Construction 2018 Comparisons

Last Updated May 02, 2017

Contributed By Simmons & Simmons

Law and Practice

Authors



Simmons & Simmons is a leading international law firm with fully integrated teams working through 21 offices in Europe, the Middle East and Asia. The firm’s strategy is designed to ensure it provides its clients with high-quality advice and delivers value through new ways of working. Simmons & Simmons applies considerable expertise to all business sectors but focuses on: asset management and investment funds, financial institutions, life sciences and technology, media and telecommunications (TMT). It also focuses on the energy and infrastructure market, in particular through its international projects and construction teams. Simmons & Simmons acts regularly on the most innovative cases, deals and transactions in its chosen areas of specialism and receives recognition for the quality of its work from clients and others within these industry sectors.

Qatar Petroleum, Qatar Rail, the Public Works Authority (Ashghal) and the Qatar General Electricity and Water Corporation (Kahramaa) each have standard forms of construction contract for use on their projects. Adapted versions of these standard forms are also frequently seen on domestic projects. 

The FIDIC suite of contracts (especially the Red, Yellow and Silver Books) is often used for major international projects not procured by the above entities, and is found in heavily amended form for domestic works. 

Qatar does not have specialised construction courts, and construction disputes are resolved by the civil courts. Judges in the civil courts often appoint external experts to assist them in analysing technical construction issues. Qatar court proceedings will adopt a civil law investigatory approach and proceedings will be conducted entirely in Arabic, which includes documents having to be in the Arabic language. 

The most commonly used and recognised alternative to litigation is arbitration.

Articles 169 and 170 of Law No. 22 of 2004 (the “Civil Code”) deal with the interpretation of contracts. 

Where the wording of a contract is clear, it is to be interpreted according to those clear words. However, where the wording of the contract is unclear, the courts are not restricted to the literal meaning of the words and will have regard to the common intention of the parties. In determining the common intention of the parties, the courts will have regard to the nature of the exchange between the parties and to such trust and confidence as should exist between the parties, in accordance with custom in respect of similar transactions.

Further, any doubt when interpreting contracts is to be interpreted in favour of the debtor, and terms that exclude liability are to be narrowly interpreted (Article 170).

There is also a mandatory obligation on parties to perform their contractual obligations in a manner consistent with the requirements of good faith (Article 172(1) of the Civil Code). This mandatory obligation is likely to influence a court when it is interpreting a contract by reference to the common intention of the parties and the trust and confidence that should exist between them. 

As above, where there is a case for interpreting a contract, the court will have regard to the common intention of the parties. In doing so, it may consider pre-contractual documents and correspondence. Post-contractual documents and correspondence may also be used if a contract has to be interpreted in circumstances where the wording is not clear.

Qatar law recognises the freedom of parties to contract (Article 171(1) of the Civil Code), but there are several mandatory provisions of Qatar law that will override inconsistent provisions in a contract. Examples relevant to construction contracts include:

  • the obligation to act in good faith (Article 172(1) of the Civil Code);
  • Article 171(2) of the Civil Code, which provides that the court may reduce a party’s obligations to a reasonable limit where there is an exceptional event that could not have been foreseen, which renders performance of a party’s obligations onerous and threatens that party with substantial loss; 
  • decennial liability (Article 711 of the Civil Code); and
  • Article 266 of the Civil Code, which permits a court to reduce liquidated damages agreed in a contract (see 5.3 Liquidated and Ascertained Damages, below).

In addition, Article 154(1) of the Civil Code provides that contracts cannot include provisions that are prohibited by law or contrary to public order or morals. Any provisions of this kind will be void but the validity of the contract will not be affected unless a party can show that it would not have entered into the contract but for that provision. If this can be proved, then the contract will be void. 

Article 403 of the Civil Code provides that the general contractual limitation period is 15 years. 

However, most construction contracts in Qatar are for “commercial activities” between “traders”, as both terms are defined in the Commercial Code. Accordingly, Article 87 of the Qatar Commercial Code will apply and the limitation period under construction contracts will usually expire ten years after the breach occurred.

Professional services carried out by architects and engineers are not covered by the Commercial Code, and claims by architects and engineers should be made within 5 years (Article 405 of the Civil Code). 

Article 418 of the Civil Code provides that parties cannot agree shorter limitation periods in advance of the cause of action arising. After a cause of action has arisen, a party can (expressly or by implication) waive reliance on a technical limitation period defence. If they do so, they may be pursued even after the limitation period has expired.

Prior to the formation of a binding contract, there is no obligation on the parties to continue negotiations in good faith under Qatar law. However, if the essential elements of the contract and all other lawful conditions which both parties regard as being essential have been agreed – potentially with further ‘minor’ details to be agreed at a later stage – and there is no express stipulation that the contract has not yet been agreed, then a contract may be deemed to have been already made. This is more so if, as a matter of fact, the parties act in performance of the contract, ie behave as though the contract existed.

Under the Civil Code, if a contract is deemed to have been entered into, it must be performed in accordance with its contents and in a manner consistent with the requirements of good faith. Remedies for breach of the contract will be available. 

It should therefore be made clear during pre-contractual negotiations that no binding agreement will be created until all details have been finalised and it has been formally executed, after which the phrase ‘subject to contract’ could be added to negotiation drafts of any agreement.

The requirements for the formation of a construction contract are no different to any other commercial contract. 

Under Article 64 of the Civil Code, a contract will be deemed to have been formed as soon as the offer has been accepted, provided that the object and cause of the contract are legal. There is no requirement for the offer and acceptance to be accompanied by consideration, but there is a requirement that the acceptance of the contract must clearly evidence the mutual intention of the parties.

Contracts can be made orally, though these are extremely rare in construction projects.

Documents such as letters of intent, letters of award, memoranda of understanding and heads of terms can have legal effect as promissory contracts. Articles 96 to 99 of the Civil Code describe promissory contracts, and Article 96 provides that parties can enter into a promissory contract under which they agree to conclude a future contract within a specified time period. 

If the future contract is not entered into, the parties may be able to rely on the promissory contract (and any terms implied under Qatar law) to, for example, claim payments under the promissory contract. 

Further, if a party to a promissory contract refuses to sign the future contract, Article 99 of the Civil Code permits the other party to seek a judgment against its counterparty for the validation and enforcement of the future contract. 

As above, there is no requirement for a formal written construction contract, and a contract will be deemed to have been formed if there is an offer and acceptance. This could be demonstrated by commencement of the work and payment for that work.

If work is carried out but it is found that there was no valid contract or promissory contract, then (in the absence of an unlawful act by the employer) the contractor may still be entitled to claim payment from the employer on the basis that the employer would otherwise be unjustly enriched (Article 220 of the Civil Code). 

In those circumstances, however, the employer’s liability to compensate the contractor for any costs the contractor has incurred would be capped at the value of the enrichment derived by the employer. 

As above, there are several mandatory provisions of Qatar law that apply to construction contracts and override inconsistent provisions in a contract, including:

  • the obligation to act in good faith (Article 172(1) of the Civil Code);
  • Article 171(2) of the Civil Code, which provides that the court may reduce a party’s obligations to a reasonable limit where there is an exceptional event that could not have been foreseen, which renders performance of a party’s obligations onerous and threatens that party with substantial loss; 
  • decennial liability (Article 711 of the Civil Code); and
  • Article 266 of the Civil Code, which permits a court to reduce liquidated damages agreed in a contract (see 5.3 Liquidated and Ascertained Damages, below).

Entire agreement clauses are frequently seen in Qatar law contracts and would be understood by Qatar courts as preventing parties from relying on statements and representations made during pre-contractual negotiations as additional terms, with the exception of matters relating to fraud. Having said that, pre-contractual documents and correspondence may still be referred to as an aid to interpretation (see 2.2 Pre-Contractual Documents and Post-Contractual Conduct, above). 

In recognition of the parties’ freedom to contract (Article 171(1) of the Civil Code), exclusive remedy provisions are generally understood and enforceable under Qatar law (subject to any inconsistent mandatory provisions, illegality or contravention of public order or morals).

Article 699 of the Civil Code provides that, where agreement has not been reached on the amounts payable to the contractor, the contractor is entitled to the value of the work calculated at the time of the contract and the value of the materials provided by the contractor and required for the work. 

If a time for payment is not specified in the contract, payment will be due upon delivery of the work (Article 697); in practice, this is likely to be upon taking over. 

If the price has not been agreed, the reasonable price is to be determined by having regard to the value of the work at the time of the contract and the value of materials provided by the contractor and required for the work. In practice, the Qatar courts would likely appoint an independent expert to determine what the reasonable price should be. 

Articles 682 to 715 of the Qatar Civil Code include provisions specifically dealing with ‘Contracts of Works’ (which would include construction contracts). Article 682 defines a 'Contract of Works' as "a contract whereby one party binds himself to manufacturing a thing or to carrying out a piece of work for the other party in consideration of a fee, without being a servant or agent of that party."

There are no mandatory payment terms for construction contracts under Qatar law, although the obligation to execute the contract in accordance with the requirements of good faith will apply to payment terms under a contract, as it would to any other provisions. 

Articles 682 to 715 of the Civil Code apply to all Contracts of Works, as defined at Article 682, irrespective of value or duration. These Articles apply to both private and public works contracts. 

Reflecting the freedom to contract under Qatar law (Article 171(1)), there are few restrictions on the payment terms that may be agreed between parties to a construction contract. For example, pay-when-paid clauses would ordinarily be enforceable unless a lack of clarity gives rise to an alternative interpretation; the enforceability of pay-if-paid clauses is more doubtful.

Article 191 of the Civil Code permits a party to refrain from performing its obligation if the counterparty fails to perform its corresponding obligation. Depending on the quantum of the outstanding payments and the reasons for withholding payment, a contractor may legitimately rely on this Article to suspend performance of the whole or part of its works. 

This is not a mandatory provision (so can be excluded by clear words) and the contractor should ensure that a purported exercise of this right does not contravene the overriding good faith obligations. 

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Unless the certifier is a party to the Contract –in which case it would be bound by the obligation to execute the contract in accordance with the requirements of good faith (Article 172(1) of the Civil Code) – or assumes the role of Employer’s agent, there is no inherent obligation on the certifier to act impartially. 

In any event, a lack of impartiality or fairness would not give rise to a cause of action if the determination was ultimately correct. If the determination was incorrect, the contractor’s first cause of action would be against the employer. If it not possible to pursue the employer then it may, in limited circumstances, be possible for the contractor to pursue the certifier as an agent of the employer (Article 232), or for fraud. 

Under Article 418 of the Civil Code, parties to a contract cannot agree to reduce the periods in which they are entitled to bring claims in advance of the cause of action arising. Accordingly, a contractor would not ordinarily be bound by a provision in a contract entered into before the cause of action arose that deemed certificates to be conclusive. 

The parties to a contract are free to choose the forum for the review of disputes between them (including for the review of certificates). Other than courts, the most commonly used forum is arbitration. The Qatar courts are to refuse to accept claims in respect of matters governed by a valid arbitration agreement (Article 8 of the Qatar Arbitration Law (No. 2 of 2017) (“Arbitration Law”).

The Prime Minister or his delegate is required to approve the inclusion of arbitration agreements in administrative contracts – ie, contracts where the state or government is engaged in commercial activity to provide for public utility, such as a construction contract for infrastructure works (Article 2(2) of the Arbitration Law). 

In the absence of an express provision in the contract about the time for performance, the contractor will be required to complete the works within a reasonable period, having regard to the nature of the work and trade custom (Article 687 of the Civil Code).

In circumstances where a contract contains provisions for extensions of time but does not provide for extensions of time for any employer breach causing delay, there would be no automatic release, and it will be for the contractor to demonstrate that it has been delayed for an employer risk event. If this can be proved, and in the absence of an alternative agreed (or contractually determined) period going forward, the courts may determine that the contractor has a reasonable time to complete the works (as per Article 687 of the Civil Code). 

Qatar law permits parties to agree in advance the value of compensation for breach of contract, and liquidated damages for delay are very frequently seen in construction contracts. The amount of liquidated damages is often capped at between 5% and 10% of the contract price.

However, Article 266 of the Civil Code – a mandatory provision – allows the court to reduce the amount of liquidated damages where the contractor can show that they are excessive or that the obligation was partially fulfilled. Further, no compensation will be payable if the contractor can show that the employer has not suffered a loss.

Liquidated damages cannot, however, be increased, save in the case of fraud or gross negligence (Article 267).

The laws of Qatar do not provide any specific guidance on concurrent delay; in the absence of an express contractual provision, the courts would likely divide liability proportionately between the parties. Absent a contractual prohibition, the contractor would likely be awarded its prolongation costs together with an extension of time for the period of delay attributed to the employer, in excess of the period of concurrent delay. 

If a contractor has thickened resources (and therefore incurred additional costs) in order to mitigate or avoid the consequences of an employer breach or risk event resulting in (or which would otherwise result in) delay, in the absence of express contractual provisions the contractor will, in principle, be entitled to advance a claim for its additional costs on the basis that they are a natural result of the employer’s breach (Article 263 of the Civil Code). 

A ‘global’ or ‘total loss’ claim is one where claims for a number of different events or breaches give rise to a single and undivided loss. Global claims are not expressly prohibited under the laws of Qatar but are difficult to prove.

Article 263 of the Civil Code provides that a party will have to prove that the loss or damages being claimed by it are a natural result of the event giving rise to the claim, and that such claim could not otherwise have been avoided. By definition, this may not be possible to prove in respect of a global claim. 

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In accordance with Article 418 of the Civil Code, the parties to a contract cannot agree a prescription period that is different to that prescribed by the law before the cause of action arises. Accordingly, a provision providing that the contractor is barred from bringing claims if notice of a claim is not given with a specified period (such as the standard FIDIC clause 20.1) will not be enforceable, and the contractor will not be prohibited from bringing the claim even if it has failed to comply with the notice provisions. 

Having said that, the contractor will still be in technical breach of the obligation to give notice and the employer may argue that, had it been made aware of the event giving rise to the claim, it would have mitigated the consequences of that event. Contractors should therefore ensure that they comply with contractual notice periods whenever possible. 

Whilst it is possible for the courts to make an order for specific performance (see Articles 241 to 245 of the Civil Code), in practice it is much more common for the court to award damages. 

In determining whether specific performance is the appropriate remedy, the Qatar courts may consider the defaulting party’s reasons for failing to perform its obligations under the contract, and at its own discretion it may award damages instead of compelling performance.

The Civil Code does not specify the point in time at which damages are assessed, but the damages must be the natural result of the breach or event in respect of which the claim is made (Article 263 of the Civil Code).

In accordance with Article 259 of the Civil Code, the parties to a contract may agree to exclude liability for certain losses (in the absence of fraud or gross negligence), but any exclusion of liability will be narrowly interpreted (Article 170(1)).

Interest may be awarded if it is expressly provided for in the contract. In the absence of an express contractual entitlement, however, interest will not be awarded. There is no statutory interest rate for late payments. 

As an alternative to interest, a party may be able to claim its financing costs. 

As identified at 5.1 In the Absence of Express Provision, above, there are several provisions dealing with termination (in the absence of a contractual right) under the Civil Code, including:

  • Article 183 of the Civil Code, which allows a party to seek rescission of a contract (having given notice) if its counterparty fails to fulfil its obligations. Depending on the nature of the contractor’s failure (and subject to the employer’s good faith obligations), this might permit the employer to terminate for contractor delay; 
  • Article 688 of the Civil Code, which allows the employer to seek rescission of a Contract of Works if the contractor is performing its obligations defectively or in breach of contract, and (having been given reasonable notice) has failed to remedy its breach; and 
  • Article 689 of the Civil Code, under which the employer is entitled to seek rescission of a Contract of Works in circumstances where the contractor is late in starting the work or in completing it, with the effect that the contractor is not expected to complete the work within the agreed period, or if the contractor demonstrates an intention not to complete the works or does something that renders the works impossible to complete. 

In all of the above examples, however, a court order would be required, unless the contract expressly provides otherwise.

Where a contract contains rights to determine the contract upon the giving of notice, compliance with the notice provisions will ordinarily be considered a condition precedent to the valid exercise of the right to determine.

The contract must be executed in accordance with the requirements of good faith (Article 172(1)). Accordingly, a contractor should consider any set-off to which the employer may be entitled before exercising a right to terminate for non-payment. If the amount due to the contractor is insufficient to justify terminating in good faith after accounting for the set-off due to the employer, then the contractor would risk breaching the contract by terminating. 

There is no concept of material terms or material breaches in the common law jurisprudential sense. The Civil Code requires the contractual obligations to be carried out in accordance with the requirements of good faith, and a right to terminate for breach (whether material or not) should not, therefore, be exercised for trivial reasons.

Statistics comparing the number of disputes resolved through Qatari courts and arbitration are not available. Anecdotally, most domestic construction contracts are resolved by the Qatar courts. Construction contracts for major infrastructure projects or involving major international contractors are more likely to include an arbitration agreement. 

There are very limited grounds for challenging an arbitral award under the new Arbitration Law, and these grounds are essentially the same as those under the UNICTRAL Model Law. 

An application for recognition and enforcement of an award can only be made after the time period of challenging the award (one month) has expired. Thereafter, the court is required to recognise and enforce the award unless grounds for annulment exist. The grounds for annulment are essentially the same as those under the UNCITRAL Model Law and New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.

The courts have a supervisory and supportive function under the Arbitration Law, and the parties can opt for this supervisory and supportive function to be carried out by either the Qatar civil court or the Civil and Commercial Court of the Qatar Financial Centre (now known as the Qatar International Court). 

There is no statutory adjudication process in Qatar and a reference to adjudication in a contract without a more detailed description of the purpose and procedures may not be recognised or understood by the Qatar courts. 

On the other hand, the Qatar courts would be familiar with Dispute Adjudication Boards and would likely enforce a DAB’s decision that has become contractually binding. 

Whilst there are no available statistics, expert determination appears to be increasingly popular in Qatar-based construction contracts, and is likely to be enforced by the courts. There are examples of both temporarily binding (so followed by either litigation or arbitration if a party is not satisfied with the determination) and final and binding expert determination agreements. 

There is no requirement to mediate disputes before or during litigation in the Qatar courts, but an informal contractual mediation or conciliation stage is often seen in tiered dispute resolution clauses. Formal mediations are less common but can happen on major infrastructure projects.

The concept of without prejudice communications is not recognised in Qatar, and any mediation should not commence until after a comprehensive confidentiality agreement has been entered into. 

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Law and Practice in Qatar

Authors



Simmons & Simmons is a leading international law firm with fully integrated teams working through 21 offices in Europe, the Middle East and Asia. The firm’s strategy is designed to ensure it provides its clients with high-quality advice and delivers value through new ways of working. Simmons & Simmons applies considerable expertise to all business sectors but focuses on: asset management and investment funds, financial institutions, life sciences and technology, media and telecommunications (TMT). It also focuses on the energy and infrastructure market, in particular through its international projects and construction teams. Simmons & Simmons acts regularly on the most innovative cases, deals and transactions in its chosen areas of specialism and receives recognition for the quality of its work from clients and others within these industry sectors.