by Melanie Grimmitt
Uncertainty in the Application of UAE Laws
The UAE legal system is a civil code system based on both Islamic and civil code principles. Any contract subject to UAE law must comply with the UAE Constitution, Federal and local Emirate laws, Islamic Shari’a and custom and practice.
There are challenges in deciding how the law of the UAE will be applied in any particular case. This is due to a number of factors. The UAE legal system is still very much in its infancy, the collision of French – via Egypt and other Middle Eastern countries – civil code principles and Islamic Shari’a principles, the lack of judicial precedent – previous decisions may be useful but do not create any binding or persuasive precedent to the court, and the difficulty of predicting which legal principles and/or custom and practice a judge will apply when reaching a decision.
This uncertainty can give rise to conflicting legal opinion on many points of law and makes it a challenge for contracting parties to understand the full extent of their liability when contracting under UAE law or when carrying out work in the UAE, notwithstanding the governing law of the contract.
This two part blog will consider the following examples: decennial liability, the law of torts, and limits on liability generally and more particularly liquidated damages.
Decennial Liability
What is it?
The principle is common in civil code jurisdictions. Generally, it imposes strict liability on a contractor for certain defects for a period of ten years. In the UAE, decennial liability is codified in Article 880 of the Civil Code. It applies to the contractor and architect and imposes liability on them both for any total or partial collapse of a building and for any defect which threatens the stability or safety of a building.
How strict?
The only express defence to decennial liability afforded under the Civil Code is granted to the architect if that architect was only engaged in making the plans and was not supervising the actual construction. In these circumstances, the architect is only liable for defects in the plans. By contrast, the Civil Code expressly provides that it is no defence to show that the collapse or the defect arose out of a defect in the land itself or the employer consented to the construction of defective buildings.
One should also remember that any agreement trying to exclude or limit such liability will be treated as void.
How long is decennial liability?
The liability lasts for ten years from the time of delivery of the work (unless it was intended that the installation should remain in place for less than ten years). However, claims must also be brought within three years of the collapse or discovery of the defect.
Questions?
So far so good, but a number of questions remain:
(a) is liability apportioned between the contractor and the architect according to fault?
(b) are the contractor and the architect jointly or severally liable?
(c) if the architect is liable for a defect in the plans then is the contractor no longer liable?
(d) what is the liability of other professionals engaged on a construction project eg an engineer or a project manager?
Limited answers
It is difficult to answer any of these questions as previous cases on the issue do not bind the courts in any future cases, and there is very little commentary on the point.
So what to do?
There is insurance, although as tends to be the case with latent defects insurance generally, we understand it comes at a high premium.
A better idea may be to use contractual mechanisms to allocate the risk between the members of the supply chain on a fault basis. For that reason, it is not uncommon in the UAE and the wider region, for designers and contractors within the first tier of the supply chain to exchange collateral warranties. These collateral warranties are designed to enable an “innocent” party caught by the decennial liability regime to recover its losses from the party actually at fault for the defect.
However, even this approach cannot address the risk that the party at fault is not around at the time the claim is made, or the risk that the liability may have arisen without any fault (e.g. a land issue). But despite these gaps, this remains the best method of protecting against this liability which is uncertain in its application and potentially very significant.
Recap
This section considers another perhaps unknown liability: strict liability for harmful acts under UAE law, and considers whether parties are able to exclude such liability by contract.
THE LAW OF TORTS IN THE UAE
Extent of Liability
The UAE law of tort is set out in Articles 124 and Articles 282 – 298 of the Civil Code. These articles appear to impose strict liability on an “actor” in respect of any harm done (it seems accepted by all commentators that this is whether by act or omission). This position accords with the general principle of Islamic law of censorship for harm regardless of fault, negligence or illegality. This position can be contrasted with with the common law concept of liability for negligence under which liability only arises where a party owes a duty of care to another party and fails to exercise such duty.
However, as with all good general principles, there are exceptions:
Exercise of Reasonable Care
In certain circumstances, it is likely that an “actor” will not be liable to make good harm where that person has exercised reasonable care. Those circumstances are where: “that which is required of an obligor is the preservation of a thing, or the management thereof, or the exercise of care in the performance of his obligation“. However the exercise of reasonable care is no excuse for fraud or gross negligence.
It may suffice for the purposes of this exception if the obligation to take reasonable care is contractual – as would most likely be the case under a contract for professional services and most construction contracts in respect of design obligations at least.
Force Majeure
It is also understood that a person is not liable to make good harm where a “natural disaster, unavoidable accident, force majeure, act of a third party, or act of the person suffering loss” caused the relevant harm.
Plenty of room for argument in this exception it would seem!
Consequential Loss
Finally, there is a potential limitation of “the actor’s” liability for consequential harm to circumstances where “the actor” has acted in a wrongful and deliberate way.
However, it seems the only time that this exception would apply is where there is consequential harm, but no direct harm. In the context of liability between contracting parties, it is difficult to envision circumstances where this exception would be useful.
Prohibition on Exempting Liability
Having identified that subject to limited exceptions, UAE law incorporates the general principle of strict liability for harmful acts, is it possible for a party to a contract to exclude or limit such liability?
Article 296 of the Civil Code states that:
“Any condition purporting to provide exemption from liability for a harmful act shall be void.”
This appears to be an unequivocal prohibition on any contractual provision seeking to exempt liability for “harmful acts”.
Yet, when considering the Civil Code, it is always worth checking the original arabic (or, as in my case to my shame, asking your arabic reading colleague to check the original arabic!) In this case, I am reliably informed that the arabic equivalent of the word “exemption” means a total or full exclusion rather than a limitation.
Accordingly, it may be possible to develop an argument that one should differentiate between a clause that excludes this liability and a clause that limits this liability, with the prohibition applying only to the former.
This view is supported by express provisions in the Civil Code (Articles 389 and 390) which are universally regarded as authority for the principle that parties to a contract can limit their liability to each other.
It is true to say that other commentators hold a different view, and consider that a purported limitation of liability for a harmful act is also prohibited. If any readers of this blog are one of those then please post here….
In addition there are issues around the effectiveness of limitation clauses, such as liquidated damages and caps on liability, which would also apply to a clause limiting liability for harmful acts….these will be considered in the next blog.
In the meantime, keep a careful watch for unseen liability…..