Construction Arbitration in the MENA Region

Introduction

The Middle East and North Africa (the MENA region), from the Arabian Gulf to the Atlantic Ocean, has witnessed progression and development in the construction industry and infrastructure projects for more than two decades.^[2] Statistics have shown that foreign direct investment in the region has grown quickly,^[3] with disputes reaching US$90.4 million in 2021.^[4] Construction disputes commonly rank at the top of the disputes arbitrated before arbitral institutions.

Various commonalities exist among the legal systems of Arab countries throughout the MENA region, owing to them having a similar constitutional and legal framework, where Islamic shariah forms the basis for legislation. Having the oldest existing and most influential legal system in the region, Egypt has affected and influenced the laws of other civil law Arab countries, including Algeria, Bahrain, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, Tunisia, the United Arab Emirates and, most recently, Saudi Arabia.

Saudi Arabia enacted the long-anticipated Saudi Civil Transactions Law (the Saudi Civil Code (Saudi CC) on 19 June 2023 (01/12/1444H), through Royal Decree No. 191 of 1444H. This landmark legislation is scheduled to come into effect 180 days from the date of its publication in the Saudi Official Gazette, Umm Al-Qura (i.e., 16 December 2023) (the effective date) pursuant to Article 721 of the Saudi CC, which also establishes that all provisions that are in contravention of the Code will be abolished upon its entry into force.

In accordance with Article 5 of the promulgation provisions of the Saudi CC, its provisions will have a retrospective effect where it applies to events and relationships that existed before the effective date. This means that the Code will govern these pre-existing relationships instead of the previously uncodified rules of Islamic shariah. However, there are two exceptions to this rule: (1) if a party invokes a conflicting statutory provision or judicial principle relating to the matter in question that predates the effective date, then that conflicting provision will apply instead of the Saudi CC; and (2) if a limitation period had already started to run before the effective date, it will continue to apply.

It is crucial to note that until the effective date of the Saudi CC, Saudi courts will continue to decide pending cases based on the uncodified rules of Islamic shariah. Additionally, certain aspects of contracts concluded between the present time and the effective date may still be subject to shariah rules. Therefore, parties considering entering into new contracts, governed by Saudi law, may wish to postpone the conclusion of those agreements until the Code has officially entered into force. By doing so, they can ensure that all aspects pertaining to their contract will be governed by the Code, which provides more predictability and certainty as to their contractual arrangements.

In all cases, the Saudi CC represents one of the most extensive legislative enactments in the country’s history. It marks a momentous milestone for Saudi Arabia, as prior to this new law, contractual relationships, including construction contracts, were primarily governed by uncodified principles of Islamic shariah, which are derived directly from the text of the Holy Quran and Prophet Muhammad’s sayings (Hadiths). The codification of this law will have far-reaching implications for all contracts, including construction contracts within Saudi Arabia. It represents a significant paradigm shift for the country, aligning with its Vision 2030, which aims to attract substantial investments and foster economic growth. Concurrently, Saudi Arabia is also implementing its Regional Headquarters Programme to further enhance its position as a favourable investment destination. Overall, the enactment of the Saudi CC signifies a moment of transformation for the legal landscape of the country, demonstrating Saudi Arabia’s commitment to modernise its legal framework and facilitate an environment that is conducive to investment and international engagement.

The introduction of the Saudi CC represents a pivotal breakthrough not only for Saudi Arabia but also for the broader MENA region. With the enactment of the Saudi CC, the entire MENA region, except for the Abu Dhabi Global Market (ADGM) courts and the Dubai International Financial Centre (DIFC), courts where the laws of England and Wales apply, now adheres to the civil law model. This shift reflects a growing trend towards adopting a modern and codified legal framework in the region. This harmonisation of legal approaches across the region is expected to facilitate cross-border transactions and investments, promoting economic growth and regional cooperation. As Saudi Arabia takes this remarkable step, it not only strengthens its own legal system but also contributes to the continued development and integration of legal practices across the MENA region, fostering a more interconnected and prosperous future for the region.

Legal principles and claims

Given the importance of the construction industry in the MENA region, it would be useful to briefly scrutinise certain legal principles and claims pertinent to construction contracts that regularly surface in construction disputes in the region. These principles and claims are largely influenced and shaped by Egyptian law and practice, and include good faith,^[5] implied terms,^[6] suspensive conditions, abuse of right,^[7] estoppel, prohibition of taking advantage of one’s own wrongdoings, liquidated damages,^[8] concurrent delays, acceleration and global claims, principles of interpretation, interest, the duty of mitigation, exceptional circumstances (imprévision),^[9] force majeure,^[10] notices for breach, contractual liability,^[11] decennial liability,^[12] exceptio non adempleti contractus, limitation and exclusion of liability, unjust enrichment claims and revocation of contracts (nullity, termination, rescission).

It is also common knowledge that the construction industry is dispute-rich and claims-oriented. Construction projects seldom end without dispute; disputes are common and not unexpected. Usually, disputes revolve around time, cost, variations, liability or quality issues. Construction disputes are complex, multi-faceted, time-consuming and dynamic depending on the nature of the project (as delivered, as planned, as built), the type of contract (fixed lump sum or remeasured) and the specific sector involved (energy, telecommunications, hospitality, real estate, etc.)

Construction disputes also involve multiple parties (employers, contractors, subcontractors, engineers, construction managers, suppliers, insurers, funders, etc.) with divergent interests, risks and expectations. Disputes may have adverse consequences on not only the specific project but the status of foreign investment from the region and beyond on the long run.^[13] Arbitration remains the MENA region’s effective and preferred dispute resolution process for the entangled web of intricate legal issues and risks arising from construction contracts. However, a framework of international principles and standards that allow for more certainty and visibility is much desired. It is in this context that the International Federation of Consulting Engineers (FIDIC) forms of contract offer a working model used by employers and contractors throughout the region for diverse projects across all sectors involving construction work.

That said, this chapter aims to provide an overview of certain legal principles invoked in construction-related disputes in the MENA region, so that the specificities of these legal principles and their application can be properly addressed and considered in construction arbitrations governed by the laws of certain countries in the MENA region.

FIDIC’s role in the construction industry

The FIDIC forms of contract have been used in the MENA region since 1970.^[14] Although these forms are texts based on English common law, they have been widely adopted and applied in Arab states in the MENA region, where legal systems are primarily based on civil law and Islamic shariah. The public sector has led the way for the adoption of FIDIC forms of contract in the region in response to tendering laws and the requirements set by government entities.^[15]

However, owing to the codification of civil legal principles throughout the MENA region, certain tensions or concerns may arise regarding the application of the FIDIC conditions of contract and the legal principles prevailing under civil law in certain jurisdictions. Among the disputes that regularly arise in this context and in relation to projects proliferating throughout the region are:

• the engineer’s administration of work and specifically the likelihood of late approvals, or incorrect or insufficient instructions;
• lack of or delayed determination on extensions of time (EOT);
• cost;
• changes and variations to the stipulated obligations;
• contractual breaches by the employer or contractor;
• non-payment;
• defective construction and performance;
• non-conformity of materials;
• warranties and representations;
• concurrent delay;
• force majeure and hardship (imprévision);
• termination;
• liquidated damages; and
• fulfilment of conditions precedent.

It is in this context that FIDIC offers an effective contractual regime that has been tested and applied with success throughout the region. Nevertheless, it is not always the case that the agreed contractual model offers a framework that is consistent with the applicable law and norms, hence the need to ascertain and distil the applicable legal principles and how they apply in the context of construction contracts and disputes throughout the MENA region.

Construction contracts and disputes – civil law principles

The French Civil Code has influenced the civil codes of many MENA countries, including Egypt, which in turn is viewed as the source and model on which many Arab countries have modelled their laws. In addition, the maxims and jurisprudential principles of Islamic shariah^[16] also form the basis for many of the shariah-inspired general principles of civil codes in the MENA region.

A proper understanding of any law necessitates a proper understanding of its general principles, maxims, theories and doctrines. Some mistakenly assume that if a civil law principle is not embodied in a civil code, it ought not be recognised as a principle under the relevant civil law jurisdiction. Although civil law tradition is founded on the premise that the law is primarily derived from legislative codes, this does not mean that the law is confined to legislative texts and it is also not confined to the black letter wording of those texts; rather, it extends to the texts’ underlying spirit and purpose in accordance with the applicable rules of interpretation and principles prevailing in the specific legal system.

As such, the Egyptian Civil Code (Egyptian CC), as well as the civil codes of most MENA countries,^[17] provides explicitly that ‘provisions of laws govern all matters to which these provisions apply in letter or spirit’.^[18] Professor Dr Al Sanhoury explains that ‘it has to be noted that the meaning intended by the provision is not only exclusive to its wording, but may also extend by way of connotation/implication [Dalalah] to another meaning’.^[19] For instance, the principle that no party may benefit from its own wrongdoing and the principle of estoppel are not expressed in most civil codes of MENA region jurisdictions; however, this does not negate their existence as overarching general principles of the relevant jurisdiction.^[20]

In the absence of a specific legislative rule that could resolve the issue in dispute, civil laws of the MENA region provide that courts or tribunals may resort to other secondary sources, such as custom, Islamic shariah and principles of natural law and justice.^[21] Saudi Arabia has adopted a similar yet novel approach. In this respect, Article 1(1) of the Saudi CC provides that in the absence of a specific legislative rule that could resolve the issue in dispute, then a set of Islamic shariah-inspired legal maxims, found in Article 720 of the Saudi CC, shall be employed to find appropriate solutions to the issue in dispute. If, however, those 41 legal maxims in Article 720 of the Saudi CC do not provide an answer to a particular matter, Article 1(1) of the Code provides that the rules derived from Islamic shariah that are ‘most suitable for’ the Saudi CC shall be applied. However, the Saudi CC does not explicitly outline the exact criteria or methodology for determining when these shariah-derived rules are considered most appropriate or suitable for the Code. As a result, the interpretation and application of this provision rest within the purview of Saudi courts or arbitral tribunals. It suffices to say that when faced with cases where the Saudi CC and the Islamic legal maxims in Article 720 of the Code do not provide a conclusive resolution for the issue in dispute, Saudi courts and arbitral tribunals are likely to rely on their expertise in Islamic law and jurisprudence to identify relevant shariah principles that best align with the provisions, spirit and objectives of the Saudi CC.

In any case, it appears that the Saudi legislator intends to strike a balance between the modern codified law and the principles of shariah, while also ensuring that the application of shariah-derived rules aligns with the overall objectives and principles of the Saudi CC. This approach ensures that the legal system benefits from the wisdom and heritage of shariah while also adapting to contemporary societal needs and values. By allowing for this nuanced approach, the Code promotes a harmonious coexistence of modern legal norms and traditional values, ensuring a fair and just legal system that is in tune with both the past and the present.

It should also be noted that the 41 Islamic shariah-inspired legal maxims outlined in Article 720 of the Saudi CC serve a more substantial purpose than merely filling gaps when a specific legislative rule is absent to resolve a dispute. These legal maxims work in conjunction with the provisions of the Code, where they operate hand in hand. However, pursuant to Article 720 of the Code, their application is subject to the condition that they do not conflict with statutory provisions, taking into account their nature and the specific conditions and exceptions that apply to each legal maxim.

Construction contracts often involve issues arising from the interpretation of the various documents forming part of the contract.^[22] The most common type of FIDIC form of contract used in the MENA region is the Red Book,^[23] and it is submitted that among the legal issues and principles at the heart of construction disputes governed by MENA region civil laws are good faith, abuse of rights, estoppel, prohibition of taking advantage of one’s own wrongdoing, force majeure and imprévision, notices for breach, global claims, accelerated claims, delay damages, concurrent delay, principles of interpretation, implied terms, the duty of mitigation, suspensive conditions, interest, decennial liability, exceptio non adempleti contractus limitation and exclusion of liability, unjust enrichment claims, nullity, termination and rescission, which are addressed below.

Good faith

Good faith is a sacrosanct principle of law recognised throughout the MENA region.^[24] It is a prevailing principle in the laws of Arab states,^[25] where it governs all aspects of a contractual relationship, from the negotiation phase to the conclusion of the contract, its performance and its termination.

The importance of the principle of good faith lies in the consequences of the breach thereof, where a party’s liability is usually aggravated whenever it is established that its acts or omissions were not undertaken in good faith or were proven to be undertaken in bad faith.^[26] Moreover, courts in the MENA region frequently add and imply obligations to contracts on the basis of good faith.^[27] Generally, courts or arbitral tribunals have the discretion to discern good faith from the prevailing circumstances and surroundings.^[28]

It is submitted that the duty of good faith is generally not limited to the performance of contracts but extends to the pre-contractual negotiations.^[29] Indeed, once the parties agree to enter into negotiations, the agreement to negotiate must be performed in good faith. The duty of negotiation in good faith has several variants, including an obligation to negotiate transparently,^[30] and an obligation not to unilaterally revoke what has been agreed.^[31]

Article 41(1) of the Saudi CC explicitly addresses the precontractual liability that may arise from a breach of the duty to negotiate in good faith.^[32] According to this provision, if parties engage in negotiations for a contract, they are not automatically obliged to reach a final agreement. However, the party responsible for negotiating or for terminating the negotiations in bad faith will be held liable for any resulting harm caused to the other party. This liability does not extend to compensating for potential expected gains that the other party could have obtained from contract under negotiation. Furthermore, Article 41(2) of the Saudi CC outlines the guiding criteria to determine when a party is negotiating in bad faith during the precontractual phase. According to this provision, a party is considered to be negotiating in bad faith if it demonstrates a lack of genuine intent, seriousness or sincerity in the negotiation process. Additionally, intentionally withholding essential information that affects the potential contract’s terms and conditions is deemed to be acting in bad faith, which is similar to an obligation to negotiate transparently. It is essential to note that Article 41(2) of the Saudi CC provides illustrative examples of bad faith during precontractual negotiations; however, it does not limit the courts’ or tribunals’ discretion to identify or determine bad faith in other instances based on the specific circumstances of each case.

A person is presumed to be acting in good faith unless proven otherwise, hence the rebuttable presumption of innocence and good faith performance. Nevertheless, establishing gross fault or negligence is sufficient to evidence bad faith and shift the burden of proof to the party claiming good faith performance.^[33]

Acting in good faith, inter alia, involves certain constraints and positive duties, including an obligation:

• of cooperation among the parties for the proper execution of a contract;^[34]
• to transparently disclose any matter or event that may affect or influence the performance of the contract;
• (implied) to avert any act or omission that may adversely affect the performance of the contract;^[35]
• to pursue the most suitable method of performance when there are two or more alternatives;^[36]
• to act reasonably and to avert abuse of discretionary power or rights;^[37]
• not to misrepresent any fact pertaining to the performance of the contract;^[38]
• to notify the other contracting party within a reasonable amount of time;^[39]
• to avert dilatory and surreptitious behaviour;
• to act consistently with prudence^[40] and observe commercial standards of dealing;^[41]
• to act in accordance with the objective or objectives of the contract and the justified (legitimate) expectations of the parties;
• to avert deviation from the purpose for which the right was prescribed^[42] (i.e., achievement of a serious and legitimate interest);^[43]
• to abandon strict adherence to a literal interpretation if the latter leads to absurd results contrary to the spirit of the contract, its proper performance and the parties’ common intention;
• to mitigate damage or harm if sustained by either party;
• to avoid any third-party communications and dealings that jeopardise or adversely affect the existing contract;^[44] and
• to avoid reaping the greatest advantage from the contract at the expense or to the detriment of the other party by choosing to implement its right in a way that is prejudicial to its counterparty.^[45]

The variants of the principle of good faith have been further considered by an arbitral tribunal applying Egyptian law in the specific context of a construction contract, where the tribunal ruled that:

• whereas a contract provides for a date for completion of the works, but the employer through its acts or omissions prevents the contractor from achieving that date and there is no entitlement to extensions of time under the contract in such event the time for completion is nullified. This in turn means that the employer loses his right to levy liquidated damages and, while the contractor’s obligation to complete the Works remains, he must do so only within a reasonable time.^[46]

Good faith extends to administrative contracts (including public work construction contracts), where the Egyptian Supreme Administrative Court concluded that good faith requirements apply equally to administrative contracts. The Court held that:

It is also established that a performance of the contract in accordance with its content and in a manner conforming to good faith requirements, is a general principle which applies to administrative contracts, same as it applies to all civil contracts.^[47]

It is submitted that good faith involves both acts and omissions (passive and active duties), and necessitates the absence of bad faith.^[48] In the specific context of construction contracts, an arbitral tribunal has tackled good faith, essential mistake and fraudulent misrepresentation in the conclusion of the contract and stated that if one party knew of a mistake pertaining to the conclusion of the contract and refrained from communicating it to the other party, the former shall be deemed to be acting in bad faith.^[49] As previously alluded to, good faith does not solely concern refraining from acts or omissions of bad faith, but supposes in addition, respecting a cooperation obligation when it comes to the implementation of the contract.

The question of identifying the criteria of good and bad faith is left to judicial discretion,^[50] to verify whether each party’s conduct was in good or bad faith.^[51] In the performance of construction contracts, a party will be considered to be acting in bad faith if it is determined to perform or terminate the contract with a bad intention or for a bad purpose. In this context, one may distinguish between three types of situations:

1. where a party to the contract is determined to take a positive action or to refrain from acting in a certain manner while being absolutely aware that the action or omission will be detrimental to its counterparty. In such circumstances, such person is acting in bad faith;
2. where a party to the contract is determined to take a positive action or to refrain from acting in a certain manner, while being unaware that the action or omission may be detrimental to its counterparty. In this case, it may be difficult to discern that the party was acting in bad faith, as this will largely depend on whether the party was acting with an understanding that this constitutes a breach of the contract or not, irrespective of whether the breach will be to the detriment of the other contracting party; and
3. where a party to the contract acts or refrains from acting in a certain manner, while it is foreseen that the action or omission may cause the other contracting party certain detriment, yet the former chooses to act in this way. In that case, although the acting party had no intention or purpose to cause any detriment to its counterparty, it actually foresaw the possibility of detriment and accepted, in view of the benefit that it may reap, that the detriment may materialise. Accordingly, the former party (depending on the facts and circumstances) may have contravened good faith, since it knowingly proceeded while foreseeing the likely prejudice that may ensue and that outweighs the benefit it desires to reap.

It should also be noted that, in some exceptional instances, the exercise of a contractual right may be tainted with a breach of good faith if the manner of performing this right suggests so. In simpler terms, a party’s insistence on a contractual clause may, in exceptional cases, amount to a breach of good faith if the circumstances surrounding such insistence involve a violation of good faith. For instance, this may occur if the party insists on interpreting the contractual provision strictly, leading to absurd outcomes that contradict the contract’s purpose and spirit, and the parties’ common intention. It can also occur if such insistence aims to maximise benefits from the contract at the expense or to the detriment of the other party by implementing or enforcing a right in a prejudicial manner towards its counterparty.^[52] Therefore, it could be argued that a party’s insistence on a contractual term may, under specific circumstances, give rise to a breach of good faith. The determination of whether such a breach has occurred is a factual matter and ultimately falls within the discretionary powers of the court or arbitral tribunal to assess and ascertain the gravity of the facts leading to the breach of good faith.

In manifestation of the duty of good faith, it is submitted that an employer is expected to exert all possible efforts to allow the contractor to complete the work without impediment.^[53] If the work requires the intervention of the employer, it shall do so within the contractually agreed period or within the period customarily required for that specific type of work.^[54] That is why the parties remain under a positive obligation of cooperation during the performance of the contract (as a variant of good faith), even if the contract does not specifically include all its manifestations.

Principles of contractual interpretation

Subject to the applicable mandatory rules and any other overriding applicable legal principles, the parties are free to regulate their contractual relationship in accordance with the principle of pacta sunt servanda, and the rules of contractual interpretation allow tribunals and courts to ascertain the common intention of the parties as to the content of their contract.

The rules of contractual interpretation within MENA region jurisdictions largely mirror or resemble their Egyptian counterparts.^[55]

Insofar as ambiguity does not taint a contract, no deviation, by way of interpretation, from the intended meaning of the clear terms of the contract is warranted, noting that this applies in accordance with the expressed intention of the parties.^[56] Thus, clarity of the contract denotes the clarity of the parties’ unequivocal intention and not just the clarity of the words used. In other words, even if the wording of a contractual term is clear on its face, the nature of the contract or the circumstances of its conclusion may reveal that the said term’s intended meaning differs from the words used. In such event, courts and tribunals must discern the parties’ common intention through the rules of interpretation.^[57]

There is a rebuttable presumption that the expressed intention of the parties is identical to their unequivocal intention.^[58] A clear text is an indication of the expressed intention of the parties; however, this does not mean that the literal wording of a text is reflective of an expressed intention of the parties.^[59] Rather, a tribunal or court may deviate from the literal meaning of texts in view of the wider context of the contractual terms.^[60] The laws of Morocco, Lebanon and Tunisia, which are directly influenced by French law, and the Saudi CC explicitly provide that a contract shall be read in light of the whole context of the contractual terms.^[61] This is also the case in Egypt, where the Egyptian Court of Cassation upheld the ejusdem generis principle of interpretation.^[62]

The mere disagreement between the parties as to the intended meaning of a contractual provision does not, in and of itself, taint a contractual provision with ambiguity. As such, it is the court or tribunal that is vested with the authority to ascertain whether a term or provision of the contract is ambiguous or not, after assessing the parties’ positions in relation to the wording of same.

Should a court or tribunal find that the parties’ common intention differs from the expressed words, it shall resort to interpretation to ensure that the parties’ unequivocal common intention prevails. That said, it was held that:

The court may deviate from the expressed meaning of the text of the contract, to what it deems more accurate in reflecting the intention of the parties as an application to its absolute [discretionary] power in understanding the provisions of the contract, and what the parties intended by [such provisions], and preserving the common intention of the parties.^[63]

Moreover, a court or tribunal is at liberty to apply the correct legal characterisation of a legal relationship, irrespective of the wording used by the parties.^[64] Nonetheless, the court or tribunal must reason the deviation from the clear wording of a text, in case it is not reflective of the parties’ common intention.^[65]

To ascertain the common intention of the parties, several elements must be taken into account, including:

• the language of the contract;
• the nature of the transaction;
• prevailing customary practice; and
• the good faith element reflected in the honesty and trust that ought to prevail between contracting parties.^[66]

These elements are not exhaustive and the court or tribunal may refer to other factors in ascertaining the parties’ common intention,^[67] such as the manner of performance of the contract^[68] and the purpose underlying a contractual provision.

Furthermore, interpretation of construction contracts should be consistent with commercial common sense and business efficacy.^[69] Although some MENA civil codes do not expressly refer to common sense or business efficacy as guiding indicators, this is inferred from the references to the ‘nature of the transaction’, ‘honesty and trust/good faith’ and the ‘prevailing customary practices’.^[70]

In light of the above, to the extent that the expressed common intention of the parties to a contract is clear and unambiguous, it shall be upheld and applied; however, if there is ambiguity or doubt as to such intention, good faith and the prevailing principles of interpretation militate against absurd or prejudicial interpretation, and any ambiguity shall be interpreted in favour of the debtor (or, as accurately described by Article 104(3) of the Saudi CC, ‘the party who bears the burden of the obligation or clause’) as per the applicable principles of interpretation.

Islamic shariah also provides some comprehensive maxims and principles in relation to the interpretation of contracts that could further assist tribunals and courts applying MENA laws, which consider Islamic shariah as a primary source for its legislation or a secondary source for its legal texts.^[71] In fact, the UAE, Jordan, Tunisia and, more recently, Saudi Arabia have explicitly adopted many of these maxims.^[72] Some of those maxims and principles are as follows:

• in contracts, effect is given to intention and meaning, not to words and forms;^[73]
• the norm in utterance is the real meaning;^[74]
• no attention is paid to inference or implication in the face of an explicit statement;^[75]
• when the real meaning is impossible, it departs to the figurative meaning;^[76]
• giving effect to words is better than ignoring them (effet utile);^[77]
• no statement is imputed to a silent person; however, silence would be tantamount to a statement where there is a necessity for speech (i.e., circumstantial silence);^[78] and
• the absolute is construed in its absolute sense if there is no proof of a restricted meaning either in the legal text or by inference.^[79]

Implied terms

Consistent with the good faith obligations, Arab laws include legislative provisions dealing with implied terms, where a contract is not exclusively limited to its express terms, but extends to cover implied terms.^[80] Article 148(2) of the Egyptian CC, which inspired many similar provisions proliferating throughout the MENA region,^[81] states: ‘A contract must be performed in accordance with its content, and does not only bind the contracting party to its content, but also to all that which is a necessary sequel thereof, in accordance with the law, custom and equity.’

Since pacta sunt servanda is one of the overarching fundamental principles, it is worth noting that the doctrine of implied terms is not inconsistent with pacta sunt servanda, as the sequels of a contract remain subject to the parties’ agreement and are intended to complement and supplement the same. This means that implied terms may not amend, contradict or override the express terms of a contract agreed by the parties.^[82] Nevertheless, even a detailed and sophisticated construction contract may be silent on a certain matter or circumstances and even the nature of the obligations and their proper performance, in good faith, may warrant the inclusion of certain implied terms as a matter of law, custom or equity. Thus, if the parties’ agreement is silent on a certain provision, whether because the parties have failed to agree thereon or did not envisage it, then the necessary sequels of a contract could intervene to fill the gap.

That said, it is not uncommon to imply terms in construction contracts, such as the duty of cooperation, which is also a variant of good faith. Similarly, even if it is not expressed in the contract, a contractor is expected to perform the work as deemed fit for the intended purpose, and the employer is subject to an implied obligation not to impede or interfere with the contractor in the performance of its obligations under the contract or the progress of the work.

An illustration of another implied term is the obligation of the contractor to maintain and protect the materials provided by the employer for performing the work and to exert the contractor’s best efforts in doing so.^[83]

Generally, the following factors are taken into consideration when deciding whether a given term is implied in the contract or not:

• the nature of the contract or obligation (e.g., a contract for the construction of a residential tower would imply different terms from those concerning the construction of a power plant);
• any supplementary legal provisions;
• custom; and
• equity and justice.^[84]

Notably, expressions of trade usage may be the most common examples of implied terms in a construction contract.^[85] However, because trade usages may not be customary or incorporated by law,^[86] they usually only become binding if parties refer to them.^[87] Nonetheless, trade usage may be presumed to represent the ‘parties’ realistic expectations’ and intention.^[88]

Pertinent general principles of law are also deemed to be implied in relevant contracts unless the parties specifically agree to the contrary.^[89] As previously mentioned, these general principles of law can be recognised and applied even if not expressed in legislative provisions in the concerned jurisdiction.^[90]

After examining the requirements of an implied term in the given jurisdiction, a party invoking an implied term must prove its existence and purpose of implication, unless the applicable law authorises the court or tribunal to imply the term in that type of contract.

Prohibition of taking advantage of one’s own wrongdoings

Most of the MENA civil codes prohibit a party from taking advantage of its own breach or wrongdoing, even in the absence of a specific legislative provision to that effect. The Egyptian Court of Cassation reaffirmed this general principle when it stated that ‘it is established that a person cannot blame others for its own wrongdoing, be it fraud or negligence, and cannot benefit from one’s wrongdoing vis-à-vis others, even if that other [person] is also at fault’.^[91]

In the same vein, Article 216 of the Egyptian CC provides that:

The court may reduce the amount of compensation or reject any request for compensation where the fault of the creditor contributed to or aggravated the damage.^[92]

This grants a court or tribunal an express discretionary power either to reduce the amount of compensation or not to grant damages (whether agreed or not) at all, as deemed reasonable, where a party has, as a factual matter, caused or contributed to the damage. In 2001, the Egyptian Court of Cassation held that:

[t]he right of the creditor to damages lapses, [in the sense] that he is not entitled [to damages] at all, if he solely committed the fault, if his fault prevailed over the fault of the debtor or if his fault is the cause resulted in the damage. [In this case] the creditor shall not have the right to demand the entirety of the damages if he contributed to the occurrence of the damage and it was proven that he himself failed to perform his obligation.^[93]

The prohibition of taking advantage of one’s own fault is a general principle of law. A court or a tribunal will have to take into consideration the fault committed by the creditor (regular, gross, intentional) and how much it contributed to the overall damage (partially or fully) then weigh the same with the fault and damage caused by debtor. Thus, a debtor’s liability would be wholly extinguished if the creditor’s fault outweighs and overwhelms that of the former or if the former’s fault was only an inevitable consequence of the latter’s. In other cases, the debtor’s liability may be proportionately reduced by the magnitude of fault it committed compared with that of the creditor.^[94]

The Egyptian Court of Cassation has also applied the principle of the prohibition of taking advantage of one’s own wrongdoings or fault in the context of construction contracts, while addressing decennial liability. In the said judgment, the Court ruled:

A contractor’s obligation is an obligation to achieve a result, which is ensuring durability and safety of the building that he has built for a period of 10 years after its handover, which means that merely proving the non-fulfilment of the result establishes the breach of this obligation without the need to establish any fault. However, a contractor who works under the supervision of the employer, is not liable for the collapse or the defects that impose a threat to the durability of the building and its safety, if this was due to a fault in the design provided by the employer, unless the contractor is aware of this fault and approved it, or the fault is manifest to the extent that it would not be hidden from the perspective of the experienced employer.^[95]

Abuse of right

A person is entitled to use his or her rights as mandated by the law or as agreed in a contract. However, a person is not entitled to use his or her right in an illicit or abusive manner.^[96] Naturally, the person invoking abuse of right must not be acting in bad faith. While not expressly included in legal provisions regulating contracts, nothing prevents utilising abuse of right, where necessary, in the context of contractual arrangements, especially that it is arguable that non-abusive use of rights can only be characterised as an application of the overarching principle of good faith.^[97]

Article (5) of the Egyptian CC^[98] sets the criteria for abuse of right. The first criterion deals with the illegitimacy of the pursued interests. This denotes the absence of a legitimate and serious interest.^[99] Every right is validly created to achieve a certain legitimate objective. If one uses the right to achieve an illicit objective, this may be characterised as an abuse of right.^[100] Indeed, the prevailing views confirm that the provisions of Islamic shariah may have a role in assessing the illicit nature of the pursued interests.^[101] The second criterion deals with the existence of an intention of aggression. This would be the case if a person’s main intention is to inflict harm, even if the act or omission is associated with a secondary intention to achieve a benefit.^[102] The third criterion denotes significant disproportionality between the benefits and prejudices resulting from the exercise of the right. This is the case whether the person who exercised the right was recklessly inconsiderate of the damage others may suffer for the sake of a minor benefit, or had a hidden intent to inflict harm under a pretext of a fictitious or minor benefit that is clearly outweighed by the damage sustained by another person.^[103] The person exercising such right would be deviating from the usual conduct of an ordinary person, and is committing a breach for which he or she must be held liable.^[104]

Estoppel

Although the principle of estoppel is not be legislatively captured in most civil codes within the MENA region, estoppel (or allegans contraria non est audiendus) is a well-established legal principle derived from fundamental tenets of Islamic shariah and forms part of the legal systems of several countries in the region.^[105] Nevertheless, Article 70 of the United Arab Emirates Civil Code (1985) (UAE CC), Article 239 of the Jordanian Civil Code (1976) (Jordanian CC), Article 547 of the Tunisian Code of Obligations and Contracts (1907) (Tunisian COC) and Article 720 (Rule No. 40) of the Saudi CC explicitly capture the principle of estoppel. According to this sacrosanct principle, the person who seeks to revoke what has been agreed, or engages in contradictory behaviour, shall be barred from doing so. Moreover, estoppel is explicitly endorsed and upheld by the judgments of Arab courts,^[106] and it is validly argued that estoppel is a variant of good faith.^[107]

Notably, in 2020, the Egyptian Court of Cassation innovatively unveiled two conditions for application of this principle: (1) a statement, an act or an omission is made by a party and contradicts its previous conduct; and (2) that contradiction would prejudice the other party, which acted in reliance on the validity of the first party’s previous conduct. Although the Court did not expressly refer to Islamic shariah in this context, the principle of estoppel is also derived from Islamic shariah where no party may revoke what it has undertaken, concluded or consented to.^[108]

In the specific context of construction contracts, if the employer or contractor engages in contradictory behaviour or either seeks to revoke what has been agreed or endorsed, estoppel and good faith will militate against validating such actions or omissions. For example, it was held that ‘there is no place for issuing a judgment awarding a delay penalty where the stoppage of work before the end of the contractual period is attributed to the appellant himself, in addition he who seeks to contradict his own previous actions is estopped from doing so’.^[109]

In Saudi Arabia, in relation to disputes concerning the contractor’s remuneration, it was held that an employer is estopped from claiming a refund from the contractor for the work done, whether within the lump sum or extra work, if the employer has accepted the work and paid the entitlements thereto after examining the work.^[110]

Force majeure and imprévision

The laws of Arab countries in the MENA region, as well as Islamic shariah,^[111] recognise and regulate the concepts of force majeure and exceptional circumstances (imprévision or rebus sic stantibus). Both concepts deal with events that are unforeseen at the time of a contract is concluded and inevitable and beyond the control of a contracting party. However, although force majeure leads to impossibility of performance, imprévision, which only operates with respect to contracts whose performance is stretched over time, renders the performance of obligations excessively onerous (but not impossible) and threatens the debtor with exorbitant loss, if forced to specifically perform the exorbitant obligations.

Moreover, on one hand, force majeure generally leads to extinguishing the obligations that become impossible to perform,^[112] unless the parties agree to regulate the ramifications of force majeure differently by allocating the risk of impossibility among themselves as they deem fit.^[113] On the other hand, imprévision does not lead to extinguishing obligations but to the possible moderation thereof by restoring the excessively onerous obligations to reasonable limits through a court judgment or an arbitral award. This could be achieved by awarding compensation or reasonably reducing the limit and scope of the cumbersome obligations. Imprévision also requires the unforeseen and inevitable supervening events to be of a general character (i.e., not exclusive to the debtor), unlike force majeure, which requires only that the unforeseen event be due to an external cause that leads to the impossibility of performance. In addition, unlike force majeure, imprévision is generally subject to an overriding mandatory legislative regulation that does not allow the parties to a contract to derogate from such mandatory regulation by agreement.^[114]

Under the Saudi CC, it is important to note that although the conditions for the application of imprévision align with other Arab countries, its consequences under the Saudi CC differ slightly, and demonstrate significant innovation. The aim is to encourage parties to avoid disputes by seeking amicable negotiations and settlement of the issue. In this respect, Article 97 of the Code reads:

1- If, as a result of exceptional events of a general character that were unforeseeable at the time of contracting, the performance of the contractual obligation becomes excessively onerous in such a way as to threaten the debtor with exorbitant loss, the debtor is entitled – without undue delay – to invite the other party to negotiate. 2- Inviting negotiations does not authorise the debtor to refrain from fulfilling the obligation. 3- If an agreement is not reached within a reasonable period, the court may, according to the circumstances, and after weighing the interests of both parties, reduce the onerous obligation to reasonable limits. 4- Any agreement contrary to the provisions of this article is deemed null and void.

This approach in the Saudi CC promotes a proactive approach to resolving potential disputes. By allowing parties to engage in negotiations and encouraging settlement, the law seeks to foster a cooperative and amicable resolution, thus enhancing overall contractual stability and preserving business relationships.

It is of utmost importance to note that, in the context of construction contracts, both force majeure and imprévision are subject to specific legislative provisions. By way of illustration, Article 664 of the Egyptian CC regulates force majeure and states: ‘A contract for works [construction contract] is extinguished if the performance of the work for which the contract was concluded becomes impossible.’^[115]

With respect to imprévision, Article 658(4) of the Egyptian CC, which exclusively applies to ‘lump sum’ construction contracts (not remeasured contracts such as the FIDIC forms) states:

However, if the economic equilibrium between the obligations of the employer and the contractor collapses, due to exceptional events of general character, which were unforeseen at the time of contracting, causing the basis for the monetary valuation of the contract to fizzle, the Court may order an increase in payment to the contractor or the rescission of the contract.^[116]

Clearly, Article 658(4)of the Egyptian CC is a special application of the general principle enshrined in Article 147(2) of the Code. They share the same conditions of application, yet the court or arbitral tribunal is not entitled to rescind the contract under Article 147(2), but can so order under Article 658(4) of the Code in the specific context of lump sum construction contracts.

The Saudi CC contains a similar provision to Article 658(4) of the Egyptian CC. In this respect, Article 471(3) of the Saudi CC reads:

if the economic equilibrium between the obligations of the employer and the contractor collapses, due to exceptional events of general character, which were unforeseen at the time of contracting, causing the basis for the monetary valuation of the construction contract to fizzle, the Court may, according to the circumstances, and after weighing the interests of both parties, restore the economic equilibrium of the contract, which includes extending the performance period, increasing or decreasing the payment to the contractor, or order the rescission of the contract.

Finally, the threat of a conventional loss cannot trigger imprévision, even if the conventional loss is large in value; only a threat of an exorbitant loss (naturally exceeding loss of profit) can trigger imprévision. The loss in question must also be measured according to the contract itself, irrespective of the assets and solvency of the debtor.^[117]

Both theories equally apply to administrative contracts.^[118]

Notices for breach and entitlement to compensation

Construction disputes regularly involve an issue of whether a notice for breach and entitlement to compensation has been validly served. A notice for breach in Egypt, Algeria, Kuwait, Libya, Syria, Iraq, Jordan, Oman, Qatar, Bahrain, the UAE and Saudi Arabia^[119] has the purpose of placing the debtor in the position of a defaulting party. In other words, unless the parties agree otherwise, the mere fact that the debtor has failed to meet the due date of its obligations does not automatically make it in default until the creditor notifies the debtor of same.^[120] For instance, Article 218 of the Egyptian CC provides that a person ‘is not entitled to compensation except after notifying the debtor, unless otherwise provided by the law’.^[121]

Although parties can agree to dispense with the notice requirement or on the form of notice, in commercial matters, the notice requirement is usually less formalistic and less stringent compared with civil matters.^[122] In this regard, the strict procedural requirements of a notice in the civil code are not applicable to commercial dealings (e.g., construction contracts).^[123] To a great extent, Algeria, Kuwait, Oman, Qatar and the UAE provide for a similar rule, such as that provided under Article 58 of the Egyptian Commercial Code, which states that ‘[s]ummoning or notifying the debtor, in commercial matters, shall be done by virtue of an official warning, or by registered letter with acknowledgement of the receipt. In case of urgency, the demand or notification may be affected by virtue of telegram, telex, fax, or other swift communication methods’.^[124] In any event, in most MENA jurisdictions, there are exceptions to having to issue a notice as captured in Article 220 of the Egyptian CC,^[125] which provides as follows:

Notifying a debtor is not necessary in the following cases: 1- If the execution of the obligation becomes impossible or without interest because of an act of the debtor. 2- If the subject matter of the obligation is the recovery of an injury resulting from an unlawful act. 3- If the subject matter of the obligation is the restitution of a stolen thing known as such by the debtor, or something which has been unduly received by the debtor who is aware of such undue receipt. 4- If the debtor declares in writing that he is not going to perform his obligation.

In light of the above, the Egyptian Court of Cassation has ruled that a notification, in commercial matters, can be effected by a mere fax or other urgent means. Also, if the duration for performance of an obligation lapsed, a notification would no longer be required:^[126]

Whereas it is also clear from the conclusions of the first instance judgement – which was not disputed between the parties – that the appellant company provided, as a proof of its claims, the originals of the faxes and expedited reminders sent to the first appellee company to induce it to send the agreed upon goods, which is enough – in the case at hand – as a notification as per Article 58 of the Commercial Code referred to above on the basis that the dispute in relation thereto is commercial between two companies, the conditions of urgency are satisfied by the failure of the appellee company to supply in the due time. This is due to the fact that the obligation of the appellee company to supply has a specific duration in the contract between it and the appellant, and by the lapse of that duration without performing its obligation for a reason attributed to its actions and defaults, it would be obliged to pay compensation without requiring a notification because a notification would not be useful – in such a case – since the specific performance in the determined duration is not possible. Whereas the challenged judgement has violated this reasoning and decided to dismiss the case for the absence of a notification, it has violated the law and erred in its application, which necessitates its cassation.

The Egyptian Court of Cassation held in 1984 that an oral notice may also be effected if so warranted by commercial custom.^[127] This seems to be acceptable under the current 1999 Commercial Code, which allows, under Article 58, the use of any ‘swift communication methods’ in urgent circumstances.

As it appears from the above, the parties’ agreement and conduct determine the form and consequences of the non-fulfilment of a notice requirement in construction contracts.

On a related note, in certain construction contracts, the parties may sometimes agree that if the notice is not served within a specific amount of time:

• the creditor’s right to claim would lapse;
• the creditor would be deemed to have suffered no damage; and
• the debtor would be deemed to have committed no fault.

Whether this operates as a limitation of liability clause or a waiver of right provision, or even a case of suspensive condition, remains subject to the factual matrix of the specific case and the applicable legal provisions.^[128] However, these clauses should not be confused with statutory prescription periods, which set limits for raising a claim; that is, the creditor is barred from seeking relief from the debtor in relation to the debt. As such, the debtor is not expected to bear the burden of the debt perpetually; there is a presumption, therefore, that after the lapse of the prescription period, the debt has been satisfied on part of the debtor.^[129]

Notice provisions are generally unrelated to prescription periods because those clauses do not normally operate to alter any prescription period (or statute of limitation) under the applicable law. Notice provisions are generally enforceable and given effect in Egypt and the rest of the MENA region, subject to any relevant and applicable legal defences based on principles such as good faith, abuse of right or estoppel.^[130]

Global claims

An exceedingly pertinent question in relation to construction disputes subject to the civil laws in the MENA region is whether global claims are recognised under Arab laws. Although global claims are well established and regulated in common law countries, the terminology ‘global claim’ is alien to MENA region arbitrations subject to civil law principles. However, the non-existence of a specific terminology or specific legislative rules to address global claims does not mean that such claims are not capable of being analysed and assessed under the prevailing civil law principles.

Global claim occurs when the claimant alleges two or more breaches and says that those breaches cumulatively caused the loss or losses, but does not specify the proportion of loss that is attributable to each breach. As mentioned above, Arab laws and provisions governing construction contracts make no express reference to global claims. However, this does not mean that they are inadmissible outright. The matter ought to be carefully scrutinised under the prevailing principles of contractual liability and specifically causation.

That said, a global claim may be permissible and may succeed as a matter of law under the generally applicable legal principles of contractual liability,^[131] if the employer’s breaches were interdependent, interconnected and inseparable to an extent that it is impossible or impractical to segregate or separate them. In this event, if the contractor is able to prove that the interdependent and intertwined breaches had a cumulative effect and contributed altogether to the occurrence of the damage, without any separation, then the contractor’s claim may be accepted, provided that the contractor can show that the breaches claimed are all attributable to the employer. In this case, the burden of proof would shift to the employer to avoid liability and disprove what the contractor established. This may be supported by the principles of estoppel and prohibition of taking advantage of one’s own wrongdoing. On a related note, the Egyptian Court of Cassation has previously ruled that ‘a judgment is not subject to annulment if it awarded a lump sum compensation for a number of issues as long as it has discussed each issue separately and identified the basis of entitlement or non-entitlement of the aggrieved party in same’.^[132]

Accordingly, global claims in construction may be admissible as a matter of civil law, if all three elements of contractual liability are satisfied, namely: the fault (breach), the damage and the causation,^[133] and if it is established that the breaches attributable to the employer are inseparable.

Constructive acceleration

Constructive acceleration is a common construction claim derived from the common law jurisprudence and involves, in essence, the speeding up of the progress of work on the inferred or tacitly expressed instruction of the employer.^[134] As to the law regarding acceleration, there are implied grounds for assertion of a claim. This has become known as constructive acceleration.

The doctrine of constructive acceleration is well recognised in the United States and is gaining traction in other legal jurisdictions around the world, including England and Canada. The trend in addressing constructive acceleration is to look solely to whether:

• delays were excusable;
• the contractor was ordered to accelerate; and
• that actual acceleration caused the contractor to incur extra costs.

Most civil law jurisdictions do not recognise the term ‘constructive acceleration’ and Arab laws do not have legislative provisions addressing such claims. However, terminology does not matter and alternative routes to recovery exist, where the contractor is in excusable delay but is not given corresponding schedule relief and is ordered to accelerate, and so incurs additional costs. In these situations, the contractor may recover damages under different legal principles, such as breach of contract, implied terms, mitigation of delay and damages.

In principle, it is established that a FIDIC contract does not necessarily oblige the contractor to accelerate and make up for the delay, if the delay is an act of, and caused by, the employer. Nevertheless, as a manifestation of good faith and cooperation in the performance of construction contracts, the contractor may effect constructive acceleration. Furthermore, if the contractor fears (notwithstanding a valid EOT claim) being penalised through the imposition of liquidated damages, the calling of its security bonds or termination, it will have to accelerate and then attempt to claim the costs of acceleration from the employer, assuming that the latter is wholly or overwhelmingly responsible for the delay. In this case, the contractor may have a claim for breach of contract provided that:

• the employer breached its obligations of good faith in the performance of contracts by not granting an EOT;^[135]
• the contractor suffered damage (i.e., additional costs incurred as a result of accelerating the work); and
• a direct causality exists between the breach and damage.

Again, the lack of express legislative provisions on a specific matter such as constructive acceleration’ does not necessarily imply that such a matter is non-existent or illegal under the applicable Arab law; the matter ought to be carefully scrutinised under the prevailing principles of contractual liability and other pertinent civil law principles to ascertain whether it, or an equivalent thereof, can be recognised under the applicable law.

Maintaining economic equilibrium in administrative public contracts

A large part of constructions contracts in the MENA region come in the form of public works administrative contracts that may be subject to specific principles and norms not necessarily encountered in a standard civil law context. Given the proliferation of use of FIDIC in state contracts and the inherent difficulty associated with characterising a contract as administrative (noting that not all state contracts are administrative contracts), it is worth shedding some light on the specificity of administrative construction contracts as a feature of the MENA region.

Generally, it is submitted that the classification of a contract as administrative relies on the collective fulfilment of the following conditions:

• the administration (public entity) must be a party to the contract;
• the contract must relate to a public utility; and
• the contract must include exceptional conditions anomalous to private law contracts.

In this context, the Egyptian Supreme Administrative Court held that a contract is administrative if the administration’s intention to apply public law principles appears by the inclusion of one or several anomalous conditions to private law contracts.^[136] In principle, there are two types of exceptional conditions:

• conditions reflective of public authority privileges; and
• conditions in application of public law principles.^[137]

In brief, the contract must reflect the state’s intention to showcase its jus imperii powers and to uphold public law principles in its contract.^[138] In the context of construction (public works) contracts,^[139] several legal principles may come into play, especially in the context of maintaining the economic equilibrium of the contract. It is in this specific situation that the administrative theories of fait du prince and imprévision gain importance.

As a general rule, fait du prince is defined as an act or measure, whether public or private (targeting only the opposing contracting party), issued or undertaken by a contracting public authority without fault or breach on its part, and that results in increasing the contractual burden of a contracting party in an administrative contract. In this case, the contracting authority is bound to compensate the other party for the damage sustained (loss suffered).^[140]

The Egyptian Supreme Administrative Court upheld this doctrine in its judgment of 11 May 1968, and ruled that ‘the interference of the Administrative Court to achieve the financial equilibrium of the administrative contract for the application of the doctrine of “fait du prince” presupposes/requires the satisfaction of its conditions’.^[141] The conditions that must be collectively fulfilled are:

• the existence of an administrative contract;
• the act is issued from the contracting authority, and it is presumed that the contracting authority is not in default or breach by undertaking the act;
• a harm results from the act and is suffered by the contracting party (i.e., without need for a specific degree of gravity or harm);
• the act is unforeseen; and
• the damage suffered by the contracting party is specific so that others (third parties) are not affected.

Additionally, the Egyptian Supreme Administrative Court upheld the doctrine of imprévision in the context of administrative contracts,^[142] where imprévision remains subject to the same conditions discussed above. However, in an administrative public works contract, the remedy would be compensation, whereas, in civil law, the courts have broader powers to restore the cumbersome obligation to reasonable limits. Nevertheless, imprévision is not intended to compensate a contractor for all its losses; it aims to restore only the excessively onerous obligation to reasonable limits, so that the employer’s utility is not affected and the contractor is not severely harmed.

Delay damages

It is common knowledge that delay damages or liquidated damages are the employer’s strong tool and remedy for the contractor’s breaches, and they are regularly invoked and flagged in construction-related arbitrations. Liquidated damages are also an area where common law and civil law principles collide, and where administrative law principles intervene to distinguish penalties from delay damages.^[143]

Generally, in civil law contracts, a party may avoid damages by proving:

• it committed no breach;
• the breach is attributable to an alien cause or the other party’s acts or omissions;
• the non-existence of a causal link; and
• no loss or harm was suffered or sustained by the aggrieved party.

A liquidated damages clause is an agreed compensation for either non-performance, delay in performance, or both. Mostly, liquidated damages clauses are drafted as an agreed compensation for delay; they are seldom drafted as a compensation for non-performance in construction contracts. Generally, a contractor is under an obligation to achieve completion of the work by the agreed time and his or her obligation to complete the work is an obligation to achieve a result.^[144]

Thus, on one hand, the fault element of the contractor’s liability for delay in completion cannot simply be obviated by establishing that the contractor has exercised the due care of a reasonable person. Nevertheless, a contractor may avoid liability for delay by proving that the reason for the delay was beyond the contractor’s control, such as force majeure, supervening events beyond the contractor’s control, an act of a third party or the employer’s own fault.

On the other hand, the harm element of liability is rebuttably presumed by virtue of the liquidated damage clause. Although the employer needs only to prove the contractor’s delay (fault element) to apply liquidated damages, the harm element is readily presumed and the burden of proof is shifted to the contractor to refute that presumption and avoid liquidated damages.^[145] Liability for liquidated damages would also be avoided if the delay in performance is attributed to the contractor’s lawful exercise of its right of exceptio non adimpleti contractus.^[146]

In addressing damages or harm in general, Article (170) of the Egyptian CC grants courts a broad authority in quantifying damages,^[147] and empowers courts and tribunals to quantify compensation, through the mechanism set out in Articles (221) and (222) of the Egyptian CC.^[148]

Moreover, it is also common in construction contracts that capped liquidated damages are agreed in respect of a contractor’s failure to achieve the contractually specified and agreed performance standards.^[149] Capped liquidated damages clauses work to save the employer the need to prove loss in events of delay by the contractor, and also to keep contractors informed about the magnitude of their potential exposure resulting from delay in performance. Accordingly, the general principle would be that courts or tribunals would uphold the agreed liquidated damages clause and will not reduce same in insofar as:

• liability is not avoided;
• the harm or damage presumption is not refuted;
• the amount of liquidated damages is not proven to be excessively exaggerated; and
• the contractor has not performed part of the obligation. This condition is not required if the obligation in question is indivisible.^[150]

Liquidated damages also work as a limitation of liability clause. For instance, an employer cannot claim damages for delay in excess of the amount stipulated in a liquidated damages clause unless gross fault or fraud is established and attributed to the contractor.^[151]

With the exception of Tunisia and Morocco, the majority of Arab laws recognise and incorporate provisions regulating capped delay damages or liquidated damages, and these laws are largely influenced by Egyptian law. Article 224 of the Egyptian CC states:

(1) Damages fixed by agreement are not due, if the debtor establishes that the creditor has not suffered any loss. (2) The judge may reduce the amount of these damages, if the debtor establishes that the amount fixed was grossly exaggerated or that the principal obligation has been partially performed. (3) Any agreement contrary to the provisions of the two preceding paragraphs is void.

Although most Arab laws^[152] provide for similar provisions of equal overriding mandatory nature, the Jordanian CC, the UAE CC and the new Omani Civil Code of (2013) (Omani CC) offers a wider discretion to local courts. For instance, Article (267) of the Omani CC, also encapsulating an overriding mandatory norm,^[153] stipulates:

(1) If the object of the obligation was not an amount of money, the contracting parties may determine in advance the value of compensation by stipulating same in the contract or a subsequent agreement. (2) The Court may, in all events, based on a request by one of the parties, amend such agreement to make the quantification equal to the damage. Any agreement to the contrary shall be null and void.

Consequently, as a matter of Omani, Jordanian and UAE laws, a party can apply to the court or arbitral tribunal to override contractually agreed compensatory arrangements and adjust the specified compensation to equate it to the actual damage or harm suffered.^[154] The court’s moderation of the obligation to pay liquidated damages can also be sought on different grounds, such as exceptional general events, where partial or total discharge of the obligation may be also sought on grounds of force majeure causing partial or complete impossibility of performance, where applicable.

In light of the above, it may be summed up that, under Egyptian law as well as under many other MENA laws, there are a number of defences that may extinguish or reduce the obligation to pay liquidated damages, including:

• the creditor has not served a notice on the debtor;^[155]
• the creditor has not established the debtor’s fault (i.e., that the debtor has not performed or has delayed in performing its obligation);^[156]
• the debtor proves that the creditor has not suffered any harm;^[157]
• the debtor proves that the damages are related to an alien cause (i.e., the creditor’s own fault, third parties’ actions or a force majeure event);^[158]
• the liquidated damages relate to an unforeseeable harm at the time of conclusion of the contract;^[159]
• the liquidated damages relate to indirect damages;^[160]
• the creditor has claimed termination of the contract;^[161]
• the creditor has claimed specific performance of the contract while also claiming liquidated damages for non-performance;^[162]
• if specific performance is still feasible and applicable;^[163]
• if the principal obligation, which the liquidated damages relate to, is null;^[164]
• if the debtor is entitled to invoke exceptio non adimpleti contractus, the debtor will not be susceptible to delay damages in relation to the non-performed obligation;^[165]
• the debtor proves that the liquidated damages are highly exaggerated;^[166] and
• the debtor proves that it has performed the respective obligation or obligations in part.^[167]

Concurrent delays

Concurrent delay refers to a period of delay in a construction contract caused by one or more factors, where some of those factors are attributed to the contractor but others are attributed to the employer, which affect the project’s completion date,^[168] or occur simultaneously, or share a common point in time.^[169]

On one hand, a case of concurrent delay might be utilised by contractors as a shield and a sword; a shield from the application of liquidated damages and a sword to claim entitlement to an EOT. On the other hand, employers may attempt to invoke the same to undermine and moderate contractors’ claims for prolongation costs.

The problem concerning this situation is who exactly should bear the consequences of the delay.

Under common law jurisprudence, different notions of causation have been deployed to allocate the risk in a case of concurrent delay (the Malmaison approach, but-for causation, apportionment and dominant cause).^[170]

Under most MENA region civil codes,^[171] the causation theory expressly deployed in matters of concurrent liability, whether contractual or tortious, is a mixture of the theory of apportionment and the theory of dominate cause. For instance, on the issue of apportionment of liability, Article 169 of the Egyptian CC, as in most of the MENA region,^[172] stipulates:

[i]f there’s a number of persons liable for a wrongful act, they would be jointly liable to compensate the damage, and the liability would be divided between them equally, unless the judge decides the portion of liability attributed to each of them.^[173]

Article 169 applies to cases where (1) there is more than one person liable for a wrongful act that causes damage and (2) the injured party is among those who contributed to the harm (e.g., a case of concurrent delay).^[174] Notwithstanding Article 169, Article 216 of the of the Egyptian CC, as is the case in many MENA region countries,^[175] has also provided a special application to both the theories of apportionment and dominant cause where an injured party contributes to his or her own loss:

The court may reduce the amount of compensation or not award same at all where the fault of the creditor contributed to or aggravated the damage.^[176]

Thus, courts and tribunals have the discretion to apportion liability among the wrongdoers (apportionment theory) or, according to some MENA region jurisdictions,^[177] dismiss it altogether (where the dominant cause theory applies).^[178] Similarly, the UAE Federal Supreme Court has held that:

A judge may reduce the amount of damages or dismiss same at all if the injured party has participated by its own action in effecting the damage or aggravating same. This provision addresses the rule applied in the case of joint fault, which applies equally to both contractual and tortious liabilities.^[179]

The Egyptian Court of Cassation has applied the theory of apportionment in many cases; for instance, it was held that:

Whereas the challenged judgment . . . has dismissed both appellants’ claims pertinent to the defendant company‘s fault in using the leased property [of the appellants] in a way that prejudices the integrity of the building on the basis that the defects that affected the building, subject of the dispute, have resulted from the owners’ [appellants] use of low quality types of reinforcing steel, other used materials, and iron bars, which lead to the defects and cracks in the building while the judgment ignored that the company [defendant] has contributed to the prejudice concerning the integrity of the building due to its employees and clients abusive use of the bathrooms, where they [the defendant] did not care to repair the trays and sewage pipelines, which lead the ground to be filled with humidity and dribbling, which affected the reinforcement steel and caused the cracks, thawing to the concrete roof roofing . . . Hence, the challenged judgment’s reliance, in its ruling, [only] on the fault of the owner [appellants] in causing damage to the integrity of the building and dismissing the claim . . . even though the company’s liability to those damages is proven to be 40 per cent makes the judgment erroneous and necessitates its cassation.^[180]

This leads to the following conclusions:

• Principally, the theory of apportionment applies, being dominant in many Arab civil codes.^[181] In this regard, the court or tribunal shall discern the amount of delay attributable to each party so that they would be able to apportion liability between the contractor and the employer, each according to the degree of fault it committed in relation to the other.^[182]
• If, however, the court or tribunal is unable to discern the amount of delay attributable to each party according to their faults, the liability for delay would be divided equally between the employer and the contractor,^[183] which is the general solution adopted under Article 169 of the Egyptian CC and similar Arab civil code provisions.^[184]
• In certain MENA region jurisdictions,^[185] if one of the causes of delay highly outweighs the other to the point that one dominates or consumes the other,^[186] or where one cause is merely consequent upon the other,^[187] the effective cause therewith would be considered the dominant cause and the person to whom the dominant cause is attributed would bear 100 per cent of liability.^[188]

Under the Egyptian CC (and many MENA region laws as mentioned above), a court or tribunal also has the authority to moderate the amount of liquidated damages if the harm is proven to be highly exaggerated or if the debtor proves that he or she has performed part of the obligation.

Professor Soliman Morkos opines that, as a preliminary issue, if one of the faults is of a ‘highly probable’ but not certain causative potency while the other is of an ‘assured’ and ‘certain’ causative potency, it is likely that only the latter would be deemed the relevant cause of the harm.^[189]

The Egyptian Supreme Administrative Court generally applies the principle of apportionment.^[190] In the specific context of construction contracts, the Court also recognises the principles of apportionment and dominant cause.^[191] Saudi law also recognises this.^[192]

Exception of non-performance (exceptio non adempleti contractus)

It is not uncommon in construction disputes for parties to invoke exceptio non adempleti contractus. This is mainly due to the nature of construction contracts, which are typically bilateral contracts with reciprocal obligations that correspond to each other. A plea of exceptio non adempleti contractus is a shield that entitles the creditor to abstain from performing its obligations until the debtor performs its corresponding and due obligations.^[193]

In this respect, Article 161 of the Egyptian CC sets the principle of exceptio non adempleti contractus, which is replicated in most of the MENA countries’ civil codes,^[194] and provides that ‘in bilateral contracts if both reciprocal obligations fell due, each party may abstain from performing its obligation if the other party did not perform its own obligation’.

By way of illustration, the Bahraini CC explicitly adds that the plea is applicable ‘unless the parties agree or the custom provides otherwise’.^[195] In the same vein, the Moroccan COC also adds that the plea is applicable:

unless one of them is obliged by virtue of an agreement or by law to perform his/her part of the obligation first. If performance is due vis-à-vis a number of persons, the debtor may abstain from fulfilling the obligation to any of them until a full settlement of his/her entitlements in relation to the reciprocal obligation.^[196]

On a related note, in the specific context of construction contracts for work, Article 656 of the Egyptian CC provides that ‘payment shall be due upon receipt of the work, unless the custom or agreement otherwise requires’.^[197]

On that basis, there are generally five conditions for the invocation of a plea of exceptio non adempleti contractus:^[198]

1. there should be a bilateral contract;^[199]
2. the plea shall be invoked in relation to reciprocal or correlated obligations in an existing contract. In this respect, the courts have wide discretion in determining whether and to what extent the obligations are correlated or connected;^[200]
3. the correlated obligation must have fallen due and is legally binding;^[201]
4. the party invoking the plea shall not be obliged by virtue of the parties’ agreement or the custom to perform its obligation prior to the debtor’s fulfilment of its corresponding obligation;^[202] and
5. the party shall invoke the plea in good faith. Thus, the creditor invoking the plea shall refrain from abusing the plea (e.g., subject to the facts of each case and the applicable law, where the other non-performed obligation of the debtor is trivial compared with the creditor’s non-performed obligation, where the party invoking the same was the one who started abstaining from performing its obligation, or where the debtor’s non-performance is attributable to the creditor).^[203] However, subject to the facts of each case, the applicable law and stipulations of good faith, the creditor may still invoke exceptio non adempleti contractus even if the debtor has partially fulfilled its correlated obligation.^[204]

Notably, subject to the facts of each case and the peculiarities of the applicable law, (1) it is not legally required to file an action nor to serve a notice on the other defaulting party prior to relying on the plea of exceptio non adempleti contractus,^[205] (2) the connection between the correlated obligations does not require a causal link between both obligations,^[206] and (3) the relevant contractual obligation need not correspond to another proportionate and predetermined obligation.^[207]

Decennial liability

Decennial liability is a mandatory strict regulation of a certain construction-specific liability. In the context of construction contracts, MENA region construction-related regulations include mandatory strict decennial liability in the civil codes of countries such as Algeria, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Oman, Qatar, Syria and the UAE.^[208]

Unlike the approach adopted by other MENA region countries where decennial liability is featured in the provisions of the civil code, the Saudi CC does not contain a provision providing for decennial liability in construction contracts. However, this certainly does not mean that Saudi law does not recognise it. In this respect, the Saudi Building Code Application Law (SBCAL), which was approved by Royal Decree No. M/43 dated 24 January 2017, and amended on 18 September 2019, provides in Article 8(2) (as amended) the framework for decennial liability in Saudi Arabia. Furthermore, and in line with other Arab laws, Article 29 of the Executive Regulations of the SBCAL (approved by Royal Decree on 28 June 2018 and amended on 31 October 2019) provides for a 10-year liability period. Furthermore, Article 2 provides that the SBCAL applies to construction work in the public and private sectors, including the design, implementation, operation, maintenance and modification of the building, and also applies to existing buildings in the event of their restoration, change of use, expansion or modification. This means that decennial liability applies to all types of construction work in both the private and public sector in Saudi Arabia.

Contractors, according to the prevailing view, have an obligation to achieve a specific result, which is to duly perform its work without defects.^[209] Decennial liability also imposes the joint and several liability of contractors, architects and engineers regarding any defects affecting the structural integrity of the building or causing total or partial collapse. This liability operates as a mandatory overriding provision that may not be derogated from by agreement or choice of a foreign law, if that choice of foreign law (in relation to construction contracts relating to immovables) is legally permissible in the pertinent jurisdictions.

Under decennial liability, architects, engineers and contractors are jointly liable for partial failure or total collapse of constructions or other installations for a period of 10 years from the date of handover.^[210] Although most Arab laws provide for a 10-year liability period, Article 876 of the Tunisian COC and Article 668 of the Lebanese Civil Code (1932) provide for a five-year period.

The burden of proving that the collapse resulted from an external event beyond the jointly liable persons lies with those persons.

The liability period generally extends to 10 years, unless the parties intend to keep the building for a shorter period,^[211] or the pertinent civil law provides for a shorter period, such as the former Bahraini rule providing for a five-year period.^[212] Following the enactment of the Bahraini Civil Code in 2001, the liability period was extended to 10 years, as is the case in other Arab states.^[213] Furthermore, any clause intending to limit or exclude the decennial liability shall be null and void.

The MENA jurisdictions share the following features of decennial liability:

• it runs from handover and lasts for a period of five or 10 years, or such lesser period, depending on the jurisdiction and whether the building is intended to last for a shorter period;
• it arises notwithstanding that the collapse or defect resulted from a defect in the land;
• it is joint and several, where the employer can proceed against the contractor, the engineer or the architect for the full amount of the claim; and
• it is considered of an overriding mandatory nature and so cannot be excluded or limited by contractual arrangements or possibly choice of foreign law (assuming such choice is permissible).

Exemption of liability

It is not uncommon in construction disputes for parties to invoke exemption of liability clauses. In this respect, parties to construction contracts often add limitation and exclusion of liability clauses. This includes, by way of illustration:

• exclusion of loss of profits, opportunity loss, moral damage or other heads of losses from the scope of compensation;
• limiting the period during which compensation may be claimed, such that a waiver of right, to the extent that the waiver is unequivocal, would bar subsequent claims;^[214]
• agreeing on a certain amount as liquidated damages representing the maximum amount of compensation in relation to the contractor’s delay or defective performance;^[215]
• limiting the amount of compensation as a whole to a percentage of the contract price;
• agreeing that the contractor will not assume certain technical risks during construction (e.g., uninterrupted operation of the facilities during construction);
• agreeing that the employer will not assume risks in relation to the accuracy of the information given prior to the commencement of the construction work (e.g., soil or weather conditions);^[216] or
• agreeing that a contractor will not assume the risk of delayed payments to the subcontractor if the delay is attributable to a corresponding delay by the employer to make payments to the contractor.

Indeed, the validity and enforceability of these clauses will depend on the facts of each case and on the applicable law. Simply put, in a limitation or an exclusion of liability agreement, parties agree that the liability of one of these in relation to the other party is either exempted or limited.^[217] Generally, with the exception of Libya,^[218] limitation and exclusion of liability clauses are, to varying degrees, permissible in the MENA region.^[219] However, a party cannot, as a general principle, limit or exempt itself from its own liability arising from torts, gross fault or fraud.^[220] Nonetheless, Egypt, Algeria, Syria and Iraq permit limitation or exclusion of liability agreements in relation to gross fault or fraud committed by people employed by the party responsible for performance.^[221]

Suspensive conditions

Parties to construction contracts uneventfully add suspensive conditions to one or more of the obligations in the contract. An obligation is deemed conditional if the obligation’s existence or extinction depends on a future uncertain event. Conditions can either be suspensive or resolutory.

A ‘suspensive condition’ is one that has the effect of suspending the effect of an obligation until the agreed uncertain event occurs or is realised.^[222] Examples of suspensive conditions include, among other things, suspending:

• the issuance of a completion certificate by the employer on the completion of a successful performance test by the contractor;
• the entitlement to an EOT claim on serving a notice within a certain period;
• the commencement of the work on the handing over the site; and
• the performance of the work on securing any agreed financing.

In specific reference to suspensive conditions, it was held by the Egyptian Court of Cassation that if the debtor intervenes and contributes to the non-fulfilment of the suspensive condition, the debtor would be liable and the obligation may well be deemed fulfilled, even if the suspensive condition has not actually materialised.^[223]

That said, there are three types of suspensive conditions: fortuitous, voluntary and mixed.^[224] Both fortuitous and mixed conditions are valid.^[225] As to the voluntary condition, it is either (1) a simple voluntary condition or (2) an absolute voluntary condition. A ‘simple voluntary condition’ is not simply conditional on the will of one of the parties but is also constrained by the surrounding circumstances; for example, obtaining an approval from an independent third party (not subject to the control of the employer) as a suspensive condition for the acceptance of the work by the employer may well be a simple voluntary condition. Simple voluntary conditions are legally valid.^[226]

An ‘absolute voluntary condition’ is dependent on the will of either the creditor or the debtor. If the condition is dependent on the will of the creditor, it is valid and binding. However, if it is subject to the will of a unilateral debtor, the obligation becomes non-existent ab initio (i.e., the obligation is considered as never having been created).^[227]

Duty of mitigation

The duty of mitigation is known in both civil and common law systems. Article 221(1) of the Egyptian CC, as is the case with many MENA region civil codes,^[228] states:

The judge shall fix the amount of compensation, if it has not been fixed in the contract or by law. The amount of damages includes losses suffered by the creditor and profits of which it has been deprived, provided that they are the normal result of the failure to perform the obligation or of delay in such performance. These losses shall be considered to be a normal result, if the creditor is not able to avoid them by exerting reasonable effort.^[229]

Commenting on this Article, Professor Dr Al Sanhoury stated that:

If the injured party did not perform reasonable efforts to avoid the damage, he would be deemed as having committed a fault; thus, there exists a common fault, and the injured party would have to bear the consequences of his fault by bearing the damage caused by that fault.^[230]

This proves, from a civil law perspective, the existence of a general duty of mitigation by the aggrieved party, or it may risk moderation and reduction of the compensation by its own fault, which contributed to the loss sustained.

The duty of mitigation can be seen as subordinate to the obligation of cooperation dictated by the general duty of good faith. This duty exists whether in the context of the contractual or tortious liability.^[231] Courts throughout the MENA region have also confirmed that the damage for which the aggrieved party can seek compensation is such that could have not been avoided by taking reasonable steps by that party.^[232]

Although there are no strict criteria for determining what constitutes reasonable mitigation efforts, it is commonly agreed that these efforts should not be burdensome on the aggrieved party. According to the UNIDROIT Principles of International Commercial Contracts 2016, these efforts can be directed either to limit the extent of the harm ‘where there is a risk of it lasting for a long time if such steps are not taken’ or to avoid any increase in the initial harm.

Once the reasonable mitigation efforts are undertaken, there exists no prohibition that prevents an aggrieved party from seeking to recover mitigation costs on the basis of the principles of contractual liability as well as the general principle that a party may not benefit from its own wrongdoing.

Under Egyptian law, compensation (inclusive of incurred costs and expenses that form part of the losses) is not due if the aggrieved party did not suffer any harm. In the case of a sustained harm, the amount of compensation, subject to any limitation of liability clause, would include all direct losses incurred, including mitigation expenses.

The Egyptian Court of Cassation has held that the determination of compensation is a factual matter that falls within the jurisdiction of the trial court; however, the determination must be proportionate to the sustained harm.^[233] Thus, an arbitral tribunal would be at liberty to assess the value and scope of compensation as inclusive of the costs and expenses of mitigation and their characterisation as direct and foreseen losses or not.

Finally, we briefly address two scenarios relating to recovery of mitigation costs. These scenarios specifically pertain to the situation where mitigation costs were incurred prior to a contractual breach by the employer, if at all possible. In this scenario, the aggrieved party may have anticipated or envisaged a forthcoming breach by the other party and so acted prudently to mitigate the damage that was likely to ensue as a result of the anticipatory breach materialising.

In this first scenario, the breach happens and the damage is sustained despite the mitigation efforts. In this case, the aggrieved party would have incurred costs prior to the actual breach and damage. From a purely legal perspective, a potential breach of contract cannot be considered an actual default or breach to form the basis for recovery. However, a court or tribunal may treat this as a manifestation of good faith,^[234] and if the damage unfolds, compensation is likely to include mitigation costs that directly contributed to the reduction of the damage or loss sustained.

In the second scenario, if the breach does not occur and the damage does not materialise, even though the aggrieved party had incurred mitigation costs, one should distinguish between two possibilities: (1) the breach and damage have not occurred owing to the mitigation efforts undertaken by the aggrieved party; and (2) the breach and damage have not occurred for unknown reasons or reasons other than the mitigation efforts undertaken by aggrieved party. Although there is no direct Arab authority or judgment on the point, if under possibility (1) the aggrieved party managed to prove that the breach and damage have not materialised, in whole or in part, because of the mitigation efforts or actions, then to the extent that the actions were the direct cause for the non-materialisation of the breach or damage, a court or tribunal should order recovery of the costs on the premise that the efforts and actions led to a clear avoidance of contractual breach and harm that would have otherwise materialised. However, under possibility (2), the aggrieved party will not be entitled to recover costs of mitigation simply because that scenario confirms the lack of a causal link; hence no liability can be established.

Unjust enrichment or enrichment without cause (de in rem verso) claims

In construction contracts, parties sometimes invoke unjust enrichment or enrichment without cause claims. There are two possible scenarios that might give rise to an unjust enrichment claim. Under the first scenario, contractors in construction projects often execute extra work based on instructions from the engineer or the employers to vary the work. Normally, instructions for extra work are regulated under variation clauses, which usually entitle the contractor to the value of the extra work. However, contractors may perform extra work based on invalid instructions or without instructions at all. In such cases, variation provisions might not provide the appropriate remedy. Under the second scenario, employers may overpay contractors to accelerate the work or to overcome the contractor’s cash flow issues. In some contracts, there might be no provision regulating issues of overpayment. In both scenarios, the contractor or the employer may resort to the legal remedy of unjust enrichment.

Most MENA region jurisdictions recognise the doctrine of unjust enrichment or enrichment without cause.^[235] Article 179 of the Egyptian CC provides that:^[236]

Every person, even irrational ones, who is enriched without just cause at the expense of another, shall, to the extent of his/her enrichment, indemnify the other for his loss, such obligation subsists even if the enrichment ceases afterwards.

However, in Egypt, Bahrain, Kuwait, Libya, Qatar, Syria, Jordan and the UAE, an action de in rem verso is barred upon the lapse of three years from the day the party becomes aware of its right to be compensated or, in all cases, upon the lapse of 15 years from the day the event occurred.^[237] Other MENA region countries have prescribed different limitation periods: five years in Oman,^[238] 10 years in Algeria^[239] and 15 years in Tunisia.^[240] Article 159 of the Saudi CC provides that an action de in rem verso is barred upon the lapse of three years from the date the creditor becomes aware of its right to be compensated or, in all cases, upon the lapse of 10 years from the date the right arose.

Although, as a matter of principle, a claim of unjust enrichment may not, subject to the applicable law, coexist with contractual claims, unjust enrichment may nonetheless be invoked, in the presence of a contract, if the issue of enrichment is not related to the contract or the contract is not the cause of the enrichment. The Egyptian Court of Cassation provides the following:

Therefore, if a contractual relationship is found between the creditor and the debtor, there would be no place for a claim for unjust enrichment, rather, the contract will be the law that governs the relationship between the parties and provides the rights and obligations of both of them. This means that if the enrichment that happened or the impoverishment that resulted therefrom is not related to the contract concluded between them and is not the basis for that enrichment, this contractual relationship would not prevent the impoverished party to claim unjust enrichment against the enriched party.^[241]

In this regard, it was ruled that a party may be able to reimburse the expenses paid or services provided in excess of the maximum contractual limit if the other party benefited from the work associated with those expenses.^[242] That said, the conditions of unjust enrichment are generally as follows.

• Enrichment of the debtor: This condition is fulfilled when the debtor earns a right or witnesses either an increase in its assets^[243] or a decrease in its liabilities.^[244] Notably, enrichment of the debtor may be caused by either the enriched person or the impoverished person (the debtor) themselves.^[245] The enrichment is quantified by reference to the time of its occurrence irrespective of the inflation.^[246]
• Impoverishment of the creditor: The creditor must also suffer a corresponding loss or impoverishment. This happens if the creditor loses existing assets or a benefit, becomes obliged to perform an obligation or does not acquire compensation for services rendered.^[247]
• Causal link: The impoverishment suffered by the creditor and the enrichment realised by the debtor should be connected by a causal link, such that the enrichment would not have happened but for the impoverishment.^[248]
• There shall be no legal cause justifying either the enrichment or the impoverishment: This condition is necessary because, if the enriched party had a legal reason justifying the enrichment, such as a contractual clause, tortious liability or an award, there would be no room for unjust enrichment.^[249] In the same vein, if the impoverished party is able to claim compensation based on another source of obligation, such as a contract, there would also be no room for unjust enrichment.^[250]

If the conditions of unjust enrichment are established, the creditor would be entitled to either the value of the debtor’s enrichment or the value of the creditor’s impoverishment, whichever is the lesser.^[251]

Interest

Interest remains a hot topic in the MENA region’s legal systems and specifically in the context of construction disputes.

Generally, interest can be claimed for delay or as compensation; however, there are certain specificities when claiming interest in certain MENA region legal systems. These include the legality and illegality of claiming interest, the applicable rate or rates,^[252] whether interest can be compounded, whether interest can be claimed for any debt, the time at which interest starts to accrue and whether the contracting parties are legally permitted to derogate from any applicable statutory regulation of interest.

Although an analysis of the specificities referred to above is beyond the purpose and scope of this chapter, and this section, which focuses exclusively on the applicable statutory interest rates, it suffices to state that the legality, scope and conditions of interest differ significantly across the MENA region jurisdictions; for example, interest is altogether prohibited under Saudi law.

Specifically, in relation to interest rates, the Egyptian and Syrian statutory interest rates (in non-banking transactions) vary from 4 per cent per annum in civil matters to 5 per cent per annum in commercial matters,^[253] noting that an agreement on an interest rate in excess of 7 per cent is prohibited under the Egyptian CC,^[254] and an interest rate in excess of 9 per cent is prohibited under the Syrian Civil Code.^[255] Moreover, under Syrian law, if the interest rate is not agreed, then its determination shall be according to the custom and trade usages in commercial matters.^[256] Moreover, the Kuwaiti and Bahraini civil codes prohibit agreements on interest in civil law matters.^[257] Furthermore, the Qatari, UAE and Omani civil codes uphold the same principles as in the Kuwaiti and Bahraini civil codes, with the exception that they do not impose the condition of extra­ordinary harm.^[258] In commercial law matters, the Kuwaiti Commercial Code allows for a 7 per cent interest rate on the non-payment of or delay in the payment of commercial debts.^[259] It also allows parties to agree to an interest rate that does not exceed the rates published by the Central Bank of Kuwait.^[260] The Bahraini Commercial Code also allows for an interest rate in commercial matters.^[261] The Qatari Commercial Code does not explicitly provide a different statutory approach in commercial matters, yet judgments indicate that an interest rate might be upheld in the case of commercial matters by virtue of the commercial custom.^[262] The Omani Commercial Code provides that parties may agree on an interest rate subject to the ceiling specified in the pertinent ministerial decrees.^[263] In addition, the UAE Commercial Code provides that, in commercial matters, the parties may agree on an interest rate and, in the absence of an agreement, that rate shall be determined according to the rate prevailing in the market during the time of the transaction, which shall not exceed 12 per cent.^[264]

Revocation of contracts

In construction contracts, nullity, termination and rescission are legal doctrines that provide a way out for parties if the contract seems to be legally invalid or inoperable or where there seems to be a deadlock in the life of the contract.^[265] For instance, the contractor may indefinitely suspend the construction work or elect not to follow certain instructions given by the employer; likewise, the employer may order the indefinite stoppage of the work or stop paying any dues under the contract. Also, both parties may simply abandon the contract or may never be able to legally, contractually or factually start performing the contract. In this respect, termination, rescission or nullification may be the appropriate legal remedy, as the case may be, for the party that wants to free itself from the contractual relationship.

In this regard, construction contracts often provide for termination or rescission clauses but rarely provide clauses that regulate the nullity of the contract.^[266] Nullity or invalidity in the MENA region jurisdictions may be defined as ending the contract for (1) the failure of one of the pillars of the contract (i.e., the consent (redah) of the parties, the subject matter (mahal) of the contract and the cause (sabab) of the contract), or (2) the failure of one of the contract’s conditions of validity (i.e., the sufficiency of the parties’ capacity and the non-existence of any of the vices of consent).^[267] However, termination or rescission (collectively referred to as dissolution) of the contract presupposes that the contract is initially valid, yet one of the parties requests the dissolution thereof (1) because of the failure of the other party to perform its contractual obligations (faskh), (2) because both parties agreed on the dissolution (takayol), or (3) because the law permits one of the parties to unilaterally dissolve the contract.^[268] Moreover, while under nullity or invalidity, the contract is nullified retrospectively (as if it has never existed) and parties are restored to the status quo ante; under dissolution the contract does not always have to be rescinded retrospectively.^[269]

Generally, in the MENA region jurisdictions, the law may grant employers the right to terminate or rescind the contract for convenience (i.e., before its completion at any time on the condition that it compensates the contractor for its incurred costs, performed services or work and the profits that it may have earned if the work was completed).^[270] However, unless the parties agree otherwise, Oman, Jordan, the UAE and Saudi Arabia do not seem to provide for an express legislative right for the employer to terminate the construction contract for convenience; rather the legislation stipulates that, for termination to be valid, there should be an excuse that prevented the terminating party from performance.^[271]

Parties may also resort to judicial rescission under construction contracts as well as other contracts if certain conditions under the applicable law are met, noting the court or tribunal’s discretion regarding the assessment of the fulfilment of the conditions for judicial rescission. The parties may also stipulate that termination or rescission may take place without the need for a notice, judicial decision or an arbitral award. In this case, termination or rescission will take place; the party requesting termination or rescission will no longer have to file a termination or rescission action for the termination or rescission to be valid, but will still have to issue a notice to the debtor.^[272] Generally, judicial rescission, if awarded, restores the parties to the status quo ante as if the contract has never existed. However, if restoration is not possible, compensation may be awarded instead.^[273]

It is important to note that Article 113 of the Saudi CC explicitly provides that dispute resolution clauses and confidentiality clauses survive the dissolution of the contract, unless agreed otherwise by the parties. This means that it is possible that, in some cases, the contracting parties may expressly agree that dispute resolution clauses and confidentiality clauses shall lapse or extinguish along with the container contract by virtue of its dissolution. It also reinforces the argument that the principle of the separability of arbitration agreements does not relate to public policy and can be waived by the parties, provided that the waiver is clearly reflective of the parties’ common intention.

Finally, construction contracts may also be rescinded or terminated by mere operation of the law, which is mainly the case when an impossibility of performance arises in the life of the construction contract.^[274] Professor Al Sanhoury opines that rescission or termination arising from an impossibility of performance is confined to the case when the impossibility is attributable to an alien cause or a third party, but if the impossibility is attributable to the debtor, the creditor may resort only to judicial rescission or rescission by virtue of the parties’ agreement. However, the explanatory memorandum of the Egyptian CC seems to also allow rescission or termination by virtue of law on the basis of impossibility of performance, even if the impossibility is attributed to the debtor.^[275]

Concluding remarks

The construction industry in the MENA region is booming and construction contracts and associated disputes are on the rise.^[276] The majority of construction projects burgeoning throughout the MENA region adopt the FIDIC form of contracts with noticeable proliferation of the FIDIC Red Book form of contract.

However, the business, economic and legal realities confirm the existence of a direct relationship between the proliferation of construction contracts in the MENA region and the increase in construction disputes arising from those contracts. It has been suggested that the principal causes of construction disputes in the MENA region include:

• failure to properly administer a contract;
• failure to make interim determination of EOT and compensation;
• employer-imposed change;
• contract selection was not a ‘best fit’ when compared with the project’s characteristics; and
• third-party events (force majeure, imprévision, etc.).^[277]

Construction contracts are complex agreements and require special expertise to negotiate, draft, prosecute and hear disputes arising from them. This complexity is further compounded in the MENA region owing to:

• certain gaps and possible friction between the agreed terms and conditions and certain applicable civil law principles;
• the principal causes of construction disputes, listed above;
• the outdated legislative regulation of construction contracts in Arab laws;
• relative (unwarranted) avoidance of the needed in-depth scrutiny of the applicable legal principles;
• the existence of a bipolar (civil law–administrative law) system existing in certain Arab jurisdictions, which largely affects the characterisation and performance of construction agreements; and
• prevailing misconceptions of the specificities of the MENA region laws.

It is in this context that scholars, counsel, judges and arbitrators are invited to carefully scrutinise the applicable civil law principles, so as to ensure that they are capable of proper implementation and adaption to the specificities of construction contracts and disputes. It remains for courts and arbitral tribunals to innovate and safeguard the application of the pertinent legal principles under the governing law regime that may not be ignored, overlooked or weighed under a totally alien legal system that may not be relevant to the applicable laws.

Legal principles in the civil laws of the MENA region are capable of accommodating the specificities and intricacies of the construction industry and catering for the disputes arising thereunder, in due consideration of the fact that arbitration is the prominent dispute resolution mechanism and the most favoured option for settlement of construction-related disputes in the region. It has been seen that the principles of good faith, implied terms, abuse of right, estoppel, global claims, constructive acceleration, force majeure and imprévision, delay damages and decennial liability are among the concepts that are regularly invoked in arbitral proceedings, and so careful consideration as to their possible application and scope is required.

For ease of reference, the table below summarises the specific construction law sections in Arab laws, as well as the pertinent arbitration legislation.

In specific reference to construction disputes, it is also clear that the International Chamber of Commerce and the London Court of International Arbitration remain the leading arbitral institutions that administer, inter alia, large-scale construction disputes and arbitrations in the MENA region. Other notable regional arbitral institutions are the Bahrain Chamber for Dispute Resolution, the Cairo Regional Centre for International Commercial Arbitration, the Dubai International Arbitration Centre, the Abu Dhabi Commercial Conciliation and Arbitration Centre, the Qatar International Centre for Conciliation and Arbitration and the newly established Casablanca International Mediation and Arbitration Centre.

Finally, and in light of the above, given the complex and competitive environment of the construction industry, it is common knowledge that construction projects and contracts offer recipes for disputes, no matter how well drafted the contracts are. In this environment, since differences in perception exist among the participants of the projects, conflicts are inevitable.^[278] As explained above, in practice, there are a certain number of common causes for dispute in the construction industry; these are classified into six main categories, as follows.^[279]

Consequently, it is always preferable in the context of construction to adopt measures and techniques for dispute avoidance. In this respect, it is advisable that the contracting parties do the following:

• carefully select the best-fit contract with proper drafting;
• acknowledge the need for contractual balance;
• engage in proper and careful choices of law and forum;
• maintain a high-level team with sensible contract administration and implementation;
• maintain efficient policies for documentation, correspondence, records and claims;
• scrutinise legal and factual rights and follow procedures;
• evaluate and share risks;
• consider the proper utilisation of dispute avoidance and adjudication boards; and
• opt for amicable settlement options prior to proceeding with fully fledged arbitration proceedings.

Footnotes