SYSTECH SOLICITORS LEGAL UPDATE

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A PRACTICAL GUIDE FOR CONTRACTORS AS TO HOW THEY CAN RECOVER DELAYED PAYMENTS ON CONSTRUCTION PROJECTS IN THE UAE Dai Edwards DAI EDWARDS Trainee Solicitor dai.edwards@systech-int.com 10 10 www.systech-int.com
It is a fairly common scenario in the Middle East to be faced with a situation whereby a client unlawfully withholds payment from the contractor. This will often cause the contractor severe problems in terms of cash flow. So what options are available to the contractor in order to get the client to pay? 1. Contractual measures can be used in order to pressurise a party into paying Some contracts will contain a suspension clause whereby a party can suspend work until it has received payment. An example of this is Clause 16.1 contained in the FIDIC Red Book (1999). This gives the contractor the right to suspend work where there has been: • Failure to certify; • Failure to demonstrate the ability to pay; or • Failure to pay. Strict compliance with contractual notice provisions is critical. The UAE Civil Code can also assist under Article 247. This states that “In contracts binding upon both parties, if the mutual obligations are due for performance, each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to.” It is important to note that the contractor’s suspension of work will need to be reciprocal and proportionate to the employer’s breach. The pervasive application of the Civil Code is not always advisable as there is much that can be subject to interpretation and so it is best to ensure that the contract contains an appropriate suspension clause. 2. Threaten to terminate the contract for nonpayment Under Clause 16.2 of the FIDIC Red Book a party can terminate a contract on 14 days’ notice if: • There has been a failure to demonstrate the ability to pay after 42 days of suspension; • There has been a failure to certify; • Failure to pay • Failure to substantially perform the obligations under the contract; • Prolonged suspension of the works; or • If the employer is insolvent. A contract can still be terminated even if the contract is silent on this matter as Article 892 of the UAE Civil Code provides that: “A contract of Muqwala shall terminate upon the completion of the work agreed or upon the cancellation of the contract by order of the court.” Article 272 of the UAE Civil Code deals with termination based on breach and provides for either an order of specific performance or for the contract to be cancelled and for damages to be paid for the breach. In construction it is far more common for damages to be paid rather than for specific performance to be ordered. Threatening to terminate a contract is normally a measure of last resort as the consequences are severe. Parties also need to be careful to ensure that their actions are not deemed to be unlawful by breaching the overriding duty of good faith provisions that are contained within UAE law. The courts will take a dim view of a party terminating a contract where it is not really justified (for example if the underpayments were only very minor). 3. Retention of title clause A retention of title clause acts to protect the contractor by seeking to limit the extent of the debt owed by the employer. There needs to be an express provision for this made in the contract. Article 513(1) of the UAE Civil Code states that “If the price is deferred or payable in instalments, the seller may stipulate that the transfer of ownership to the purchaser be suspended until he pays the whole price, notwithstanding that the goods be delivered.” Alternatively, the contractor can ask the client’s parent company (if there is one) to provide a guarantee or payment bond. 4. Non-contractual remedies - rights/liens over property The contractor can refuse to handover physically attached property upon completion if payment has not been made under Article 879(1) of the UAE Civil Code. This provides that “If the work of the Contractor produces (a beneficial) effect on the property in question, he may retain it until the consideration due is paid.” However, a cautious approach needs to be taken as it may result in a possible trespass action. Registering a right / lien over the property is another option. This is possible under Article 1527(1) of the UAE Civil Code. Registration of the property has to be recorded in the Land Register with the Dubai Land Department (Dubai Law No.7 of 2006 Concerning Land Registration in the Emirate of Dubai). It may also be worth pursuing a softer approach by using a local sponsor to liaise with the other party’s sponsor in order to try and obtain payment. In this way the sponsors act in a similar way to mediators. 5. Sanctions through the courts The contractor may seek one of the following orders: • Order for payment – This is similar to a “summary judgment”. It requires unequivocal and fully documented debts substantiated by commercial instruments (i.e. engineers’ certificates, dishonoured cheques). www.systech-int.com 11
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Page 3 and 4: CONTENTS 4 7 10 13 16 19 22 26 John
Page 5 and 6: The first question to ask is: is re
Page 7 and 8: CLIENT’S GUIDE TO ENFORCING ARBIT
Page 9: virtually any matter can be argued
Page 13 and 14: CHERRY PICKING IN ADJUDICATION Phil
Page 15 and 16: from the responding party from sums
Page 17 and 18: When it comes to construction and s
Page 19 and 20: PROTECTING COMMERCIALLY VALUABLE IN
Page 21 and 22: can be fiercely negotiated and rang
Page 23 and 24: The SICC confirms Singapore as a Di
Page 25 and 26: Summary While arbitration as an alt
Page 27 and 28: The question as to whether the Sing
Page 29 and 30: Systech Solicitors offers a truly u

SYSTECH SOLICITORS LEGAL UPDATE

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