Covid 19: An international construction perspective – Middle East29 April 2020

Jurisdictional Considerations

The legal system of each Gulf state (except for Saudi Arabia) is based on the civil law model with the adoption of a civil code that sets out the applicable laws and regulations. In Saudi Arabia matters are predominately governed by the principles of Islamic Shari’ah law.

In the Gulf states, parties are generally free to contract subject to matters of public policy and mandatory statutory provisions.

Unlike common law systems, there are mandatory overarching duties, most notably the duty of good faith, which applies in the UAE, Bahrain, Kuwait and Qatar.

Although the civil codes in these jurisdictions do not precisely define what is meant by good faith, it is established that the duty of good faith requires parties to not take unfair advantage or exploit a position and to co-operate with each other.

In the context of the impact of COVID-19 on construction disputes, parties will inevitably be looking to assert that COVID-19 is a force majeure event as a means for exonerating themselves from contracts and liabilities.

The precise terms of construction contracts will need to be carefully considered as will any state laws and regulations that have been passed to deal with the crisis. As an example, the Iraqi Government recently declared COVID-19 as a force majeure event for all projects and contracts effective from 20 February 2020. How this is to be interpreted in the context of contracts subject to foreign laws (most notably English law) remains to be seen.

For projects in the UAE, there will inevitably be delays to projects that had been planned for EXPO 2020. As the current expectation is that EXPO in Dubai will happen in 2021/2022, one would expect some degree of flexibility on the part of employers, contractors and lenders.

Force Majeure

For projects in the Middle East, parties will usually provide for events of force majeure in standard form construction contracts, most notably FIDIC.

The express contract terms ought to prevail over relevant statutory provisions in relation to force majeure but inevitably parties will be looking for angles for asserting that COVID-19 is or is not caught by the contractual definition of force majeure. Contracts will therefore require careful scrutiny in the context of their terms and the governing law.

To the extent that a contract does not contain a force majeure provision or does not deal with the consequences of a force majeure event, the provisions of the relevant civil laws or common laws (applicable in any free zones) may be relevant.¹

Like the position under the English common law, the civil codes in the Gulf states do not specifically define what amounts to a force majeure event and each case will be decided on its own facts.²

Jurisprudence in the UAE suggests that for an event to be a force majeure event:

• It must be unforeseeable;
• Its effects must be incapable of prevention; and
• It must render performance absolutely impossible.

The fact that performance is more burdensome or costly will not be sufficient.

It will be for the party asserting a force majeure event to prove that each of these criteria are met.

Clearly, it may be easier to assert force majeure in relation to contracts entered into before COVID-19 became news across the globe. For contracts entered into after the crisis arose, arguments of foreseeability and prevention will inevitably be made.

Suspension

In the face of a pandemic, some construction contracts will be impossible to progress, but parties may not necessarily wish for them to cancelled or terminated. This will be the case in relation to unfinished EXPO 2020 (now 2021/2022) Dubai projects.

In the absence of an effective contractual suspension provision, Article 247 of the UAE Civil Code could be useful to either an employer or contractor. This provides that “In contracts binding upon both parties, if the mutual obligations are due for performance, each of the parties may refuse to perform his obligation if the other contracting party does not perform that which he is obliged to do.”

The actual and specific impact of COVID-19 on contractual performance will however need to be carefully assessed.