42. 24.

    If the employer causes critical delay to the completion of the works and the construction contract does not provide for an extension of time to the contractual completion date (there being no "sweep up" provision such as that in sub-clause 8.4(c) of the FIDIC Silver Book 1999) is the employer still entitled to liquidated damages due to the late completion of works provided for under the contract?


  43. 25.

    When might a court or arbitral tribunal award less than the liquidated damages specified in the contract for delay or other matters (eg, substandard work)? What factors are taken into account?


  44. 26.

    When might a court or arbitral tribunal award more than the liquidated damages specified in the contract for delay or other matters (eg, work that does not achieve a specified standard)? What factors are taken into account?


  45. Assessing damages and limitations and exclusions of liability

  46. 27.

    How is monetary compensation for breach of contract assessed? For instance, if the contractor is liable for a defect in its works is the employer entitled to its lost profits? What if the lost profits are exceptionally high?


  47. 28.

    If the contractor’s work is technically non-compliant, is the contractor liable for remedying it if the rectification cost is disproportionate to the benefit of the remedy? Can the parties agree on a regime that is stricter for the contractor than under the law of your jurisdiction?


  48. 29.

    If there is a defects notification period (DNP) during which the contractor must or may remedy any defect in its works that appears during a certain period after their completion, if the construction contract is otherwise silent, does it affect the employer’s rights to claim for any defects appearing after the DNP expires?


  49. 30.

    What is the effect of a construction contract excluding liability for “indirect or consequential loss”?


  50. 31.

    Are contractually agreed limits on – or exclusions of – liability effective and how readily do claims in tort or delict avoid them? Do they not apply if there is fraud, wilful misconduct, recklessness or gross negligence: (a) if the contract is silent as to such behaviour; or (b) if the contract states that they apply notwithstanding such behaviour? If so, what causation is required between the behaviour and the loss?


  51. Liens

  52. 32.

    What right does a contractor have to claim a lien (or similar) in the works it has carried out? If so, what are the limits of the right if, for example, the employer has no interest in the site for the permanent works? How is the right recognised and enforced?


  53. Subcontractors

  54. 33.

    How do conditional payment (such as pay-when-paid) provisions operate under the law of your jurisdiction (including interpretation rules, any good faith principles and laws on unfair contract terms)?


  55. 34.

    May a subcontractor claim against the employer for sums due to the subcontractor from the contractor? How are difficulties with the merits and proof of the subcontractor’s claim addressed, including any rights the contractor has to withhold payment? What if aspects of the project suggest that the law of your jurisdiction should not apply (eg, the parties to both the main contract and the subcontract have chosen a foreign law as the governing law)?


  56. 35.

    May an employer hold its contractor to their arbitration agreement if their dispute concerns a subcontractor (there being no arbitration agreement between the contractor and the subcontractor or no scope for joining two sets of arbitral proceedings) or can the contractor, for example, require litigation between itself, the employer and the subcontractor? Does it matter if the arbitration agreement does not have its seat in your jurisdiction?


  57. Third parties

  58. 36.

    May third parties obtain rights under construction contracts? How readily can those connected with the employer (such as future or ultimate owners) bring claims against the contractor in respect of (a) delays and (b) defects? To what extent are exclusions and limitations of liability in the construction contract relevant?


  59. 37.

    How readily (absent fraud, wilful misconduct, recklessness or gross negligence) can those connected with the contractor (such as affiliates, directors or employees) face claims in respect of (a) delays (b) defects and (c) payment? To what extent are exclusions and limitations of liability in the construction contract relevant?


  60. Limitation and prescription periods

  61. 38.

    What are the key limitation or prescription rules for claims for money and defects (and insofar as you have a mandatory decennial liability (or similar) regime, what is its scope)? What stops time running for the purposes of these rules (assuming the arbitral rules are silent)? Are the rules substantive or procedural law? May parties agree different limitation or prescription rules?


  62. Other key laws

  63. 39.

    What laws apply which cannot be excluded or modified by agreement where the law of your jurisdiction is the governing law of a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  64. 40.

    What laws of your jurisdiction apply anyway where a foreign law governs a construction contract? What are the key aspects of, say, the FIDIC Silver Book 1999 that would not operate as its plain words suggest?


  65. Enforcement of binding (but not finally binding) dispute adjudication board (DAB) decisions

  66. 41.

    For a DAB decision awarding a sum to a contractor under, say, sub-clause 20.4 of the FIDIC Red Book 1999 for which the employer has given a timely notice of dissatisfaction, in an arbitration with its seat in your jurisdiction, might the contractor obtain: a partial or interim award requiring payment of the sum awarded by the DAB pending any final award that would be enforceable in your jurisdiction (assuming the arbitral rules are silent); or interim relief from a court in your jurisdiction requiring payment of the sum awarded by the DAB pending any award?


  67. Courts and arbitral tribunals

  68. 42.

    Does your jurisdiction have courts or judges specialising in construction and arbitration?


  69. 43.

    What are the relevant levels of court for construction and arbitration matters? Are their decisions published? Is there a doctrine of binding precedent?


  70. 44.

    In your jurisdiction, if a judge or arbitrator (specialist or otherwise) has views on the issues as they see them that are not put to them by the parties, can they raise them with the parties? Is the court or arbitral tribunal permitted or expected to give preliminary indications as to how it views the merits of the dispute?


  71. 45.

    If a contractor, say, wishes to arbitrate pursuant to an arbitration agreement, what parallel proceedings might the employer bring in your jurisdiction? Does it make any difference if the dispute has yet to pass through preconditions to arbitration (such as those in clause 20 of the FIDIC Red Book 1999) or if one of the parties shows no regard for the preconditions (such as a DAB or amicable settlement process)?


  72. 46.

    If the seat of the arbitration is in your jurisdiction, might a contractor lose its right to arbitrate if it applied to a foreign court for interim or provisional relief?


  73. Expert witnesses

  74. 47.

    In your jurisdiction, are tribunal- or party-appointed experts used? To whom do party-appointed experts owe their duties?


  75. State entities

  76. 48.

    Summarise any specific limitations or requirements that apply when the employer is a state entity or public authority (including, for example, public procurement rules, limits on rights to suspend or terminate, excluded lien rights and arbitrating – as well as enforcing an award – against such an employer)?


  77. Settlement offers

  78. 49.

    If the seat of the arbitration is in your jurisdiction, on what basis can a party make a settlement offer that may not be put before the arbitral tribunal until costs fall to be decided?


  79. Privilege

  80. 50.

    Does the law of your jurisdiction recognise "without prejudice" privilege (such that "without privilege" communications are privileged from disclosure)? If not, may it be agreed that a sum is payable if communications to try to achieve a settlement are disclosed to a court or arbitral tribunal?


  81. 51.

    Is the advice of in-house counsel privileged from disclosure under the law of your jurisdiction? Is the relevant law characterised as substantive or procedural law?


  82. Guarantees

  83. 52.

    What are the requirements for a guarantee under the law of your jurisdiction? Are oral guarantees effective?


  84. 53.

    Under the law of your jurisdiction, will the guarantor’s liability be limited to that of the party to the underlying construction contract, if the guarantee is silent? Can the guarantee’s wording affect the position?


  85. 54.

    Under the law of your jurisdiction, in what circumstances will a guarantor be released from liability under a guarantee, if the guarantee is silent? Can the guarantee’s wording affect the position?


  86. On-demand bonds

  87. 55.

    If an on-demand bond is governed by the law of your jurisdiction on what basis might a call be challenged in your courts as a matter of jurisdiction as well as substantive law? Assume the underlying contract is silent on when calls may be made.


  88. 56.

    If an on-demand bond is governed by the law of your jurisdiction and the underlying contract restrains calls except for amounts which the employer is entitled to (like sub-clause 4.2 of the FIDIC Red Book 1999), when would a court or arbitral tribunal applying your jurisdiction’s law restrain a call if the contractor contended that: (i) the employer does not have an entitlement in principle; or (ii) the employer has an entitlement in principle but not for the amount of the call?


  89. Further considerations

  90. 57.

    Are there any other material aspects of the law of your jurisdiction concerning construction projects not covered above?