Construction & Engineering International - UAE legal issues


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UAE law

The UAE is comprised of 7 Emirates, including Abu Dhabi and Dubai, and is a civil law jurisdiction. The UAE Constitution provides that Islamic law (Sharia) is the main source of legislation in the UAE. It also lists sectors in relation to which the federal government (based in Abu Dhabi) has exclusive power to make laws (such as education and labour laws), and provides that individual emirates have residual law making powers (such as in relation to their own natural resources). Federal law overrides the "local" law, but only to the extent of an inconsistency.

The 2 key federal laws which parties working in the region should be aware of are the Commercial Code (which applies to "traders… and all commercial activities carried out by any person") and the Civil Code (which sets out general contractual principles and covers specific business arrangements).

Parties are entitled to rely on agreed contractual terms but only to the extent that they are not contrary to public order or decency and are not inconsistent with mandatory provisions of law. It is this latter category which we focus on in this e-brief series. What then are the mandatory provisions of law which relate to construction contracts?

Contracts of muqawala

Various provisions set out in the Commercial and Civil Codes are mandatory to all contracts. However, the Civil Code sets out 25 Articles which specifically govern all "muqawala". A muqawala is, literally, a contract to make a thing or perform a task. Any construction contract governed by UAE law must therefore comply with these 25 Articles, irrespective of what has been contractually agreed.

Decennial Liability

The most often discussed muqawala provisions, and the ones which cause most concern to contractors and consultants new to the region, relate to what is widely known as "decennial liability". This Civil Code principle imposes strict joint liability on contractor and supervising architect for 10 years from "delivery" of the work.

Although the Code refers to supervising "architect", it is generally accepted that the provisions would be likely to apply to all supervising designers and it would be prudent to proceed on this basis.

The liability covers collapse (total or partial) and any defect threatening stability or safety of the building. The obligation to compensate the employer exists even if defect or collapse "relates to the land itself" and/or the employer "consented to the construction" of the defective building.

This wording will be unfamiliar to contractors/consultants new to the region as it does not feature in standard forms of construction contract. There is no further explanation in the Code but this is likely to mean that, even if, for example, subsidence causes a building to collapse (and hence the collapse was not due to defective work or design), the contractor and supervising designer will be jointly responsible for this collapse.

Further, if an employer has approved designs or even accepted delivery of the works notwithstanding patent defects, the contractor and supervising designer will be jointly liable if the building subsequently collapses or there exists a defect threatening the stability or safety of the building.

These decennial liability provisions cannot be contracted out of or limited, but do not apply if the parties intend the building to remain for less than 10 years. If the designer's role does not involve supervision and relates only to the preparation of plans, it will only be liable for defects in those plans.

A claim is time barred 3 years after collapse or discovery of the defect. The decennial liability provisions, unlike English law on limitation, make no reference to when defects should have been discovered so "discovery" in this context will mean actual discovery. If the defect/collapse occurs on the eve of the expiry of the 10 year post-delivery period, the employer would still have 3 years to bring a claim. The contractor and supervising designer can therefore still be on the hook 13 years post-delivery.

Contractors/supervising designers familiar with common law benchmarks (such as requisite standards of skill and care) are often surprised by this "no fault" concept, particularly if the cause is a defect in the land, and the risk allocation under the contract is such that the employer takes the risk of unforeseen ground conditions. Further, as procurement models develop and the distinction between designers and supervisors blurs and overlaps, it becomes more difficult for parties, on a particular project, to determine if they would be caught by the provisions. Potential exposure is considerable and parties should consider their position very carefully and, if necessary, take legal advice to check they are as protected as they can be within the mandatory framework of the Codes.



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