Navigating exceptional circumstances in construction

April, 14,2020

By Daniel Brawn

The global pandemic which we are experiencing in the form of COVID19 is both unprecedented and disruptive to communities and economies. The longer-term effects are yet unknow, with organisations navigating the period ahead with resilience. Whilst the local authorities across the UAE have enforced preventive measures to contain the impact of the virus, several industries will have implications, least of all Construction.

Senior Counsel, Daniel Brawn explores the legal and contractual implications for the construction industry.

At the time of writing, essential industries are permitted to continue without self-isolation, including the construction industry. However, contractors will be critically aected: supply chains will be disrupted, importation of materials from abroad will be obstructed, labour may become scarce and labourer’s working on site may have diculty with the recommended hand washing once an hour and standing two metres apart. The Main Contractor will have possession of the site and will be responsible for health and safety and for implementing governmental recommendations. In labour camps, shared accommodation poses challenges, as does isolation of infected individuals.

Contractors will wish to seek extensions of time and additional payments for delays caused by the virus.

Let us consider the relevant provisions of the UAE Civil Code and of the construction contract.

1. Article 249 of the Civil Code, if exceptional circumstances of a public nature which could not have been foreseen cause the performance of a contractual obligation to become oppressive for the obligor so as to threaten him with grave loss, the judge may reduce the oppressive obligation to a reasonable level. This allows the judge to reduce the eect of an oppressive contractual provision. The virus is certainly exceptional and of a public nature. However, for contracts being entered into now, the eect of the virus is foreseeable. For contracts entered into before the virus appeared, its eect may be said to have been unforeseeable and the judge may reduce its oppressive eect.

2. Article 273 provides (1) that if performance of a contract becomes impossible due to force majeure,the corresponding obligation shall cease, and the contract shall be automatically cancelled; and (2) in the case of partial impossibility, that part of the contract which is impossible shall be extinguished, and the same shall apply to temporary impossibility, and the obligor may cancel the contract after giving notice to the obligee. The Civil Code does not provide a denition of force majeure, but it is generally taken to mean events such as natural disasters. Al Sanhoory includes outbreaks of disease in his denition. It is strongly arguable that the COVID19 outbreak amounts to force majeure,

but it may be dicult to prove that it rendered performance impossible. Performance may still be possible, albeit more onerous (i.e. more expensive) depending on the specic circumstances. The contractor would be well advised to bring the claim under both Articles 273 and 249.

3. Article 287, if harm arises from “extraneous cause”, such as a natural disaster or force majeure, a party is not bound to make good unless there is a provision of law or an agreement to the contrary. Standard forms of contract usually contain specic provisions relating to force majeure, which may amount to “an agreement to the contrary”, so we must consider the contractual provisions below.

4. Article 472, a right may expire if the obligor can prove that performance has become impossible and they played no part in it. Here too we have the problem of proving that performance became impossible. Furthermore, if one of the contractor’s personnel introduced the virus to his fellows, the contractor may struggle to prove that the laborer played no part in it.

5. In relation specically to construction contracts, Article 893 provides that if a cause arises which prevents the performance or completion of the contract, either of the contracting parties may request termination of the contract. Here too, as with impossibility, it may be dicult to prove that performance was prevented.

6. Article 894, if the contractor starts the work and then becomes unable to complete it, for a cause in which they played no part, they are entitled to payment for work which they have completed and expenses incurred up to the amount of the benet derived by the Employer. This too requires the contractor to prove that they became incapable to complete the work.

7. As a nal thought regarding the provisions of the Civil Code, we may consider Article 248, which applies to “contracts of adhesion”, where a party is required to enter into a contract on the other party’s standard terms, without being able to negotiate the terms. In such a case, the judge may reduce an oppressive condition in the contract, or disapply it entirely, if he considers that justice requires it in the circumstances of the particular case.

We turn now to the terms of the construction contract, using the FIDIC Red Book 1999 Edition as our example, as it is commonly used in the Middle East region.

Clause 8.4 allows the contractor to claim an extension of time if any of the conditions (a) to (e) apply. Clause 8.4(d) relates to unforeseeable shortages of personnel or Goods caused by epidemic or government action. Additionally, 8.4(b) links in to any other Sub-Clause of the Conditions, which include 2.1 access to the site, 4.6 delays caused by other contractors, 8.5 delays by authorities, 8.9 suspension of work, 13.7 changes in legislation, 17.4 Employer’s risk events, and 19.4 force majeure. Some of these events permit the contractor to claim additional payments as well.

The contractor must provide sucient evidence substantiating the claim that delays and additional costs were caused by the virus. This requires the contractor to maintain complete and accurate records, including site diaries. By Clause 20.1, the contractor must give notice of the claim within 28 days of the event arising. Clause 20.1 may be useful to the contractor; in that it allows a claim for an extension of time and additional payment “under any Clause of these Conditions or otherwise”. Therefore, the contractor may bring a claim even if there is no specic provision in the contract conditions; this could include a claim for additional preliminaries and prolongation costs.

In summary, the contract and, separately, the law provide the contractor with plenty of opportunities to bring a claim, depending upon the particular circumstances. In the case of contracts entered into before the virus appeared, the claim could be relatively straightforward. In the case of contracts entered into after the virus appeared, it will be more challenging, because the eects of the virus are not unforeseeable.