Is the UAE Civil Code enough?

by Jeremy Cama

As the debate over the effectiveness of local procurement continues, Jeremy Cama, partner, Berrymans Lace Mawer, outlines some of the stumbling blocks still faced by the industry.

It could be said that Dubai is to the building trade what a flame is to a moth – there appears to be several potentially fatal perils awaiting the unsuspecting contractor who heads towards the dazzling opportunities of one of the world’s biggest building sites.

And as the financial stakes have increased, the clamour has grown – not least in this particular column – for reform of the terms on which property development and public infrastructure is procured.

But lawyers are not the lone, even if they are sometimes the loudest, voice in highlighting perceived deficiencies in procurement conditions. But is the clamour merely lawyers being self-serving, or is there really something to be concerned about on behalf of all those moths?

The UAE Civil Code’s few specific articles touching on building contracts only deal in broad strokes and some of these contain the source of potential ambiguity.

Article 892 of the code, for instance, provides that a building contract is terminable by agreement of the parties or upon application to the court. With few exceptions, construction contracts in the Emirates contain detailed provisions permitting a party to terminate for default.

The Article’s primary objective is to clearly preserve and protect the sanctity of the bargain, struck between employer and contractor, to let and to perform a contract of works. However, does this completely subordinate a contract’s entire written terms to the authority of the code, or do clauses containing termination provisions evidence the mandatory agreement between the parties – entitling one or other of them to bring their contract to an end, providing the relevant conditions are met?

No doubt arguments will arise over this question and cases will be made in support of, and against, the various possible interpretations, as well as how this Article works with other general provisions contained elsewhere in the Civil Code, which permit a contract to be terminated on notice by one party if the other does not perform what it is supposed to?

The building moths engaged under a contract incorporating a bill of quantities may find they are faced with a serious issue should their employer ever decide to exercise its right under Article 886 (2) to suspend work, or withdraw from the contract altogether, because there is a substantial increase in material quantities.

Although the Article requires the contractor to be paid for work it has performed; ultimately, who, other than a court or arbitrator, is to determine whether the employer’s opinion is reasonable, in all the circumstances, about what constitutes a ‘substantial’ quantity increase justifying the termination?

A contractor under a lump sum price contract may find its demands for extra costs and expense being summarily rejected by its employer under Article 887, despite the contract containing provisions for such an entitlement. This could be the result of an interpretation of Article 887 (1), which states that contractors may not demand an increase over the lump sum arising out of the execution of the agreed works. The contractor may also find that Article 887 (2) is argued against, even though it contemplates the observance of the contract in relation to variations agreed to by the employer.

Nor is there is much statutory guidance as to what constitutes effective delivery for the purpose of the Civil Code’s provision requiring an employer to accept the works once they are completed and placed at its disposal.

These and similar issues of interpretation arising under the Civil Code pose genuine challenges to the effectiveness of the form of construction contracting adopted in the UAE. Meeting the challenge of creating a body of law that can adequately regulate a mature and commercially sophisticated industry is not a straightforward task. There is also the ever-present need for a balance between having too much in the way of codification and not having enough.

The extensive new body of laws crafted specifically for the Dubai International Financial Centre shows that it is feasible to codify laws to deal with complex undertakings. Given the importance of the construction sector to the rapid economic development of the country, and the correspondingly high risks and rewards for all stakeholders, the argument that ‘it is getting built anyway’ might not be a sufficient one for legislative inertia.

There may be cause for some cautious optimism, however, with the relatively recent introduction in Abu Dhabi of a new set of public procurement conditons based on the FIDIC 1999 edition (commented on by Michelle Nelson in her article in Construction Week 178).

But, on closer examination, this particular initiative proves to be no reformist’s panacea. Many of the changes to what is, at its core, a relatively balanced standard form agreement, seemingly skews the document much more to the favour of the public sector employers. More flames for the moths?

Surely, the billions of dirhams being spent on building new Dubai are worthy of greater attention than just 25 short articles in the Civil Code?

Construction week

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