May 14 2002
This update examines the way in which various statutory and contractual time bars interact at different stages of a construction contract and affect the dispute resolution process.
Article 95 of the Commercial Transaction Law
In the absence of a specific construction law, Article 95 of the UAE Commercial Transaction Law is the applicable provision, providing a general time bar for disputes arising out of construction contracts. The provision states that:
"When denied, and without lawful excuse, actions relating to the obligations of traders to each other and in connection with their commercial business shall not be heard upon the expiration of 10 years from the due date for fulfilment of the obligation, unless the law provides for a lesser period."
This provision applies to construction contracts by virtue of the fact that both parties (ie, employer and contractor or main contractor and subcontractor) are viewed by UAE law as 'traders' engaging in commercial transactions.
The 10-year time bar set out in Article 95 should not be confused with the decennial liability set out in Article 880 of the UAE Civil Law.
Article 880 of the UAE Civil Law
Article 880 of the UAE Civil Law sets out the contractor's decennial liability and states that:
" (1) If the subject matter of the contract is the construction of buildings or other fixed installations, the plans for which are made by an architect to be carried out by the contractor under his supervision, they shall both be jointly liable for a period of 10 years to make compensation to the employer for any total or partial collapse of the building they have constructed or installation they have erected, and for any defect which threatens the stability or safety of the building, unless the contract specifies a longer period. The above shall apply unless the contracting parties intend that such installations should remain in place for a period of less than 10 years.
(2) The said obligation to make compensation shall remain notwithstanding that the defect or collapse arises out of a defect in the land itself or that the employer consented to the construction of the defective buildings or installations.
(3) The period of 10 years shall commence as from the time of delivery of the work."
Liability applies only to major defects affecting stability or safety. The liability period does not concern minor defects, the liability period for which can be contractually agreed between the parties.
Article 886(1) of the UAE Civil Law
In addition to the aforementioned statutory time bars, specific statutory time bars should be observed in the context of a construction contract.
Article 886(1) of the UAE Civil Law states that:
"If a contract is made under an itemized list on the basis of unit prices and it appears during the course of the work that it is necessary for the execution of the plan agreed substantially to exceed the quantities on the itemized list, the contractor must immediately notify the employer thereof, setting out the increased price expected, and if he does not do so he shall lose his right to recover the excess cost over and above the value of the itemized list."
This article is relevant to increases in bills of quantities, of which the contractor must notify the employer immediately (or as soon as is practically possible after their quantification).
Article 883 of the Civil Law
Article 883 of the Civil Law sets out a three-year time limit for the employer to start the contractually agreed mode of dispute resolution (ie, commencing arbitration proceedings or filing an action before the UAE courts) from the date when a defect is discovered (or should be discovered). In practice, this three-year time limit may cause the decennial period of Article 880 of the UAE Civil Law to be exceeded if the employer discovers the defect less than three years before the expiry of the decennial liability period.
There are time provisions in many construction (and all International Federation of Consulting Engineers) contracts for notifying engineers of disputes between the parties to the engineer leading up to 'notice to refer' matters in dispute to arbitration. The enforceability and relevance of those time bars set out in various contractual clauses depends on the intention of the parties.
Where intention is to time bar
If the intention is to time bar the right to arbitrate, then the effect of a breach of the time bar is that the parties effectively lose the right to refer the matter to arbitration. However, the right to refer the matter to litigation cannot be lost and will always be subject to the 10-year time bar set out in Article 95 of the Commercial Transactions Law.
Where intention is merely to provide a timeline
If the intention of the parties is merely to provide a timeline for the right to arbitrate (and complying with the timeline is not a precondition to the right to arbitrate), then the right may not be lost and the matter may still be resolved by way of arbitration. The burden of proof as to the intention of the parties lies with the party seeking to resort to arbitration. A recent Dubai Court judgment highlights three important issues on this matter:
Once an arbitration award is issued, the courts require authentication of it, although there is no specific time bar for this. Further time bars relate to appeals that either party may file before the courts between first-instance court and Court of Appeal level (30 days from the date of the first-instance court judgment), and Court of Appeal and Court Cassation level (30 days from the date of the appeal court judgment).
Being aware of the UAE statutory and contractual time bar provisions will affect the parties' ability to pursue their claims through the dispute resolution mode chosen. Moreover, compliance with the time bar provisions is critical from the early stages of referral of a dispute to the engineer until the final stages of commencing arbitration/litigation or enforcing an arbitration award.
For further information on this topic please contact Antonios Dimitracopoulos at Al Tamimi & Company by telephone (+971 4331 7090) or by fax (+971 4331 3177) or by email (email@example.com). The Al Tamimi & Company website can be accessed at www.tamimi.com and www.emirates-litigation.com.
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