I have just returned from a visit to Dubai. The main issue of concern for my contractor clients is the civil upheaval in North Africa and parts of the MEA, which Edward Davies’ blog post also referred to recently.
I was asked for advice on a range of issues relating to contractual relationships, including whether the “employer” still exists, force majeure clauses (such as those Edward referred to), what might happen if you have no force majeure clause at all, insurance complications and the impact of the current crises on construction contract security (for example, letters of credit, bonds and guarantees).
Regime change
If regime change occurs, the question arises as to whether the “employer” as an entity will survive, whether that entity will continue to act as the employer, and whether the contract terms still apply (or whether they will require amendment)?
These are issues where legal advice will depend on the specific circumstances. For example, the French government has reportedly formally recognised the Libyan “rebels” as a foreign government, while other governments have not done so. In Egypt, former president Mubarak stepped down, but (on the face of it) the same state of Egypt continues to exist.
What if your contract has no force majeure clause?
If a contract has no clear force majeure clause, there may be other terms that a contractor can use to terminate a contract (such as the employer’s failure to pay).
In some circumstances, under English law, a contractor might argue that the contract had been frustrated, but under the Civil Codes that tend to exist in many countries in the Middle East and North Africa a wider range of options may be available. Those options may include an opportunity to argue that the performance of the contract has become “oppressive” or “impossible” to perform.
Letters of credit, bonds and guarantees
If there is a dispute, an employer may call on forms of security, such as letters of credit, bonds and guarantees. No doubt there will be arguments between contractors, banks and insurers about whether they are “on demand” or whether fault needs to be proven.
The problem is that, if the court process has broken down in the particular jurisdiction, contractors may well find that they are unable to seek the court’s assistance in stopping any call on the bond. In those circumstances, there is a risk that the monies may be called on, paid and transferred to an account outside the country.
Insurance
Contractors will need to review their policies in relation to the cover provided for damage to property and in relation to political risk. As with most policies, the devil is in the detail in terms of cover available. In the event of a claim being made, insurers will no doubt look at the meaning of the terms used in the policy. Terms such as “civil commotion”, “civil disturbance”, and “rebellion” may be the subject of much debate.
Local Laws
In addition to the contractual provisions (and irrespective of the law that is stated to apply to your contract), make sure you understand the impact of local jurisdictional laws. For example, even if you can negotiate an exit strategy, a contractor or designer may face statutory decennial liability under the UAE Federal Civil Code (see question 10 of the PLC Construction and Projects Handbook 2010-11: UAE).
