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North Midland Building v Cyden: apportioning risk for concurrent delay in the UAE

In North Midland Building Ltd v Cyden Homes, the Court of Appeal held that parties to a construction contract are free to apportion risk in the event of concurrent delay. For more detail on that case, see my colleague, Alexandra Clough’s blog post, Concurrent affairs: North Midland Building Ltd v Cyden Homes.

Cyden (as employer) entered into a construction contract with North Midland (as contractor) based on the JCT Design and Build 2005 standard form contract. An amendment to clause 2.25.1.3 stated:

(b) any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account”.

One of the Relevant Events was “acts of prevention by the employer. In other words, clause 2.25.1.3 provided that, if the employer prevented progress of the works and caused delay, but the contractor was also responsible for a concurrent delay, the contractor would not be entitled to an extension of time. The Court of Appeal, upholding the first instance decision, held that such a clause is enforceable and does not offend any principle of English law, including the prevention principle.

North Midland sought to argue that such an outcome was “not permitted under English law. At first instance, Fraser J commented that this argument “is more akin to a Civil Code view of contract, than one under the common law”.

This blog considers that statement and whether it is “permissible” under the Civil Code of the UAE to apportion risk in the same way as the parties did in North Midland.

How would the UAE Civil Code deal with a similar provision?

For the purposes of this blog, let’s assume that the definition of concurrent delay is agreed by the parties and that we are only concerned with the enforceability and effect of a clause similar to the one in North Midland, in a construction contract governed by UAE law.

The starting point is that the UAE Civil Code upholds the bargain struck by the parties, and recognises and enforces the principle of pacta sunt servanda (agreements that are legally binding must be performed).

Accordingly, if the clause is unambiguous (as the Court of Appeal concluded the relevant clause was in the North Midland case) then, subject to certain Articles of the UAE Civil Code (some of which I explore below), it will be upheld and enforced in the UAE.

Implied terms

Could an implied term oust the proposed effect of the clause? Unlikely. In North Midland, the Court of Appeal helpfully clarified that the prevention principle is not an overarching principle of law but operates by way of an implied term: the implied term that the employer will not prevent the contractor from carrying out its works. Article 259 of the UAE Civil Code provides that terms can be implied into contracts provided they do not contradict any express terms.

Any implied term that the employer is not to prevent progress of the contractor’s work would infringe on the parties’ express agreement that, at least in the context of concurrent delay, the contractor is not entitled to additional time where the employer has prevented progress.

Unfair terms

Fairness and good faith play a central role in the UAE Civil Code. Article 248 gives the courts the power to adjust or strike-out unfair terms in a contract “made by way of adhesion”. The Article only bites where there is significant inequality between the bargaining positions of the parties. In our experience, this is a difficult hurdle to overcome in agreements between two commercial parties and is rarely seen in the construction contracts we come across.

Good faith

The often cited “good faith article”, Article 246, might impact the effect of the proposed clause. To the consternation of some common law lawyers, the obligation of the parties to conduct themselves in “good faith” is not defined, which gives the courts considerable discretion. In very general terms, the obligation is often linked to a party’s behaviour and conduct and operates to prevent a party from acting unconscionably or from taking advantage of another party. A breach of the obligation could give rise to a stand-alone cause of action or could alter the measure of any damages awarded.

While the scope is wide, the obligation is not the panacea that it is often held out to be. An obligation to act in good faith does not prevent the courts from upholding a contract that is unfair or that constitutes a bad bargain. Good faith is aimed at the conduct of the parties; therefore, caution must be had when relying on the application of Article 246 as it is an assessment of the parties’ conduct, rather than of the wording of the clause.

Liquidated damages

Article 330 is also significant. The principle purpose of seeking an extension of time in construction contracts is to defend against the levying of liquidated damages. If, in the event of concurrent delay, the parties have agreed that the contractor is not entitled to an extension of time (even where the employer caused delay, albeit concurrently) then the contractor will be liable to pay liquidated damages, as happened in the North Midland case. Article 330 entitles the court to assess the actual delay-related damages and, if appropriate, to adjust the pre-agreed losses.

The burden of proof would lie with the contractor to show that the employer’s actual losses are lower than the agreed liquidated damages. In a case of concurrent delay this is likely to be difficult because the employer is likely to have suffered loss (and indeed, at the level anticipated by the liquidated damages clause).

Apportioning losses

Articles 290 and 291 give the courts wide discretion to apportion losses according to the fault of the parties.

Article 290 permits the courts to lower the level of damage:

“if the person suffering harm participated by his own act in bringing about or aggravating the damage.”

So, if the court considers it appropriate to do so, it could reduce the level of damages (either general damages or liquidated damages) to reflect the concurrent nature of the delay.

Similarly, Article 291 provides that, where there are number of persons responsible for the loss, “each of them shall be liable in proportion to his share in it“. If there is concurrent delay, the employer could be held, at least in part, accountable.

Conclusion

From an English law perspective, the North Midland decision makes perfect sense. The court determined that the anti-concurrency clause did not offend the prevention principle nor any other principle of English law and was therefore enforceable.

It is unclear whether the same decision would have been reached by a court or tribunal where the governing law was the laws of the UAE. While the UAE Civil Code upholds the bargain struck by the parties, there are a number of provisions that give courts and arbitral tribunals broader discretion to take into account the parties’ conduct during the course of the works and to apportion losses to reach a fair and just result.

Bryan Cave Leighton Paisner LLP Richard Dupay

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