By Nick Kramer
Red Book
For all its innovation and spectacular achievements, the construction industry in the United Arab Emirates has been slow to move on from its close relationship with the International Federation of Consulting Engineers Red Book (fourth edition). The Red Book was superseded years ago, and it is little used outside the Gulf region any more.
The Red Book provides a number of notoriously tricky procedures for claim notification and particularization to be followed by the contractor. These include:
Clause 6.3 – notice of delay or disruption in case of delayed information or instructions;
Clause 12.2 – notice of adverse physical obstructions or conditions;
Clause 30.3 – notice of damage to any bridge or road due to the transport of materials or plant;
Clause 38.1 – notice of when any part of the works or foundation is ready to be covered up (compliance is required for Clause 38.2 to apply);
Clause 40.3 – notice requesting permission to proceed with work after a suspension lasting more than 84 days (compliance is required for Clause 51.1 to apply);
Clause 42.1 – notice containing “reasonable proposals” regarding access and possession (compliance is arguably required for Clause 42.2 to apply);
Clause 44.2 – notice of an application for an extension of time;
Clause 52.2 – notice to claim additional payment for varied work;
Clause 53.1 – notice to claim additional payment “under any clause of these conditions or otherwise”;
Clause 65.5 – notice of increased costs arising from special risks; and
Clause 69.4 – notice of suspension by the contractor due to non-payment by the engineer.
These clauses stipulate a range of notice procedures. There are some slight differences between them. In any case, Clause 44.2 and/or Clause 53.1 apply to all of them.
The procedures are not sharply drafted and their meaning and intent are not always clear. However, in some cases it is implied that if these procedures are not strictly adhered to by the contractor, the claim will be dead in the water – in other words, the employer or its engineer may be entitled to reject the claim outright. Building and civil works contracts in the United Arab Emirates are generally governed by UAE law; therefore, the UAE Civil Code will apply. This update considers how, when express notification procedures are read in light of the applicable provisions of the code, a more moderate and fair outcome may emerge.
Entitlement to Claim
The Red Book provides that in certain circumstances a contractor’s entitlement to claim may be lost if it fails to give notice of its intention to claim(1) or fails to provide detailed claim particulars(2) within the prescribed timescales. Two provisions of the Red Book provide that failure to comply with the specified notice or particularization procedures for making a claim will justify the rejection of the claim.
Clause 44.2, which is concerned with applications for extensions of time, provides that, in case of non-compliance with the time limit to provide notice and/or detailed claim particulars, the engineer “is not bound to make any determination” of a claim for an extension of time. Therefore, the engineer has discretion not to make a determination if the time limit for either notice or particularization is not met.
In addition, Clause 52.2, which applies to applications for payment for variations, states that the varied work will not be valued unless notice of an intention to claim extra payment is made within 14 days of the date of the instruction. Strictly construed, this clause allows for a claim to be disallowed if the 14-day time limit is not complied with.(3)
Civil Code
If the employer or engineer feels inclined to reject an otherwise well-founded claim solely for reason of non-compliance with the strict technicalities of the notification procedures, it is important that they consider the provisions of the code, which may have a bearing on the issue.
For instance, the code makes it clear that neither party to a contract should act in bad faith. Article 246 says that contracts must be performed in a manner consistent with the requirements of good faith. This could apply where a contractor-claimant relies on information given in the agreed minutes of a meeting or a periodic report as written notice of an intention to claim, as required by the Red Book. If, as is sometimes the case, a question arises as to whether information in formal minutes or a written report is strictly written notice, considerations of good and bad faith may become relevant as a matter of UAE law. In such a case the contractor may argue that the employer and the engineer have been notified of the existence of the claim in writing within the stipulated time period and, as such, the purpose of the notification provision has been fulfilled. Thus, it would be an act of bad faith to reject the claim on this ground.
The code further provides that neither party may exercise its rights under a contract in a manner which is oppressive or abusive to the other. Article 106 says that the exercise of a right shall be unlawful if disproportionate harm will be suffered by the other party as a result. Thus, rejection of an otherwise valid and well-founded claim solely for reason of a purely technical breach of a notice provision may well be unlawful, especially if the likely financial harm to the claimant is disproportionate to employer’s need to receive timely notice.
Furthermore, Articles 318 and 319 of the code provide against the exercise of rights in a way which leads to unjust enrichment. For example, if the employer or engineer rejects a claim for additional payment for varied work purely on the grounds that the time limit for notice has not been met, UAE law could view this as a case where the employer has been unjustly enriched by benefiting from additional work, while seeking to avoid payment by relying on a procedural technicality. As a result, the claim may succeed under UAE law, even though the notice procedures were not complied with.
Comment
This update highlights just a few examples of how the Red Book, when read in the context of the applicable provisions of the code, might not have the meaning, or at least the effect, suggested by the actual words used. There are, of course, numerous other provisions of the code which are likely to be relevant and must be considered when advising the contractor, engineer or employer. Contractual provisions which appear to have drastic consequences as written in the Red Book (or in any other standard form contract used in the United Arab Emirates) may have a modified or different effect when read together with the applicable provisions of the Civil Code.
Endnotes
(1) There is no prescribed form of notice. Clause 1.5 of the Red Book states that notice must be in writing and that the word ‘notify’ is to be construed accordingly. As such, there is no reason why a monthly report, for example, could not be construed as a notice. However, it would be prudent for the contractor to make clear (i) that the written information is intended to be a notice under the contract, and (ii) the clause under which it is given – in every case this will include at least Clause 53.1 or Clause 44.2.
(2) The Red Book is silent as to what constitutes ‘detailed particulars’. This will vary case by case. It is good policy, wherever possible, for the contractor to invite the engineer to confirm that it is satisfied with the degree of detail provided.
(3) Clause 53.1 states that, “notwithstanding any other provision” of the Red Book, all claims for additional payment under the Red Book require 28 days’ notice from the date of the event giving rise to the claim. This would appear to extend the shorter requirement of 14 days under Clause 52.2. However, it is advisable that the contractor should comply with the 14-day notice period.
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