Category: Middle East

1
Liquidated Damages in the UAE, Qatar, and Saudi Arabia
2
Time Bars in Construction Contracts – A Comparison between Jurisdictions
3
Procurement Strategies for Major Rail Projects: International Railway Summit 2015
4
Welcome to the 28th Edition of Arbitration World
5
Event: Major Projects & Infrastructure Qatar – Contract Management & Dispute Resolution
6
How’s the Weather? Construction Contracts Should Be Prepared for Any Answer.
7
Biggest Risk of Corruption in The Construction Industry: The Global Picture
8
Issues to Consider When Doing Business in Qatar
9
“MINT” Countries Focus in Arbitration World – July 2014
10
Challenging an Arbitrator’s Appointment: A study of the position in Qatar and in ICC Arbitration

Liquidated Damages in the UAE, Qatar, and Saudi Arabia

By Harriet C. Jenkins, K&L Gates, Doha

INTRODUCTION

Liquidated Damages (LDs) are treated very differently across the Gulf region and from the position as understood within the English common law jurisdiction.

The universal starting point for LDs is in contract; parties should pre-determine the rate of damages a contractor should pay to the employer in the event of a (specified) breach, most commonly that of late completion.  For the purposes of this article, we shall consider LDs solely in the context of delay damages, whereby in the event of delay to project completion, an employer can demand a fixed compensatory sum from the contractor.

The position of the civil law jurisdiction of the Middle East is very different from that understood within the English common law system.   It is commonly accepted that English courts are generally very reluctant to look beyond the contractual position and open up any agreed position on LDs.[1]  Across the Gulf however, differing civil codes empower courts (and tribunals) to look behind the parties’ contract and adjust delay damages based upon principles of actual loss and fairness.

This article discusses the differing treatments of LDs across three Gulf jurisdictions (namely, the United Arab Emirates, Qatar and Saudi Arabia), and reveals what parties can expect in regards to their compensation for delay.[2]

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Time Bars in Construction Contracts – A Comparison between Jurisdictions

By Jafar S. Khan, K&L Gates, Doha and Inga K. Hall, K&L Gates, London

The consequences for a contractor who delays in submitting an application for an extension of time, or who gets his payment application in late, can differ dramatically depending on the contract terms and also the governing law of the contract.

In order to ensure contractors submit their claims as they arise (rather than ‘roll them over’ to the end of a project) and to assist in efficient cash-flow management, it is common practice for both bespoke and standard form contracts to include express procedures for submitting claims for time, money or other relief. Provisions dealing with claims for an extension of time for example will frequently stipulate time limits for each of the following:

  • the initial notification of the events giving rise to the claim,
  • submission of particulars,
  • a response/request for further particulars on behalf of the employer, and
  • an assessment of what if any extension should be awarded.

What happens though if one of the parties does not complete the relevant action or step forming part of the procedure within the stipulated time?

This will depend first on what the contract says the consequences are to be. The usual practice in the standard forms mentioned above is to expressly provide that a failure to (say) submit the particulars of the claim strictly in accordance with the time period prescribed will invalidate the claim i.e the claim becomes “time barred”. Looked at in another way, such express provisions are seeking to make timely submission of the required particulars a condition precedent to recovery.

This raises the interesting question of whether such time bars are enforceable. On the one hand it would seem disproportionate to bar a substantial claim if a contractor was only one day late in filing its claim, but on the other hand, an employer might have made certain assessments as to liability and closed its position with respect to issues in relation to the events surrounding the claim. It would arguably be unfair to ignore the terms of the contract and permit the employer to continue to be exposed to claims.

The issue of enforceability will depend to a significant extent on the law of the contract. In common law systems such as the United Kingdom for example, clearly drafted time bars (such as those found in FIDIC sub-clause 20.1 and NEC3 clause 61.3) have in the past generally been enforced.

An issue which is however currently generating debate in the UK is how to properly assess the time period for first notifying an event. NEC3 clause 61.3 states that if the contractor does not notify a compensation event (i.e a variation) “within 8 weeks of becoming aware of the event, he is not entitled to a change in the Prices [or] the Completion Date”. FIDIC sub-clause 20.1 requires the contractor to give notice “as soon as practicable and not later than 28 days after the contractor became aware, or should have become aware of the event or circumstance [giving rise to the claim]”. Although both clearly state the condition precedent aspect of the timely giving of notice, the more difficult issue is when does that time start running?

There is frequently a delay between the time an event occurs, and when the effect of that event as giving rise to a claim is identified. Equally, for an ongoing event which spans several days or weeks (such as a prolonged period of bad weather), should notice be given on day one (on a ‘just in case’ basis even though the duration and effect of the event are unknown) or at the end of the event (which the effect is known but with the risk the employer will say you have given notice too late?). These were the type of issues considered by the UK courts in the 2014 case of Obrascon Huarte Lain SA v Her Majesty’s Attorney General for Gibraltar[1] where the court said the notice provisions should be construed broadly, meaning the time should be calculated from when the contractor became aware (or should have become aware) of the delay, rather than from the date of the event itself.

Across the common law jurisdictions, the hardest line against time bars is taken in Australia, with the 2012 decision in Andrews v Australia and New Zealand Banking Group Ltd[2] that such time bars can be unenforceable as penalties.

The approach in civil code jurisdictions such as the GCC generally take the middle ground.

The UAE Civil Code neither expressly prohibits time bars nor enforces them.

Instead, prescribed time periods need to be read in the context of certain provisions of the UAE Civil Code including:

  • Article 106 – prohibiting the exercise of rights if the desired interest or result is disproportionate to the harm that will be suffered by the other party;
  • Article 246 – requiring the parties to act in good faith; and
  • Article 249 – prohibiting a party from exercising its rights in a manner that is oppressive or abusive

These provisions, read together, have the effect of meaning that time bars are neither expressly permitted nor expressly prohibited under UAE law. Instead, consideration will be given to matters which under common law are considered as being “equitable principles” such as whether the parties were acting in good faith, whether the actions are oppressive or unconscionable, and whether the benefit enjoyed by one party will be disproportionate to the harm suffered by the other party. Although such an approach is to be commended, since it ensures that a party is prevented from unnecessarily abusing its position under the contract, it does mean that the terms of the contract may be ignored in some instances. It is not clear as to the frequency at which courts in the UAE are willing to intervene and override the express terms of the contract, and this is an area we are continuing to monitor with interest.

Of course, a different scenario arises if a clause is silent on the consequences of a failure to submit a claim strictly in accordance with the time period prescribed by the construction contract. The question then becomes whether a time bar is implied when the prescribed steps to making a claim are not followed. One of the leading authorities on time-bars is Brember Handels GmbH v Vanden Avenne Izegem PVBA[3], HL which is authority for the proposition that, for a notice requirement clause to be a condition precedent, the clause must state the precise time for service and make it plain by express language that unless the notice is served within that time, the party required to give notice will lose its rights under that clause. Hence the conclusion should be that time bars will never be implied. However notably Jackson J in Multiplex Construction (UK) Ltd v Honeywell Control Systems[4] permitted a time bar to be implied despite the contract being silent on the matter. Some commentators however have suggested that a clear intention for a condition precedent is required, and that the decision in Multiplex can be distinguished on the basis of the Prevention Principle. Although there is no clear guidance in the UAE on whether a UAE court would be willing to view notice requirements as a condition precedent without clear words to that effect, in our view the UAE courts do not follow the principles which are equivalent to those in Brembar but instead weigh up the circumstances of each case and determine the fairest approach.


 

[1] [2014] EWHC 1028 (TCC)

[2] (2012) 290 ALR 595

[3] [1978] 2 Lloyd’s Rep 109

[4] [2007] EWHC 477 (TCC)

Procurement Strategies for Major Rail Projects: International Railway Summit 2015

London partner Matthew Smith recently attended the International Railway Summit 2015 in Barcelona. The International Railway Summit provides a meeting ground for senior decision makers from the world’s key rail operators, transport ministries and solution providers. Matthew had the opportunity to discuss the importance of risk assessment, project delivery structure, and risk allocation in rail contracts as a presenter at the conference.

To view a copy of the full presentation titled “Procurement Strategies for Major Rail Projects,” please click here.

Welcome to the 28th Edition of Arbitration World

Welcome to the 28th edition of Arbitration World, a publication from K&L Gates’ International Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

To view Arbitration World, click here.

To download a printable PDF of the publication, open the link above and click on the fourth icon from the right in the magazine toolbar at the top of the page

In this edition, we summarise the key provisions of the new LCIA Rules, which came into effect on 1 October 2014, including provisions as to emergency relief and consolidation of arbitrations. We explore some of the issues related to “mediation/arbitration” or “med/arb” as an alternative approach to dispute resolution, and we continue our series on the growth of third-party funding in international arbitration. We include an article about a French court decision with important implications for parties in arbitration who face impecunious respondents or counterclaimants. We examine recent caselaw from Singapore on a gap in the dispute resolution procedures within the FIDIC Conditions of Contract. In a continuation of our series on tiered arbitration clauses, we look at recent developments in England. We analyse an ongoing debate in Australia about the use of investor-state dispute resolution clauses in bilateral investment treaties and look at a recent case in Australia regarding the courts’ approach to the question of when third parties can be bound by an arbitration agreement.

We also provide our usual update on developments from around the globe in international arbitration and investment treaty arbitration.

We hope you find this edition of Arbitration World of interest and we welcome any feedback (e-mail ian.meredith@klgates.com or peter.morton@klgates.com).

Event: Major Projects & Infrastructure Qatar – Contract Management & Dispute Resolution

K&L Gates Doha partner Matthew Walker and associate Darran Jenkins will present at C5’s 2nd Forum on Major Projects & Infrastructure Qatar: Contract Management & Dispute Resolution. The forum will be held on 27 – 28 January 2015 at the InterContinental Doha – the City Hotel, Qatar.

Darran will be presenting Understanding the Complexities of Qatari Construction Contracts during a Pre-Forum Master Class on Monday, 26 January 2015.

Matthew will partake in a presentation titled Successfully Enforcing International Arbitration Awards on Wednesday, 28 January 2015.

For a full schedule and to register, please click here.

How’s the Weather? Construction Contracts Should Be Prepared for Any Answer.

By Ryan D. DeMotte, K&L Gates, Pittsburgh

Mother Nature can often be an unwelcome intruder on a construction project. Heavy rains, snow, ice, wind, extreme cold, extreme heat; there are any number of weather events that can delay a project. While parties to a construction contract cannot control the weather, they can and should anticipate the possibility of adverse weather and address it in their contracts. Prudent contract provisions addressing bad weather events can help owners and contractors minimize the disputes that can develop when rain, snow, ice, and other weather events delay the project.

A common approach is to give contractors additional time but not costs for weather delays. Many commonly-used contract forms provide for weather-based time extensions if the weather event was “abnormal, “unforeseeable,” or “not reasonably anticipated.” Thus, in order to evaluate a request for a time extension based on adverse weather, the parties must first establish the appropriate weather baseline against which to measure the weather event at issue. Was the rainfall unusually heavy during a particular month? Was the temperature colder than previous years? If the contract itself does not define the baseline weather measurement, this can often be a point of dispute between parties. Some parties may try to minimize these disputes by providing detailed provisions for baseline weather measurements in the contract in the form of 10-year averages or other objective measures. Whether or not these types of provisions are useful depends on the project and its sensitivity to weather variations.

The parties must also determine how the weather caused the delay. Did cold temperatures delay paving work? Did heavy winds or sandstorms prevent the delivery and installation of sensitive equipment? In trying to answer these types of questions, the parties may dispute whether the delays were the result of the abnormal weather or the result of other causes.

Finally, owners and contractors need to consider why certain work was being performed during the adverse weather. For example, if, through a contractor’s own early delays it is still working outdoors at a time when it initially planned to be completing the interior of a building, an owner may be able to argue that the contractor is not entitled to an extension for any weather-related delays to its outdoor work. Conversely, if a contractor’s work is delayed by the owner’s delays, it may have a strong argument for any delays it incurs as it tries to complete the work in less-than-optimal weather conditions. A contractor may also be able to claim costs if it is pushed by owner delays into bad weather.

Given the inherent uncertainty of the weather, some parties decide to build into the contract and project schedule a certain number of extra days to absorb any weather delays.

As the above issues demonstrate, owners and contractors should give careful thought to the various types of weather risks their project may face when negotiating a construction contract and creating the project schedule.

Biggest Risk of Corruption in The Construction Industry: The Global Picture

By Elizabeth RobertsonLaura Atherton and Dylan G. Moses, K&L Gates, London

The construction industry is big business. A recent study[1] has predicted that global construction output will increase by more than 70%, to US$15 trillion per year worldwide, by 2025. The dominant sources of this growth will be three countries in particular, China, India and the U.S., with much of the remainder in the emerging markets.

This growth is a cause for celebration, but it will not come without challenges[2]. Some of those countries where the highest growth is predicted are also perceived as having the highest levels of corruption[3].

To read the full Whitepaper, click here.

1 The Global Construction 2025 by Global Perspectives and Oxford Economics.
2 The Chartered Institute of Buildings found that 49% of respondents to a 2013 survey thought that corruption was common within the UK construction industry.
3 China is listed at number 80 and India is listed at number 94 out 177 countries ranked by Transparency International on their corruption perceptions index in 2013.

Issues to Consider When Doing Business in Qatar

As part of K&L Gates’ commitment to continuing professional development, the construction and disputes resolution lawyers in our Doha office regularly discuss relevant legal issues that arise while advising clients in Qatar, giving presentations about issues with Qatar law and lessons learned from live matters.

The attached slides features a presentation by Alex Brightman about issues to consider relating to the registration of the local branch of an international construction company who wants to do business in Qatar.

To view the presentation, click here.

 

“MINT” Countries Focus in Arbitration World – July 2014

Welcome to the 27th edition of Arbitration World, a publication from K&L Gates’ International Arbitration Group that highlights significant developments and issues in international and domestic arbitration for executives and in-house counsel with responsibility for dispute resolution.

To view Arbitration World, click here.

To download a printable PDF of the publication, open the link above and click on the fourth icon from the right in the magazine toolbar at the top of the page.

In this edition, we include articles specifically relevant to the “MINT” countries of Mexico, Indonesia, Nigeria and Turkey, tipped as the next economic giants by ex-Goldman Sachs economist Jim O’Neill who coined the term “BRIC ” countries back in 2001. We look at energy reform in Mexico and its potential impact on commercial and investor-state dispute resolution and a recent decision regarding threshold jurisdictional requirements applicable to bilateral investment treaty (BIT) claims, with particular reference to Indonesia. We review some recent decisions of the Nigerian courts which offer support for arbitration, and current trends and future prospects for arbitration in Turkey.

More generally, we survey the tricky issues that can arise with respect to corruption and bribery in international arbitration. We examine the recent ruling by the Supreme Court of India in the Enercon India case and its implications on the drafting of arbitration agreements. We report on a recent case from Texas regarding the implications of allowing the deadline for rendering an arbitration award to pass. We also provide our usual update on developments from around the globe in international arbitration and investment treaty arbitration.

We hope you find this edition of Arbitration World of interest and we welcome any feedback (e-mail ian.meredith@klgates.com or peter.morton@klgates.com).

Challenging an Arbitrator’s Appointment: A study of the position in Qatar and in ICC Arbitration

Harriet Jenkins, Associate in the Doha office, recently presented a study setting out how to challenge the appointment of an arbitrator in a domestic arbitration in Qatar, as well as in international ICC arbitrations. This study was prompted by potential conflict issues as to the nomination of arbitrators which recently arose on two of Harriet’s construction arbitration claims, one being an ICC arbitration seated in London, England and the other a domestic arbitration seated in Doha, Qatar. In this presentation, Harriet explains the standard of an arbitrator to act independently and impartiality, and its duty to disclose potential conflicts of interest to the parties. She also examines the mechanisms available to parties to challenge a suspect appointment and provides insight of the practical issues to consider when deciding whether to mount a challenge to an arbitrator.

To view the full presentation, click here.

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