THE EFFECT OF ARTICLE 390(2) OF THE UAE CIVIL CODE ON LIQUIDATED DAMAGES CLAIMS IN THE UAE CONSTRUCTION INDUSTRY
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Date
2014-03
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Publisher
The British University in Dubai (BUiD)
Abstract
Issues relating to liquidated damages strike at the heart of any construction project as they regularly feature in construction disputes and usually involve substantial sums. In the context of the UAE, there is certain disquiet amongst construction players and legal practitioners alike that the UAE Civil Code, in particular Article 390(2), instead of being a beacon of light to illuminate parties’ rights, has the reverse effect of muddying their rights and obligations when claiming under a liquidated damages clause. Is this criticism of the Article fair or is it merely the musing and whining of parties disgruntled by the court’s exercise of its power pursuant to the Article to do justice in an individual case?
In light of the foregoing, the dissertation seeks to examine the terms of the Article and its impact on claims for recovery of liquidated damages in construction projects in the UAE. In particular, the interplay between the right of parties to freely contract and the court’s supervisory jurisdiction to limit this right, which is a power drawn directly under the Article, shall be highlighted and examined. As a corollary, this analysis also highlights the sometimes uneasy relationship between common law principles, which have spilled over and somewhat overflowed into the UAE legal landscape, and the indigenous civil and Shariah law principles which predicate and overarch the Article and Civil Code.
A study of various UAE case law is undertaken including the analysis of the various principles, tests and thresholds applied by local courts when considering and applying the Article in particular cases. It is also intriguing to ascertain how arbitral panels grapple with the Article in UAE arbitrations especially where the tribunal members or disputants emanate from outside UAE. This has an impact on the wider view in relation to the attractiveness of the UAE as a regional arbitration centre or hub. A recent seminal arbitration decision shall be considered.
The upshot to these, as will be demonstrated, is that the Article is alive and well and is almost frequently argued and applied in the courts. Though not free from infirmities, it does go some distance in achieving justice on a case by case basis. It will also be shown that, at least in one arbitration proceeding, the Article remains relevant and vital in adjusting the rights of parties with a view to achieving fairness between them. The dissertation also proposes a new detailed draft provision which may be considered for adoption to improve the understanding and operational efficacy of the present Article itself.
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Keywords
UAE civil code, liquidated damages, construction disputes, construction industry, United Arab Emirates (UAE), law