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Construction Law in the United Arab Emirates and the Gulf

Construction Law in the United Arab Emirates and the Gulf

Michael Grose

This edition first published 2016copy 2016 by John Wiley amp Sons Ltd

Registered OfficeJohn Wiley amp Sons Ltd The Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

Editorial Offices9600 Garsington Road Oxford OX4 2DQ United KingdomThe Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

For details of our global editorial offices for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at wwwwileycomwiley‐blackwell

The right of the author to be identified as the author of this work has been asserted in accordance with the UK Copyright Designs and Patents Act 1988

All rights reserved No part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise except as permitted by the UK Copyright Designs and Patents Act 1988 without the prior permission of the publisher

Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names service marks trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book

Limit of LiabilityDisclaimer of Warranty While the publisher and author(s) have used their best efforts in preparing this book they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required the services of a competent professional should be sought

Library of Congress Cataloging‐in‐Publication data applied for

ISBN 9781119085935

A catalogue record for this book is available from the British Library

Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books

Cover image Getty Images copy Apola

Set in 1013pt TrumpMediaeval by SPi Global Pondicherry India

1 2016

Construction Law in the United Arab Emirates and the Gulf

Construction Law in the United Arab Emirates and the Gulf

Michael Grose

This edition first published 2016copy 2016 by John Wiley amp Sons Ltd

Registered OfficeJohn Wiley amp Sons Ltd The Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

Editorial Offices9600 Garsington Road Oxford OX4 2DQ United KingdomThe Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

For details of our global editorial offices for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at wwwwileycomwiley‐blackwell

The right of the author to be identified as the author of this work has been asserted in accordance with the UK Copyright Designs and Patents Act 1988

All rights reserved No part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise except as permitted by the UK Copyright Designs and Patents Act 1988 without the prior permission of the publisher

Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names service marks trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book

Limit of LiabilityDisclaimer of Warranty While the publisher and author(s) have used their best efforts in preparing this book they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required the services of a competent professional should be sought

Library of Congress Cataloging‐in‐Publication data applied for

ISBN 9781119085935

A catalogue record for this book is available from the British Library

Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books

Cover image Getty Images copy Apola

Set in 1013pt TrumpMediaeval by SPi Global Pondicherry India

1 2016

Construction Law in the United Arab Emirates and the Gulf

Michael Grose

This edition first published 2016copy 2016 by John Wiley amp Sons Ltd

Registered OfficeJohn Wiley amp Sons Ltd The Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

Editorial Offices9600 Garsington Road Oxford OX4 2DQ United KingdomThe Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

For details of our global editorial offices for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at wwwwileycomwiley‐blackwell

The right of the author to be identified as the author of this work has been asserted in accordance with the UK Copyright Designs and Patents Act 1988

All rights reserved No part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise except as permitted by the UK Copyright Designs and Patents Act 1988 without the prior permission of the publisher

Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names service marks trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book

Limit of LiabilityDisclaimer of Warranty While the publisher and author(s) have used their best efforts in preparing this book they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required the services of a competent professional should be sought

Library of Congress Cataloging‐in‐Publication data applied for

ISBN 9781119085935

A catalogue record for this book is available from the British Library

Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books

Cover image Getty Images copy Apola

Set in 1013pt TrumpMediaeval by SPi Global Pondicherry India

1 2016

This edition first published 2016copy 2016 by John Wiley amp Sons Ltd

Registered OfficeJohn Wiley amp Sons Ltd The Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

Editorial Offices9600 Garsington Road Oxford OX4 2DQ United KingdomThe Atrium Southern Gate Chichester West Sussex PO19 8SQ United Kingdom

For details of our global editorial offices for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at wwwwileycomwiley‐blackwell

The right of the author to be identified as the author of this work has been asserted in accordance with the UK Copyright Designs and Patents Act 1988

All rights reserved No part of this publication may be reproduced stored in a retrieval system or transmitted in any form or by any means electronic mechanical photocopying recording or otherwise except as permitted by the UK Copyright Designs and Patents Act 1988 without the prior permission of the publisher

Designations used by companies to distinguish their products are often claimed as trademarks All brand names and product names used in this book are trade names service marks trademarks or registered trademarks of their respective owners The publisher is not associated with any product or vendor mentioned in this book

Limit of LiabilityDisclaimer of Warranty While the publisher and author(s) have used their best efforts in preparing this book they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose It is sold on the understanding that the publisher is not engaged in rendering professional services and neither the publisher nor the author shall be liable for damages arising herefrom If professional advice or other expert assistance is required the services of a competent professional should be sought

Library of Congress Cataloging‐in‐Publication data applied for

ISBN 9781119085935

A catalogue record for this book is available from the British Library

Wiley also publishes its books in a variety of electronic formats Some content that appears in print may not be available in electronic books

Cover image Getty Images copy Apola

Set in 1013pt TrumpMediaeval by SPi Global Pondicherry India

1 2016

Contents

About the Author xiPreface xiii

1 Overview 111 Basis of government 212 Division of powers in the UAE 213 Islamic Sharirsquoah 414 Civil law 615 Domestic courts 816 Financial free zones 10

2 Construction Law 1321 Muqawala 1422 Commercial and civil contracts 1523 Delict (tort) 1824 Public procurement 2025 Administrative contracts 23

3 Contract Formation 2531 Components of a valid contract 2532 Offer and acceptance 2633 Certainty 2834 Mutual intentions 3235 Capacity 33

4 Interpretation 3541 Statutory maxims 3542 Intentions 3643 Resolution of ambiguity 3944 Absence of express terms 39

5 Contractual Principles 4151 Binding obligations 4152 Mandatory obligations 4353 Third parties 4654 Subcontractors 4855 Good faith 4956 Related obligations 5057 Abuse of rights 5258 Unfair contract terms 5359 Unforeseen circumstances 54

vi Contents

6 Health Safety and Welfare 5961 Construction safety 5962 Design and management responsibilities 6563 Welfare 6664 International Labour Organisation 6865 Inspection and reporting 6966 Sanctions and penalties 71

7 Design and Supervision 8171 Duty of care 8272 Obligation of result 8473 Standard of care 8774 Defences 8875 Statutory duties 8976 Compensation 9177 Joint liability 91

8 Defects 9581 Materials 9582 Workmanship 9783 Statutory duties 9884 Remedies 100

9 Decennial Liability 10391 Statutory sources 10492 Strict liability 10693 Contractual status 10794 Compensation 10995 Mitigating decennial liability 11096 Public projects 112

10 Physical Damage and Personal Injury 115101 Delict 115102 Criminal damage 116103 Presumed liability for property damage 117104 Inherent danger (nuisance) 118105 Service lines and public utilities 120

11 Time for Completion 123111 Agreement 123112 Extension of time 125113 Assessment of entitlement 125114 Time at large 129115 Concurrent delay 130116 Prolongation costs 135

Contents vii

12 Delay Damages and Other Remedies 137121 Termination for delay 137122 Reducing delay damages 138123 Increasing delay damages 142124 Administrative contracts 143

13 Price 147131 Formation of a contract 147132 Fair remuneration Contractor 148133 Fair remuneration Consultant 150134 Supply contracts 151135 Lump sum and remeasure contracts 151136 Variations 152137 Subcontracts 153138 Public procurement in the UAE 154

14 Payment 157141 Payment on delivery 157142 Payment certificates 159143 Subcontracts 159144 Conditional payment clauses 160145 Bank guarantee 163146 Cheque 165

15 Interest 167151 Riba and usury 167152 Statutory right 169153 Fixed or crystallised debt 170154 Interest in the UAE 172155 Interest under the FIDIC Conditions 172156 Financing charges 173

16 Suspension 175161 FIDIC Conditions 175162 Statutory right of suspension 176163 Excluding the right of suspension 177164 Formalities 178

17 Termination 179171 Termination of an innominate contract 179172 Termination of a muqawala Employer 183173 Termination of a muqawala Contractor 184174 Consequences of termination 187175 Impossibility and force majeure 188

viii Contents

18 Self‐help Remedies 191181 Retention of ownership 191182 Possessory lien 193183 Priority right 196184 Direct payment 197185 Set off 198

19 Damages 201191 Performance by compulsion 201192 Entitlement to damages 203193 Assessment of damages 204194 Global claims 206195 Loss of profit 207196 Consequential and indirect loss 209197 Mitigation 211198 Limitation of liability 212

20 Evidence 215201 Burden of proof 215202 Documents 216203 Disclosure and production 216204 Witness testimony 218205 Court appointed experts 219206 Conclusive findings of fact 221

21 Prescription 223211 Islamic Sharirsquoah 223212 Commercial obligations 224213 Civil obligations 225214 Restriction on amendment 226

22 Litigation 229221 Court structure 229222 International jurisdiction 233223 Jurisdiction between emirates 234224 Commencement of proceedings 235225 Proceedings against the government 237226 Summary actions 238227 Mediation and adjudication 242

23 Enforcement 245231 Procedure 245232 Appeal 247233 Enforcement outside the jurisdiction 248

Contents ix

24 Arbitration 253241 Right to arbitrate 253242 Treaty arbitration 256243 Validity of an arbitration agreement 257244 Capacity to agree 260245 Jurisdiction and powers 264246 Procedures and formalities 267247 Challenging an arbitrator 272248 Enforcement of domestic awards 273249 Enforcement of foreign awards 2782410 New York Convention 280

25 Key Features and Differences 285251 Key features of Islamic civil law 285252 FIDIC Conditions 288253 Gulf states contrasted 289

Commentary FIDIC Conditions 293Glossary 387Index 391

About the Author

Michael Grose obtained a law degree in the UK before completing his legal training in 1993 in the City of London

He relocated to Dubai in 1998 where he is the head of the regional construction and projects practice of an International law firm As a veteran of the Gulf Michael has extensive knowledge not only of the Gulfrsquos laws but also the application of these laws to construction contracts and disputes

Michael frequently reviews advises on and prepares construction contracts for major projects bringing him into frequent contact with the FIDIC suite of contract conditions He has drafted amendments to these conditions to adapt them for use in the Gulf and to address the most com-monly arising issues

Michael has also been involved in many of the regionrsquos largest and most high profile construction and engineering disputes As a result he has considerable experience of conducting arbitration in the Gulf including as an arbitrator appointed by the Dubai International Arbitration Centre

Working with licensed local advocates he has acted on numerous occasions for clients in the Gulfrsquos domestic courts This has included taking cases through all stages of the court proceedings from obtaining freezing orders against bank guarantees attending court appointed expertsrsquo meetings through to the execution of final judgments He is also familiar with proceedings the Dubai International Financial Centre Courts having amongst other things acted for a main contractor in the first construction case to come to trial in the DIFC Courts

Michael has also presented at numerous conferences including the Commercial Law Conference in Bahrain (organised by the United States Department of Commerce) for members of the regionrsquos judiciary the inaugural international conference of the Society of Construction Law held in Singapore and the inaugural conference of the Gulf branch of the Society of Construction Law

He is recommended in the top tier of all the leading independent legal directories including Whorsquos Who Legal Chambers Global and Legal 500

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

vi Contents

6 Health Safety and Welfare 5961 Construction safety 5962 Design and management responsibilities 6563 Welfare 6664 International Labour Organisation 6865 Inspection and reporting 6966 Sanctions and penalties 71

7 Design and Supervision 8171 Duty of care 8272 Obligation of result 8473 Standard of care 8774 Defences 8875 Statutory duties 8976 Compensation 9177 Joint liability 91

8 Defects 9581 Materials 9582 Workmanship 9783 Statutory duties 9884 Remedies 100

9 Decennial Liability 10391 Statutory sources 10492 Strict liability 10693 Contractual status 10794 Compensation 10995 Mitigating decennial liability 11096 Public projects 112

10 Physical Damage and Personal Injury 115101 Delict 115102 Criminal damage 116103 Presumed liability for property damage 117104 Inherent danger (nuisance) 118105 Service lines and public utilities 120

11 Time for Completion 123111 Agreement 123112 Extension of time 125113 Assessment of entitlement 125114 Time at large 129115 Concurrent delay 130116 Prolongation costs 135

Contents vii

12 Delay Damages and Other Remedies 137121 Termination for delay 137122 Reducing delay damages 138123 Increasing delay damages 142124 Administrative contracts 143

13 Price 147131 Formation of a contract 147132 Fair remuneration Contractor 148133 Fair remuneration Consultant 150134 Supply contracts 151135 Lump sum and remeasure contracts 151136 Variations 152137 Subcontracts 153138 Public procurement in the UAE 154

14 Payment 157141 Payment on delivery 157142 Payment certificates 159143 Subcontracts 159144 Conditional payment clauses 160145 Bank guarantee 163146 Cheque 165

15 Interest 167151 Riba and usury 167152 Statutory right 169153 Fixed or crystallised debt 170154 Interest in the UAE 172155 Interest under the FIDIC Conditions 172156 Financing charges 173

16 Suspension 175161 FIDIC Conditions 175162 Statutory right of suspension 176163 Excluding the right of suspension 177164 Formalities 178

17 Termination 179171 Termination of an innominate contract 179172 Termination of a muqawala Employer 183173 Termination of a muqawala Contractor 184174 Consequences of termination 187175 Impossibility and force majeure 188

viii Contents

18 Self‐help Remedies 191181 Retention of ownership 191182 Possessory lien 193183 Priority right 196184 Direct payment 197185 Set off 198

19 Damages 201191 Performance by compulsion 201192 Entitlement to damages 203193 Assessment of damages 204194 Global claims 206195 Loss of profit 207196 Consequential and indirect loss 209197 Mitigation 211198 Limitation of liability 212

20 Evidence 215201 Burden of proof 215202 Documents 216203 Disclosure and production 216204 Witness testimony 218205 Court appointed experts 219206 Conclusive findings of fact 221

21 Prescription 223211 Islamic Sharirsquoah 223212 Commercial obligations 224213 Civil obligations 225214 Restriction on amendment 226

22 Litigation 229221 Court structure 229222 International jurisdiction 233223 Jurisdiction between emirates 234224 Commencement of proceedings 235225 Proceedings against the government 237226 Summary actions 238227 Mediation and adjudication 242

23 Enforcement 245231 Procedure 245232 Appeal 247233 Enforcement outside the jurisdiction 248

Contents ix

24 Arbitration 253241 Right to arbitrate 253242 Treaty arbitration 256243 Validity of an arbitration agreement 257244 Capacity to agree 260245 Jurisdiction and powers 264246 Procedures and formalities 267247 Challenging an arbitrator 272248 Enforcement of domestic awards 273249 Enforcement of foreign awards 2782410 New York Convention 280

25 Key Features and Differences 285251 Key features of Islamic civil law 285252 FIDIC Conditions 288253 Gulf states contrasted 289

Commentary FIDIC Conditions 293Glossary 387Index 391

About the Author

Michael Grose obtained a law degree in the UK before completing his legal training in 1993 in the City of London

He relocated to Dubai in 1998 where he is the head of the regional construction and projects practice of an International law firm As a veteran of the Gulf Michael has extensive knowledge not only of the Gulfrsquos laws but also the application of these laws to construction contracts and disputes

Michael frequently reviews advises on and prepares construction contracts for major projects bringing him into frequent contact with the FIDIC suite of contract conditions He has drafted amendments to these conditions to adapt them for use in the Gulf and to address the most com-monly arising issues

Michael has also been involved in many of the regionrsquos largest and most high profile construction and engineering disputes As a result he has considerable experience of conducting arbitration in the Gulf including as an arbitrator appointed by the Dubai International Arbitration Centre

Working with licensed local advocates he has acted on numerous occasions for clients in the Gulfrsquos domestic courts This has included taking cases through all stages of the court proceedings from obtaining freezing orders against bank guarantees attending court appointed expertsrsquo meetings through to the execution of final judgments He is also familiar with proceedings the Dubai International Financial Centre Courts having amongst other things acted for a main contractor in the first construction case to come to trial in the DIFC Courts

Michael has also presented at numerous conferences including the Commercial Law Conference in Bahrain (organised by the United States Department of Commerce) for members of the regionrsquos judiciary the inaugural international conference of the Society of Construction Law held in Singapore and the inaugural conference of the Gulf branch of the Society of Construction Law

He is recommended in the top tier of all the leading independent legal directories including Whorsquos Who Legal Chambers Global and Legal 500

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Contents vii

12 Delay Damages and Other Remedies 137121 Termination for delay 137122 Reducing delay damages 138123 Increasing delay damages 142124 Administrative contracts 143

13 Price 147131 Formation of a contract 147132 Fair remuneration Contractor 148133 Fair remuneration Consultant 150134 Supply contracts 151135 Lump sum and remeasure contracts 151136 Variations 152137 Subcontracts 153138 Public procurement in the UAE 154

14 Payment 157141 Payment on delivery 157142 Payment certificates 159143 Subcontracts 159144 Conditional payment clauses 160145 Bank guarantee 163146 Cheque 165

15 Interest 167151 Riba and usury 167152 Statutory right 169153 Fixed or crystallised debt 170154 Interest in the UAE 172155 Interest under the FIDIC Conditions 172156 Financing charges 173

16 Suspension 175161 FIDIC Conditions 175162 Statutory right of suspension 176163 Excluding the right of suspension 177164 Formalities 178

17 Termination 179171 Termination of an innominate contract 179172 Termination of a muqawala Employer 183173 Termination of a muqawala Contractor 184174 Consequences of termination 187175 Impossibility and force majeure 188

viii Contents

18 Self‐help Remedies 191181 Retention of ownership 191182 Possessory lien 193183 Priority right 196184 Direct payment 197185 Set off 198

19 Damages 201191 Performance by compulsion 201192 Entitlement to damages 203193 Assessment of damages 204194 Global claims 206195 Loss of profit 207196 Consequential and indirect loss 209197 Mitigation 211198 Limitation of liability 212

20 Evidence 215201 Burden of proof 215202 Documents 216203 Disclosure and production 216204 Witness testimony 218205 Court appointed experts 219206 Conclusive findings of fact 221

21 Prescription 223211 Islamic Sharirsquoah 223212 Commercial obligations 224213 Civil obligations 225214 Restriction on amendment 226

22 Litigation 229221 Court structure 229222 International jurisdiction 233223 Jurisdiction between emirates 234224 Commencement of proceedings 235225 Proceedings against the government 237226 Summary actions 238227 Mediation and adjudication 242

23 Enforcement 245231 Procedure 245232 Appeal 247233 Enforcement outside the jurisdiction 248

Contents ix

24 Arbitration 253241 Right to arbitrate 253242 Treaty arbitration 256243 Validity of an arbitration agreement 257244 Capacity to agree 260245 Jurisdiction and powers 264246 Procedures and formalities 267247 Challenging an arbitrator 272248 Enforcement of domestic awards 273249 Enforcement of foreign awards 2782410 New York Convention 280

25 Key Features and Differences 285251 Key features of Islamic civil law 285252 FIDIC Conditions 288253 Gulf states contrasted 289

Commentary FIDIC Conditions 293Glossary 387Index 391

About the Author

Michael Grose obtained a law degree in the UK before completing his legal training in 1993 in the City of London

He relocated to Dubai in 1998 where he is the head of the regional construction and projects practice of an International law firm As a veteran of the Gulf Michael has extensive knowledge not only of the Gulfrsquos laws but also the application of these laws to construction contracts and disputes

Michael frequently reviews advises on and prepares construction contracts for major projects bringing him into frequent contact with the FIDIC suite of contract conditions He has drafted amendments to these conditions to adapt them for use in the Gulf and to address the most com-monly arising issues

Michael has also been involved in many of the regionrsquos largest and most high profile construction and engineering disputes As a result he has considerable experience of conducting arbitration in the Gulf including as an arbitrator appointed by the Dubai International Arbitration Centre

Working with licensed local advocates he has acted on numerous occasions for clients in the Gulfrsquos domestic courts This has included taking cases through all stages of the court proceedings from obtaining freezing orders against bank guarantees attending court appointed expertsrsquo meetings through to the execution of final judgments He is also familiar with proceedings the Dubai International Financial Centre Courts having amongst other things acted for a main contractor in the first construction case to come to trial in the DIFC Courts

Michael has also presented at numerous conferences including the Commercial Law Conference in Bahrain (organised by the United States Department of Commerce) for members of the regionrsquos judiciary the inaugural international conference of the Society of Construction Law held in Singapore and the inaugural conference of the Gulf branch of the Society of Construction Law

He is recommended in the top tier of all the leading independent legal directories including Whorsquos Who Legal Chambers Global and Legal 500

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

viii Contents

18 Self‐help Remedies 191181 Retention of ownership 191182 Possessory lien 193183 Priority right 196184 Direct payment 197185 Set off 198

19 Damages 201191 Performance by compulsion 201192 Entitlement to damages 203193 Assessment of damages 204194 Global claims 206195 Loss of profit 207196 Consequential and indirect loss 209197 Mitigation 211198 Limitation of liability 212

20 Evidence 215201 Burden of proof 215202 Documents 216203 Disclosure and production 216204 Witness testimony 218205 Court appointed experts 219206 Conclusive findings of fact 221

21 Prescription 223211 Islamic Sharirsquoah 223212 Commercial obligations 224213 Civil obligations 225214 Restriction on amendment 226

22 Litigation 229221 Court structure 229222 International jurisdiction 233223 Jurisdiction between emirates 234224 Commencement of proceedings 235225 Proceedings against the government 237226 Summary actions 238227 Mediation and adjudication 242

23 Enforcement 245231 Procedure 245232 Appeal 247233 Enforcement outside the jurisdiction 248

Contents ix

24 Arbitration 253241 Right to arbitrate 253242 Treaty arbitration 256243 Validity of an arbitration agreement 257244 Capacity to agree 260245 Jurisdiction and powers 264246 Procedures and formalities 267247 Challenging an arbitrator 272248 Enforcement of domestic awards 273249 Enforcement of foreign awards 2782410 New York Convention 280

25 Key Features and Differences 285251 Key features of Islamic civil law 285252 FIDIC Conditions 288253 Gulf states contrasted 289

Commentary FIDIC Conditions 293Glossary 387Index 391

About the Author

Michael Grose obtained a law degree in the UK before completing his legal training in 1993 in the City of London

He relocated to Dubai in 1998 where he is the head of the regional construction and projects practice of an International law firm As a veteran of the Gulf Michael has extensive knowledge not only of the Gulfrsquos laws but also the application of these laws to construction contracts and disputes

Michael frequently reviews advises on and prepares construction contracts for major projects bringing him into frequent contact with the FIDIC suite of contract conditions He has drafted amendments to these conditions to adapt them for use in the Gulf and to address the most com-monly arising issues

Michael has also been involved in many of the regionrsquos largest and most high profile construction and engineering disputes As a result he has considerable experience of conducting arbitration in the Gulf including as an arbitrator appointed by the Dubai International Arbitration Centre

Working with licensed local advocates he has acted on numerous occasions for clients in the Gulfrsquos domestic courts This has included taking cases through all stages of the court proceedings from obtaining freezing orders against bank guarantees attending court appointed expertsrsquo meetings through to the execution of final judgments He is also familiar with proceedings the Dubai International Financial Centre Courts having amongst other things acted for a main contractor in the first construction case to come to trial in the DIFC Courts

Michael has also presented at numerous conferences including the Commercial Law Conference in Bahrain (organised by the United States Department of Commerce) for members of the regionrsquos judiciary the inaugural international conference of the Society of Construction Law held in Singapore and the inaugural conference of the Gulf branch of the Society of Construction Law

He is recommended in the top tier of all the leading independent legal directories including Whorsquos Who Legal Chambers Global and Legal 500

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Contents ix

24 Arbitration 253241 Right to arbitrate 253242 Treaty arbitration 256243 Validity of an arbitration agreement 257244 Capacity to agree 260245 Jurisdiction and powers 264246 Procedures and formalities 267247 Challenging an arbitrator 272248 Enforcement of domestic awards 273249 Enforcement of foreign awards 2782410 New York Convention 280

25 Key Features and Differences 285251 Key features of Islamic civil law 285252 FIDIC Conditions 288253 Gulf states contrasted 289

Commentary FIDIC Conditions 293Glossary 387Index 391

About the Author

Michael Grose obtained a law degree in the UK before completing his legal training in 1993 in the City of London

He relocated to Dubai in 1998 where he is the head of the regional construction and projects practice of an International law firm As a veteran of the Gulf Michael has extensive knowledge not only of the Gulfrsquos laws but also the application of these laws to construction contracts and disputes

Michael frequently reviews advises on and prepares construction contracts for major projects bringing him into frequent contact with the FIDIC suite of contract conditions He has drafted amendments to these conditions to adapt them for use in the Gulf and to address the most com-monly arising issues

Michael has also been involved in many of the regionrsquos largest and most high profile construction and engineering disputes As a result he has considerable experience of conducting arbitration in the Gulf including as an arbitrator appointed by the Dubai International Arbitration Centre

Working with licensed local advocates he has acted on numerous occasions for clients in the Gulfrsquos domestic courts This has included taking cases through all stages of the court proceedings from obtaining freezing orders against bank guarantees attending court appointed expertsrsquo meetings through to the execution of final judgments He is also familiar with proceedings the Dubai International Financial Centre Courts having amongst other things acted for a main contractor in the first construction case to come to trial in the DIFC Courts

Michael has also presented at numerous conferences including the Commercial Law Conference in Bahrain (organised by the United States Department of Commerce) for members of the regionrsquos judiciary the inaugural international conference of the Society of Construction Law held in Singapore and the inaugural conference of the Gulf branch of the Society of Construction Law

He is recommended in the top tier of all the leading independent legal directories including Whorsquos Who Legal Chambers Global and Legal 500

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

About the Author

Michael Grose obtained a law degree in the UK before completing his legal training in 1993 in the City of London

He relocated to Dubai in 1998 where he is the head of the regional construction and projects practice of an International law firm As a veteran of the Gulf Michael has extensive knowledge not only of the Gulfrsquos laws but also the application of these laws to construction contracts and disputes

Michael frequently reviews advises on and prepares construction contracts for major projects bringing him into frequent contact with the FIDIC suite of contract conditions He has drafted amendments to these conditions to adapt them for use in the Gulf and to address the most com-monly arising issues

Michael has also been involved in many of the regionrsquos largest and most high profile construction and engineering disputes As a result he has considerable experience of conducting arbitration in the Gulf including as an arbitrator appointed by the Dubai International Arbitration Centre

Working with licensed local advocates he has acted on numerous occasions for clients in the Gulfrsquos domestic courts This has included taking cases through all stages of the court proceedings from obtaining freezing orders against bank guarantees attending court appointed expertsrsquo meetings through to the execution of final judgments He is also familiar with proceedings the Dubai International Financial Centre Courts having amongst other things acted for a main contractor in the first construction case to come to trial in the DIFC Courts

Michael has also presented at numerous conferences including the Commercial Law Conference in Bahrain (organised by the United States Department of Commerce) for members of the regionrsquos judiciary the inaugural international conference of the Society of Construction Law held in Singapore and the inaugural conference of the Gulf branch of the Society of Construction Law

He is recommended in the top tier of all the leading independent legal directories including Whorsquos Who Legal Chambers Global and Legal 500

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Preface

This book examines the legal principles and practices applicable to con-struction contracts and disputes or in other words construction law in the United Arab Emirates and the Arab Gulf states excluding Iraq

As in other jurisdictions construction law in the Gulf is not distinguished in any formal way from the law applicable to contracts and disputes in gen-eral The scope of this book is accordingly dictated by the issues and dis-putes that arise from construction projects in the region Further attention has been focused on those legal issues that are raised most frequently in practice

Some topics such as delay penalties and liability for building defects clearly merit inclusion in a text on construction law Others such as litiga-tion and arbitration procedures are included due to their universal relevance to construction disputes All are dealt with because there are relevant provi-sions of local law or decisions of the highest courts that provide a basis for some meaningful analysis Particular emphasis has been placed on those areas in which these provisions of law or decisions of the courts diverge from the approach to the same issues in common law As common law itself differs from jurisdiction to jurisdiction the main focus for this comparative element of the book is the law applicable in England and Wales

A commentary has also been included on the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (1999) published by the International Federation of Consulting Engineers which are used in some form almost ubiquitously on projects in the Gulf A commentary on the issues that commonly arise from the FIDIC Conditions against a backdrop of construction law in the United Arab Emirates is a natural and hopefully helpful by‐product of the main text

The origins of this work lie in a series of seminars presented in 2001 the material for which became a short guide to construction contracts and dis-putes in the following year The positive response to that guide gave rise to a project to produce a more detailed text Fortuitously the intervening years have provided a variety of significant legal developments which have been incorporated in this much expanded version of the original guide These developments include the establishment of the Dubai International Financial Centre with its unique legal system a wave of judgments that flowed from the global credit crisis in 2008 that illuminated topics such as force majeure notices of termination and precautionary attachments as well as the first judgments of the domestic courts of the United Arab Emirates under the New York Convention Except as otherwise indicated the law is stated as at 1 September 2015

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

xiv Preface

Throughout this workrsquos protracted production period I have benefited from the support and encouragement of colleagues friends and family alike To all these individuals I owe a substantial debt of gratitude

Special thanks are due to the following Laura Warren and Ben Cowling for contributing their substantial knowledge and experience of the legal regimes of Qatar and Saudi Arabia respectively Rebecca Kelly for her help-ful comments on the Abu Dhabi health and safety regime my secretaries Karen Turner and Claudia Vicente for their inexhaustible patience and loy-alty spanning between them a period of a decade and a half the editorial team at Wiley‐Blackwell particularly for their constructive input on the scope and content of the early drafts the International Federation of Consulting Engineers for kindly granting permission to reproduce parts of the FIDIC Conditions for the purpose of the commentary on them and the partners and associates of the projects and construction group of Clyde amp Co In particular without the considerable investment of Clyde amp Co in the firmrsquos knowledge management systems this work would not have been possible

Last but by no means least I have had the unstinting support of my wife Amanda and my daughter Emelia both of whom have put up with the highs and lows of the drafting process with exceptional grace and humour

Notwithstanding all of the valuable assistance that I have received the views expressed including all errors and omissions are mine alone

Without diluting such responsibility there are some caveats that should be drawn to the readerrsquos attention from the outset First and foremost as with any work in English all quoted extracts from the regionrsquos laws and judgments have been translated from the official Arabic and should be treated with appropriate caution The judgments reviewed are those of the United Arab Emiratesrsquo courts only

Although these statutory provisions and judgments bring greater clarity to many issues than is often assumed doubt remains as to the courtsrsquo likely approach to some key issues and indeed to many issues on any given set of facts In the interests of producing a work that is of practical value princi-ples have nevertheless been identified as far as is practicable from the available sources Although I have attempted to perform this process conservatively drawing on the available sources and personal experience of the application of the law some extrapolation has inevitably been involved This cannot and does not introduce certainty where there is none In particular in the absence of a system of binding precedent care is required not to place excessive reliance on judgments particularly those that do not form part of a line of consistent decisions

Finally while considerable effort has been invested in the research colla-tion and presentation of the material in this work it does not purport to be a comprehensive review or definitive statement of construction law as applied

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Preface xv

in the region It represents instead my understanding of the law at the time of writing It cannot be and is not a substitute for specific legal advice

The aim notwithstanding these limitations is to provide a useful guide to the legal environment in which construction businesses operate in the United Arab Emirates and the Gulf But more than this it is hoped that it will contribute in however modest a way to the success of those businesses and thus to the welfare of the construction industry which is a vital part of the economic and social fabric of the region

Michael GroseSeptember 2015

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Construction Law in the United Arab Emirates and the Gulf First Edition Michael Grose copy 2016 John Wiley amp Sons Ltd Published 2016 by John Wiley amp Sons Ltd

Overview

1

Construction law for the purpose of this text comprises the laws of the United Arab Emirates and the Arab Gulf states excluding Iraq (Bahrain Kuwait Oman Qatar and Saudi Arabia) as applied to the issues commonly arising out of construction projects As no clear separation exists between the applicable laws and the general legislative framework in these jurisdictions a review of construction law must cover as a minimum the key elements of this general legislative framework An overview of the applicable legal regime of these jurisdictions is the purpose of this introductory chapter

But the applicable legislative framework is not merely an interesting backdrop to construction law An appreciation of the legal systems of the United Arab Emirates and the Gulf states is critical not only to an undershystanding of the application of construction law in these jurisdictions but also to overcoming preconceptions based on academic and judicial contributions to the topic in jurisdictions where construction law has been a recognised branch of law for many years Although the disputes and differences that arise on projects in the Gulf are essentially the same as those that arise in other jurisdictions the applicable laws although in some respects similar to those elsewhere have their own unique heritage resulting not only in differences of emphasis and analysis but also in some cases a departure from what might be considered elsewhere to be orthodox principles of construction law

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

2 Construction Law in the United Arab Emirates and the Gulf

11 Basis of government

Bahrain Kuwait Oman Qatar and the United Arab Emirates each have a writshyten constitution1 Although Saudi Arabia does not have a written constitution in a conventional sense the KSA Basic Law of Government serves a similar purpose but provides that the constitution is the Qurrsquoan and the Sunna2

Each constitution declares the existence of an independent sovereign state and that statersquos part in a broader Arab nation In the case of Saudi Arabia this is expressed as a commitment to lsquothe aspirations of the Arab and Muslim nation to solidarityrsquo3

Uniquely among the Gulf states the UAE Constitution brought the counshytry into existence The UAE Constitution is in effect an agreement between the rulers of the emirates of Abu Dhabi Dubai Sharjah Ajman Umm Al Quwain and Fujairah Ras Al Khaimah joined the other six emirates in adopting the UAE Constitution the following year4 The UAE Constitution reflecting the incorporation of the seven constituent emirates declares the United Arab Emirates a Federal state paving the way for the creation of a Federal or Union Government

Each of the other Gulf states is governed by a constitutional monarch albeit with varying degrees of consultative and representative input In Bahrain the constitutional monarch formally operates alongside a democratic form of government5

12 Division of powers in the UAE

The powers of the UAE Federal Government are defined in and limited by the UAE Constitution which lays down guidelines for legislation required to establish the machinery of government including the administration of justice Except insofar as the rulers of each emirate ceded power to the Federal Government pursuant to the Constitution6 they retained for themselves and their successors power over the internal affairs of their respective emirates

Each emirate exercises in accordance with Article (3) of the Constitution sovereignty over its territorial land and water in all affairs in which the

1 Bahrain (2002) Kuwait (1962) Qatar (2004) Oman (1996) and the United Arab Emirates (1971) Initially the UAE Constitution was provisional being renewed and extended at five year intervals until 1996 when the provisional designation was removed

2 KSA Basic Law of Government Article 13 KSA Basic Law of Government Article 254 10 February 19725 Bahrain Constitution Article 1c6 UAE Constitution Article 122

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Overview 3

Federation is not competent pursuant to the Constitution including court jurisdiction which is an act of sovereignty Each emirate is obliged pursuant to Article (10) of the Constitution to respect the independence and sovereignty of the other emirates in regards to their internal affairs within the scope of the Constitution7

In consequence there are two tiers of government in the United Arab Emirates the Federal Government and each government of the seven emirates

Both tiers of government have their own legislative authority the Federal Government by virtue of the UAE Constitution and the governments of each emirate by virtue of their retained sovereignty As a result there are also two tiers of laws Federal laws which apply in all emirates and emirate laws which apply only in the emirate by which such laws are enacted8

The UAE Federal Government is represented by the Supreme Council9 which is composed of the rulers of each emirate and which elects a president and vice‐president each for a five year term10 The ruler of each emirate represents that emirate and exercises both legislative and executive authority to the extent not ceded to the UAE Federal Government pursuant to the UAE Constitution11

The UAE Federal Governmentrsquos authority covers not only areas of national interest such as foreign affairs defence and internal security but extends to domestic affairs covering specified industries such as banking insurance and publishing Significantly for the construction industry the UAE Federal Government has authority over the introduction of laws pertaining to civil and commercial transactions in effect submitting the law of contract to the jurisdiction of the UAE Federal Government Construction law in the United Arab Emirates is in consequence predominantly a matter of Federal law

Nevertheless power over construction and related activities was not ceded to the Federal Government except for the construction maintenance and improvement of union roads12 Each emirate retains power therefore to enact legislation covering the construction industry provided that such

7 Federal Supreme Court No 11613 dated 1 October 1991 8 UAE Constitution Article 151 and Federal Supreme Court No 42012 dated 19 February 2012

in which the constitutional court rejected a submission that by virtue of an emirate law the case could not be heard until it had proceeded through a preliminary notification process as required by an emirate law as this law did not bind the Federal Supreme Court

9 UAE Constitution Article 4610 UAE Constitution Article 51 Since the inception of the United Arab Emirates the office of

President has by convention been occupied by successive rulers of the Emirate of Abu Dhabi and the office of Vice‐President has been occupied by successive rulers of the Emirate of Dubai

11 The juridical status and representation of the Federal Government and each emirate is addressed in Federal Law No 51985 (the Civil Code) Article 92 and Article 93

12 UAE Constitution Article 120(9)

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

4 Construction Law in the United Arab Emirates and the Gulf

legislation does not conflict with any Federal laws of general application Given the significance of the construction sector in the development of a young country it will come as no surprise that each emirate has exercised this residual power to regulate the industry within their respective territoshyries The Emirates of Abu Dhabi and Dubai in particular have taken the opportunity to introduce a large number of laws regulating the construction industry within their respective borders

13 Islamic Sharirsquoah

The Islamic Sharirsquoah in essence is the law of the Islamic religion as derived principally from the Holy Qurrsquoan and the Sunna the code of conduct estabshylished through example by the Prophet Mohammed13

The Islamic Sharirsquoah plays a central role in the legal system of all the Gulf states Thus for example the UAE Constitution records the status of the Islamic Sharirsquoah in the following terms

Islam is the official religion of the Union The Islamic Sharirsquoah shall be the main source of legislation in the Union14

By virtue of the UAE Constitution and those of Bahrain Kuwait Qatar and Oman15 it is a guiding principle in the formulation of all legislation that the main source for such legislation shall be the Islamic Sharirsquoah Thus the Islamic Sharirsquoah provides the inspiration for the legislation that applies within these Gulf states However notwithstanding its constitutional status the Islamic Sharirsquoah is neither directly applicable nor the exclusive source of legislation which may be supplemented by or draw on sources other than the Islamic Sharirsquoah16

In contrast the KSA Basic Law of Government expresses the role of the Islamic Sharirsquoah in the following terms

The Kingdom of Saudi Arabia is a sovereign Arab Islamic state with Islam as its religion The Constitution [of the Kingdom of Saudi Arabia] is the Quran and the Sunna of His Prophet peace be upon him

13 A key additional source is the Hadith comprising records of the teachings of the Prophet Mohammed compiled from indirect sources after his death

14 UAE Constitution Article 715 Bahrain Constitution Article 2 Kuwait Constitution Article 2 Qatar Constitution Article 1

and Oman Constitution Article 216 For a review of the relevant laws and some authorities on the tension between Article 7 of the

UAE Constitution and applicable laws see lsquoCommercial Law in the Arab Middle Eastrsquo Ballantine (1986) pp 57 ndash 65 and lsquoArab Commercial Law Principles and Perspectivesrsquo Ballantine and Stovall (2002) pp 15ndash41

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Overview 5

This is more than merely a difference of emphasis reflecting instead a direct application of the Islamic Sharirsquoah to the extent that no relevant temporal laws exist

In practice the laws of the Gulf states with the exception of Saudi Arabia the history of which sets it apart from the other Gulf states not only borrow heavily from the laws of other Arab countries in particular those of Egypt but also in many cases reflect the needs of an expanding and diversifying economy in which domestic and foreign businesses play a crucial part As a result these laws share many common features not only with those of other Gulf states but also with the laws of countries further afield Despite these external influences there is no doubt that the primary legislation of Bahrain Kuwait Qatar Oman and the United Arab Emirates draws on principles derived from the Islamic Sharirsquoah17

The influence of the Islamic Sharirsquoah is further underpinned by legislation requiring the domestic courts to apply its provisions alongside applicable laws customs and principles Thus it is provided in relation to UAE Federal Courts

Federal courts shall enforce the provisions of the Islamic Sharirsquoah and the Federal Laws and other laws in force and shall enforce customary rules and general legal principles that are not in contradiction of the Islamic Shariah18

In practice this requirement finds expression in the reliance of judges on one of the four schools of Islamic jurisprudence Hanbali Hanafi Shafirsquoi and Maliki Precedence is given in the United Arab Emirates to the jurisprushydence or teachings of the schools of Imam Malik and Imam Ahmad bin Hanbal and in Saudi Arabia to the latter19

Resolution of conflicts between local laws and provisions of the Islamic Sharirsquoah in circumstances where these are incompatible is a matter left to the discretion of the judiciary Although uncertainty occasioned by differshyences of opinion or interpretation is not unknown such controversies are few and in most cases now historic20

17 By way of example see the discussion of contractual liability at Chapter 51 [Contractual principles Binding obligations]

18 UAE Federal Law No 61978 Article 8 Also the UAE Civil Code Articles 1 2 3 and 27 Federal Law No 101973 Article 75 and Dubai Law No 31992 Article 4 A similar provishysion is found in other Gulf states eg Qatar Law No 161971 Article 4 See also the KSA Basic Law of Government Article 48

19 UAE Civil Code Article 120 Residual areas of law impacted by the Islamic Sharirsquoah include building defects (Federal Supreme

Court No 5916 dated 28 June 1998) time limits (Federal Supreme Court No 721 amp 81526 dated 22 January 2006) awards of interest (Federal Supreme Court No 1825 dated 19 June 2004) blood money or diya and issues that are not capable of being referred to arbitration (Dubai Cassation No 1462008 dated 9 November 2008) Contracts and arbitration awards must be consistent with public order which includes the Islamic Sharirsquoah by virtue of the UAE Civil Code Article 3

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

6 Construction Law in the United Arab Emirates and the Gulf

Despite the status accorded to the Islamic Sharirsquoah instances of it having an impact on day‐to‐day business activities in the Gulf are with the excepshytion of Saudi Arabia rare21 The conduct of business is instead governed by legislation albeit that such legislation and its application are required to be consistent with the Islamic Sharirsquoah

14 Civil law

The legal system of each Gulf state with the exception of Saudi Arabia is based predominantly on the civil law model adapted to reflect the regionrsquos Islamic and Arab heritage This civil law system co‐exists with a broadly common law system that has been adopted within the Dubai International Financial Centre22 placing the United Arab Emirates among a limited collection of countries having civil law and common law systems operating in parallel each having a defined but often overlapping jurisdiction23

In a civil law jurisdiction the legislatorrsquos aim is to put in place ndash or codify ndash a comprehensive and universally applicable set of laws and regulations governing all citizens24 This is accomplished by enacting wide‐ranging laws or codes that are a blend of provisions targeting specific issues with others aimed at establishing general principles which together guide judges to a broadly consistent and fair result A broad residual discretion over the interpretation and application of the provisions of the civil code vests in the judiciary In each civil law state25 a civil code or equivalent piece of legislation derived mainly from Roman law is the cornerstone of its body of law

With the exception of Saudi Arabia the Gulf states have each adopted a civil code As these are all modelled on the Egyptian Civil Code (1949) which itself is a derivative of the French Civil Code (1804) the civil codes

21 Matrimonial inheritance and other personal status cases are dealt with by the Sharirsquoah division of the domestic courts further reducing the day‐to‐day implementation of the Islamic Sharirsquoah by the commercial and civil courts

22 Other financial free zones may follow suit notably the Abu Dhabi Global Market which was established in 2013

23 A similar duality albeit in reverse is found in the United States of America where Louisiana is a civil law state within a largely common law system and in Quebec which maintains a civil law system in contrast to the rest of Canada and in the United Kingdom where Scotland has a mixed common law and civil law system

24 The word lsquocivilrsquo derives from the Latin civis which roughly translates as citizen The origins of civil law lie in the early attempts to codify Roman law which ultimately led to a successful codification in the form of the French Civil Code (1804)

25 Notable civil law jurisdictions include France Germany Egypt and Japan China has a modified civil law system

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Overview 7

of Bahrain Kuwait Qatar Oman and the United Arab Emirates26 are broadly similar As the civil code is the backbone of any civil law jurisdiction it follows that there is a considerable degree of similarity in the principles of law applicable to construction contracts in each of Bahrain Kuwait Qatar Oman and the United Arab Emirates In Saudi Arabia in contrast construcshytion contracts are governed directly by principles of Islamic law

Acknowledged to be greatly outdated27 the French Civil Code has nevertheless avoided significant revision at least in relation to those provishysions that are commonly applied to construction contracts and disputes Notwithstanding the modernising influence of Professor Al‐Sanhuri on the Egyptian Civil Code including his introduction of some elements of Islamic jurisprudence28 the civil codes of the Gulf states consequently remain firmly rooted in the 19th century It is axiomatic that these civil codes do not always provide a clear solution to a dispute arising from a modern construction project

In contrast to civil law common law is based primarily on the content of judgments which are binding on the courts in accordance with a strict hierarchy limiting the element of discretion exercised by the judiciary29 Common law develops incrementally as it has done from its medieval origins by means of such judicial pronouncements or precedents with limshyited intervention from the legislature Although the legislature prevails in the event of any conflict with precedents the latter remain the cornerstone of a common law system Laws tend to be precisely and narrowly drafted with the result that the scope for discretion when applying such laws is limited and that precedents are preserved

There is no equivalent of a civil code in common law countries each piece of legislation being limited to a specific topic or a relatively narrow range of topics Thus whereas common law courts instinctively look to resolve disputes based on principles derived from previously decided cases courts

26 lsquoCivil Codes of Arab Countries The Sanhuri Codesrsquo N Saleh ALQ Vol 8 No 2 (1993) pp 161ndash167

27 John Bell 2008 Principles of French Law 2nd Edition Oxford University Press p 2428 For a review of the origins of the UAE Civil Code and the Eygptian and Ottoman influences

particularly the Ottoman Majalla see lsquoThe New Civil Code of the United Arab Emiratesrsquo W M Ballantyne ALQ Volume 1 Issue 3 p 245 which notes that the UAE Civil Code marks a resurgence of the Islamic Sharirsquoah as the main source of law lsquoApplication of Islamic Law in the Middle East ndash Interest and Islamic Bankingrsquo S Majid [2003] ICLR 177 and lsquoTort Law in the United Arab Emiratesrsquo a paper delivered to the Society of Construction Law (SCL) by Richard Harding QC on 9 July 2010 and available on the SCL website

29 Notable common law countries include the United States of America (in all federal courts and in state courts except for Louisiana) Australia and New Zealand India is a common law jurisdiction in all federal courts and in most state courts Within the United Kingdom England and Wales have a purely common law system

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

8 Construction Law in the United Arab Emirates and the Gulf

in civil law jurisdictions including those in the Gulf instinctively look first to the civil code and then any other relevant codes

The result is that for a lawyer with a common law background civil law can appear imprecise and unpredictable perhaps even intellectually inferior due to a lack of detailed legal analysis and limited reference to centuries of accumulated legal wisdom For a lawyer with a civil law background common law may appear to be hidebound by intricate and often outdated rules making it not only inflexible and impenetrable to the businesses and consumers that it serves but also vulnerable to a charge that it is founded on a pretence that judgments are actually derived from the dispassionate application of precedents rather than on subjective considerations of fairness and common practice

15 Domestic courts

Domestic courts in the Gulf do not disregard their earlier judgments entirely but neither are they are compelled to follow them It is common for previous judgments particularly those of a final appellate court to be deployed in support of submissions but the purpose is to lend support to a statement of principle derived from codified laws rather than to invite rigid adherence to a binding precedent This reflects the practice of showing deference to previous judgments of a Court of Law30

Evidence of the application of a consistent approach can be found in the courtsrsquo practice of prefacing a judgment with a restatement of an lsquoestabshylishedrsquo principle signalling the implementation of prior decisions to a common or recurring issue and in the supervisory role conferred on the highest courts in each Gulf state over important issues of legal principle31

In a case that came before the UAE Federal Supreme Court32 in 1991 the appellant relied on a number of inconsistent judgments concerning the award of interest unsuccessfully to invoke the appointment of a special panel of the Supreme Court which can be established to deal with a departure from an established principle or to resolve conflicting decisions33 It is envisshyaged therefore that decisions of the Supreme Court establish principles and that the intention is for there to be consistency between decisions This is consistent with the civil law doctrine of jurisprudence constante which

30 The Court of Merits comprises the Court of First Instance and the Court of Appeal both of which determine issues of fact and law in contrast to the Court of Cassation or Supreme Court which is restricted to determining issues of law only and therefore is referred to as a Court of Law

31 For example Qatar Law No 102003 Article 9(1)32 Federal Supreme Court No 29412 dated 28 May 199133 UAE Federal Law No 101973 Article 65

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Overview 9

in turn is similar to the common law doctrine of stare decisis the main difference being that in the case of the latter a single judgment is sufficient to establish a precedent whereas in the former a series of consistent decishysions is generally required34

In consequence a consistency of approach to many issues that commonly arise can be discerned from judgments of the domestic courts notwithshystanding the absence of a formal system of binding precedent

In a manner consistent with the less prescriptive approach of civil law the body of principles built up from decisions of the final appellate court or Court of Law tends to offer selective guidance on the application of the codified laws rather than establishing the type of carefully crafted rubrics supplemented by multiple clarifications that pervade almost every aspect of common law The Court of Merits which must interpret and apply the codified laws and the principles established by a Court of Law in conseshyquence is less constrained in its decision‐making by this civil law regime than any common law counterpart Although reference is made on occashysion by the Court of Merits to judgments of a Court of Law the latter themselves do so very rarely

Insufficient attention is generally given to these differences of approach not merely in the context of claims or disputes but also in the preparation of construction contracts most of which are governed by local law whether by choice or by default As common law precedents have no value in the domesshytic courts of the Gulf principles applicable to construction contracts and disputes that are well‐established by precedent under common law are not merely inapplicable but are sometimes in conflict with local law

Furthermore the terminology typically used in construction contracts and upon which the mechanisms of the contract rely may not have the same meaning or effect in the domestic courts as in courts in other jurisdictions It cannot be taken for granted for example that commonplace concepts such as a defects liability period are interpreted in a manner that is consistent either with the framework of standard form contracts or with customary usage Neither are terms of art such as lsquotime is of the essencersquo or lsquofitness for purposersquo which have a well‐established meaning and effect in many comshymon law jurisdictions necessarily understood and applied in the same way by the domestic courts of the Gulf

34 For an example of jurisprudence constante in operation see Dubai Court of Cassation No 562004 dated 26 December 2004 in which the court stated that it was applying an estabshylished principle when declining to apply principles of delict where the parties had entered into a contract For the same approach to different but equally well‐established principles see for example Federal Supreme Court Appeal No 3221999 dated 26 January 1999 (contract interpretation is a matter for the Court of Merits) and Dubai Cassation No 182000 dated 21 May 2000 (where the wording of a contract is clear there is no scope for applying a different meaning)

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

10 Construction Law in the United Arab Emirates and the Gulf

16 Financial free zones

Financial free zones present an exception to the nature and hierarchy of the governing laws described above The first such financial free zone was established in 2004 within the designated boundaries of the Dubai International Financial Centre

By virtue of an amendment to the UAE Constitution35 provision was made for the Federal legislature to disapply Federal laws within designated financial free zones36 Further enabling legislation37 created an independent jurisdicshytion exempt from all civil and commercial Federal laws and subject instead to the exclusive legislative authority of the Ruler of Dubai

Business performed by construction industry participants within the DIFC including works executed or services performed for projects located within the DIFC is accordingly governed by the law of the DIFC38 in the absence of any contrary agreement between the parties and is subject to the jurisdiction of the DIFC Courts39

Included within the body of laws applicable within the DIFC is the Contract Law40 the Implied Terms in Contracts and Unfair Terms Law41 the Law of Obligations42 and the Arbitration Law43 that are of particular application to the construction industry These and other laws adopted within the DIFC are derived from a variety of sources including common law

DIFC operates on a unique legal and regulatory framework with a view to creating an optimal environment for financial sector growth Such framework was achieved through a synthesis of Federal law and Dubai law which permitted DIFC to have its own civil and commercial laws

35 UAE Constitutional Amendment No 1200436 This power is not geographically restricted The Abu Dhabi Global Market was established

as a financial free zone by UAE Federal Law No 152013 and is expected to adopt a legal model similar to that of DIFC

37 UAE Federal Law No 82004 UAE Federal Decree 352004 and UAE Cabinet Resolution No 282007

38 Dubai Law No 122004 Article 6 and DIFC Law No 102005 (Amending and Restating DIFC Law No 42004) Articles 9 and 10

39 Since October 2011 by virtue of Dubai Law No 162011 amending Dubai Law No 122004 Article 5(A)(2) an agreement to vest jurisdiction in the DIFC courts is permitted notwithshystanding the absence of any connection between the DIFC and the parties the subject matter or any other aspect of the transaction

40 DIFC Law No 6200441 DIFC Law No 6200542 DIFC Law No 5200543 DIFC Law No 12008

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra

Overview 11

modelled closely on international standards and principles of common law and tailored to the regionrsquos unique needs44

The DIFC Courts similarly operate in accordance with a blend of best intershynational practice Significantly this includes a system of binding precedent giving the jurisdiction a key common law characteristic

The amendment to the UAE Constitution that facilitates the creation of a financial free zone is not geographically confined The Abu Dhabi Global Market was accordingly established in 2013 on the basis of the same enabling legislation45 and in 2015 the laws that will apply within its jurisshydiction began to be issued

A similar regime exists in Qatar46 The Qatar Financial Centre

operates to international standards and provides a first class legal and busishyness infrastructure hellip the QFCrsquos commercial and regulatory environment and systems conform to international best practices and are separate from and independent of the host Qatari systems47

Regulations enacted within the Qatar Financial Centre cover contracts companies arbitration employment insolvency and many others

44 httpwwwdifcaelaws‐regulations The sources of law include as a last resort those of England and Wales the birthplace of common law DIFC Law No 32004 Article 8(2)

45 UAE Federal Law No 82004 UAE Federal Decree No 152013 UAE Cabinet Resolution No 42013 and Abu Dhabi Law No 42013

46 Qatar Financial Centre Law No 7200547 wwwcomplinetcomqfcra