UAE Construction 'Case' Law - update
The UAE Courts have issued a number of decisions confirming long established principles on remeasured contracts, liquidated damages and expert evidence. The doctrine of legal precedent is not applicable under UAE law, yet their decisions are persuasive and influential in the context of establishing the judicial stance and enforceability of certain (usually contentiously argued) principles that are relevant to construction contracts.
Lumpsum and remeasure contracts – a classic derby
Interim claims for additional payments are commonly raised during the lifecycle of a project and often give rise to a deadlock and, eventually, a dispute, the UAE being no exception. In lump sum agreements, the contractor will be entitled to payment if the works are completed. However, in remeasured contracts, a contractor must notify the employer of any increase in the anticipated quantities failing which the right to recover any excess to that agreed under the bill of quantities is lost. The distinction between the two schemes becomes paramount when dealing with variations.
In its decision of 8 December 2021, the Dubai Court of Cassation (Case No. 472 of 2021) re-confirmed this long standing distinction between lumpsum and remeasured contracts as key to estimating the price of variations. The Court stated that in a lump sum arrangement, the contractor shall not be entitled to demand any increase in the agreed price unless there is a change in design or a variation approved by the employer. Therefore, and in the absence of any contractual provision as to the rates applied to a variation, the contractor shall be entitled to use market rates along with the value of the equipment required to perform the varied works. In contrast, in a remeasured contract, the contractor shall be entitled to claim for the additional works based on the agreed unit price.
Liquidated damages – the bigger picture
The employer’s right to levy liquidated or delay damages discourages late completion or prevents the contractor’s failure to complete on time.
In its above decision (Case No. 472 of 2021), the Dubai Court of Cassation confirmed that pre-agreed damages can only be liquidated in case of late completion. In this context, the Court stated that liquidated damages do not apply if the contractor failed to perform the works or performed parts thereof. In such event, the employer is only entitled to claim for damages under any contractual or statutory device.
In another decision issued on 13 June 2021 (Case No. 500 of 2021), the Court discussed again the burden of proof, deciding that since liquidated damages are consensual, consequently, damage is presumed in case of breach of contract. As a result, the employer is absolved of any obligation to evidence that it has suffered any damage before it could levy these under the contract. However, and as always, this is balanced with the provisions of Article 390 of the Civil Code as the level of damages claimed must be commensurate with the loss suffered by the employer.
Expert Evidence – To Adopt or Not To Adopt
In construction litigation, by far the most influential form of evidence is that of a court appointed expert. This is a key feature of court proceedings in the UAE and the Gulf. The power of the Court to appoint an expert is discretionary and is found under Article 69 of the UAE Law of Evidence. Yet, the Court of Merits is not bound to adopt the findings of such expert.
In its decision of 7 February 2022 (Case No. 1221 of 2021), the Court has confirmed yet again that the determination of the Contractor’s completion of the works according to the contract’s conditions and specifications and whether any delay in the completion thereof is attributable to the contractor or the employer, are matters of fact that the Court can ascertain by resorting to expert evidence. Nevertheless, the Court retains its discretion to adopt an expert’s finding, which is deemed to be an issue of evidence and subject to the Court’s assessment.
There are however several instances in which the Courts do adopt the findings of the expert, even when the latter is firmly based on a contractual provision the enforceability of which is contested. Indeed, in Case No. 1318 of 2021 before the Abu Dhabi Court of Cassation a challenge was brought against the decision in appeal for adopting an expert’s determination, purportedly despite dealing with an issue of law. The Court in its decision of 25 January 2022, rejected this plea on the premise that the expert has only adopted an itemised pricing list of materials, as opposed to their market prices, because the list represented the parties’ agreements and was signed by the parties themselves. Given the contractor has not submitted any other agreement with the employer that is inconsistent with the pricing list, the expert’s finding was found to be sound without any trespass into the legal realm.