REUTERS | Ronen Zvulun

Contracts of muqawala and decennial liability: a middle eastern perspective

I have been working in our Abu Dhabi office for about a year now. During this time I have come across a number of legal issues in the construction and engineering context that are very different from those we are familiar with in the UK.

This post highlights some of the UAE law issues that parties new to operating in the region should be aware of, including:

  • An outline of the UAE legal framework.
  • An introduction to the UAE Civil Code.
  • The concept of muqawala.
  • Decennial liability.

UAE law

The UAE is comprised of seven Emirates, including Abu Dhabi and Dubai. It is a civil law jurisdiction.

The UAE Constitution provides that Islamic law (Sharia) is the main source of legislation in the UAE. It also lists sectors where the federal government (based in Abu Dhabi) has exclusive power to make laws. These include education and labour laws. It provides that individual emirates have residual law making powers (such as in relation to their own natural resources). Federal law does override the “local” law, but only to the extent of an inconsistency.

The two key federal laws that construction and engineering parties working in the region should be aware of are the Commercial Code (which applies to “traders… and all commercial activities carried out by any person”) and the Civil Code (which sets out general contractual principles and covers specific business arrangements).

Parties are entitled to rely on agreed contractual terms, but only to the extent that those terms:

  • Are not contrary to public order or decency.
  • Do not conflict with mandatory provisions of law.

This post focuses on the key mandatory provisions of law that relate to construction and engineering contracts.

Contracts of muqawala

Various provisions set out in the Commercial and Civil Codes are mandatory to all contracts. However, the Civil Code sets out 25 Articles that specifically govern all muqawala. A muqawala is, literally, a contract to make a thing or perform a task.

Any construction or engineering contract governed by UAE law must therefore comply with these 25 Articles, irrespective of what the parties agree in their contract.

Decennial Liability

The most often discussed muqawala provisions, and the ones which cause most concern to contractors and professional consultants new to the region, relate to what is widely known as “decennial liability”. This Civil Code principle imposes strict joint liability on contractor and supervising architect for 10 years from “delivery” of the work.

Although the Code refers to a supervising “architect”, lawyers in the region generally accept that the provisions would be likely to apply to all supervising designers and so it is prudent to proceed on that basis.

The liability covers collapse (total or partial) and any defect threatening stability or safety of the building. The obligation to compensate the employer exists even if defect or collapse “relates to the land itself” and/or the employer “consented to the construction” of the defective building.

This wording will be unfamiliar to contractors/consultants new to the region as it does not feature in UK or international standard forms of construction and engineering contract. There is no further explanation of these rules in the Code itself, but the Code’s requirements are likely to mean that, even if, for example, subsidence causes a building to collapse (and hence the collapse was not due to defective work or design), the contractor and supervising designer will be jointly responsible for this collapse.

Further, if an employer has approved designs or even accepted delivery of the works notwithstanding patent defects, the contractor and supervising designer will be jointly liable if the building subsequently collapses or the defect that was accepted threatens the stability or safety of the building.

The parties cannot contract out of or limit these decennial liability provisions, but they do not apply if the parties intend that the building will remain for less than 10 years.

If the designer’s role does not involve supervision and relates only to the preparation of plans, it will only be liable for defects in those plans.

Limitation period

A claim is time barred three years after collapse or discovery of the defect. The decennial liability provisions, unlike English law on limitation, make no reference to when defects should have been discovered so “discovery” in this context will mean actual discovery. If the defect/collapse occurs on the eve of the expiry of the 10 year post-delivery period, the employer would still have three years to bring a claim. Therefore, the contractor and supervising designer can still be on the hook for 13 years post-delivery.

No fault liability

Contractors/supervising designers familiar with common law benchmarks (such as requisite standards of skill and care) are often surprised by this “no fault” concept, particularly if the cause is a defect in the land, and the risk allocation under the contract provides that the employer takes the risk of unforeseen ground conditions.

Further, as procurement models develop and the distinction between designers and supervisors blurs and overlaps, it becomes more difficult for parties, on a particular project, to determine if they would be caught by the provisions.

Potential exposure is considerable and parties new to the region should consider their position very carefully and, if necessary, take legal and insurance advice to check they are as protected as they can be within the mandatory framework of the Codes.

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