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Coronavirus Considerations: Consequences for Construction Claims in the UAE

Published: 09/03/2020

Introduction

The Coronavirus is defined by the World Health Organization (‘WHO’) is a large family of viruses which may cause illness in animals or humans. In humans, several Coronaviruses are known to cause respiratory infections ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome and Severe Acute Respiratory Syndrome. The most recently discovered coronavirus causes coronavirus disease COVID-19 (‘Coronavirus’).

This article will shed light on the consequences of Coronavirus for construction claims due to delay in material supply or shortage in labour. We will highlight in this article the contractors’ contractual position under the FIDIC 1999, red book, and the potential legal arguments available to employers in response to these types of claims.

This article will examine, in particular, the following questions:

  • what are the related contractual clauses on which the contractor may rely to file its claim?
  • what potential arguments employers may use to reject this claim?
  • what power do the UAE local courts have when considering Coronavirus as a force majeure?

 

Relevant clauses in the FIDIC Red Book (1999 ed.) that Contractors may use

If a contractor intends to file a construction claim due to Coronavirus’ effect on their project progress, the contractors will need to refer to one of the following clauses:

  • Clause (20.1) of the FIDIC Red Book, which provides that if the contractor considers itself to be entitled to any extension of the time for completion and/or any additional payment, under any Clause of the FIDIC Red Book, conditions or otherwise in connection with the contract, the contractor shall give notice to the engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance. It follows that a contractor is entitled to submit an EOT claim under any clause of the contract.

Some of the related clauses in the FIDIC Red Book, on which the contractor may seek to rely in advancing a claim under Clause 20.1, include:

  1. Clause (8.4) Extension of Time for Completion, paragraph (d), provides that ’he contractor shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to an extension of the Time for Completion if and to the extent that completion for the purposes of Sub-Clause 10.1 [Taking Over of the Works and Sections] is or will be delayed by any of the following causes:

(d) Unforeseeable shortages in the availability of personnel or Goods caused by epidemic or governmental actions.’

  1. Clause (17.3) Employer’s Risks, paragraph (h), states that:

‘any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions.’

Clause (17.3) is linked to Clause (17.4) Consequences of Employer’s Risks

‘If and to the extent that any of the risks listed in Sub-Clause 17.3 above results in loss or damage to the Works, Goods or Contractor’s Documents, the Contractor shall promptly give notice to the Engineer and shall rectify this loss or damage to the extent required by the Engineer.

If the Contractor suffers delay and/or incurs cost from rectifying this loss or damage, the Contractor shall give a further notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:

(a)   an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion];and’

  1. Clause (19.1) Definition of Force Majeure, as a reason for the EOT claim

‘In this Clause, “Force Majeure” means an exceptional event or circumstance:

  • which is beyond a Party’s control,
  • which such Party could not reasonably have provided against before entering into the Contract,
  • which, having arisen, such Party could not reasonably have avoided or overcome, and
  • which is not substantially attributable to the other Party.

Force Majeure may include, but is not limited to, exceptional events or circumstances of the kind listed below, so long as conditions (a) to (d) above are satisfied:

  • war, hostilities (whether war be declared or not), invasion, act of foreign enemies,
  • rebellion, terrorism, revolution, insurrection, military or usurped power, or civil war,
  • riot, commotion, disorder, strike or lockout by persons other than the Contractor’s Personnel and other employees of the Contractor and Sub­contractors,
  • munitions of war, explosive materials, ionising radiation or contamination by radio-activity, except as may be attributable to the Contractor’s use of such munitions, explosives, radiation or radio-activity, and
  • natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity.’

 

Employers’ potential arguments

As noted above, the contractor has a contractual entitlement to submit a claim under any of the contractual clauses set out above. Nevertheless, will Coronavirus provide a valid basis on which to submit a claim for the purpose of these provisions?

Unless a governmental decree, instructions, or directions, are issued, the employers may reject the contractors’ claim, as the WHO explicitly states that although for most people Coronavirus may make some people very ill, and in rare cases, it can be fatal, it leads to mild illness for the majority of those affected. Older people, and those with pre-existing medical conditions (such as high blood pressure, heart problems or diabetes) appear to be most vulnerable. The WHO further points out that, while they are still learning about how the Coronavirus affects people, older persons and persons with pre-existing medical conditions (as mentioned above) appear to develop serious illness more often than others.

Further, employers may argue that, at least according to the Worldometer, approximately, 83 per cent of Coronavirus’ active cases involve a mild condition, while the remaining 17 per cent of those infected are in a serious or critical condition. In Coronavirus’ closed cases, the approximate percentage of the patients who recovered is, thankfully, 94 per cent, while six per cent passed away (which, of course, no matter how low a percentage is still to be regretted).

As a result, as the Coronavirus, may not be considered as a valid reason to entitle contractors to make claims related to the EOT, and prolongation costs, (if applicable), unless a governmental decree, instructions, or directions, are issued.

It is pertinent to note that force majeure has been defined in the cassation judgement number (384&466 of 2014) issued by Abu Dhabi Cassation Court, in which it was highlighted, among other things, that the force majeure event must be an event that is impossible to avoid, and the criteria of what is constitutes force majeure or not, will fall to be decided according to the sole discretion of the court. This means that the local court will have a wide discretion to determine whether the Coronavirus is considered a valid reason for contractors to delay the work on site. The courts may be expected to take into account the WHO and the Worldometer reports mentioned above, and this may serve to undermine the basis of Coronavirus EOT claims as matters stand, unless new evidence emerges to cast doubt over those reports, or a governmental decree, instructions, or directions, are issued, for example, which mandate the suspension of works on site in order to contain the virus or to counteract its spread, or a delay in material supply due to closing the relevant manufacturing industries.

 

Conclusion

  1. contractors may seek to rely on the Coronavirus as a reason for their claims, according to clauses (8.4/d), (17.3/f), and (19.1) of FIDIC Red Book (1999 ed.).
  2. in response employers may argue that Coronavirus is not a valid reason for contractors’ claims, as the evidence to date suggests that the Coronavirus has serious consequences for older people, and those with pre-existing medical conditions who appear to be more vulnerable to its effects. These categories of persons are unlikely to feature in labour forces recruited for construction work in the UAE, thus potentially undermining arguments under clauses (8.4/d), (17.3/f), and (19.1) of FIDIC Red Book (1999 ed.); unless new evidence emerges to cast doubt over those reports, or a governmental decree, instructions, or directions, are issued, for example, which mandate the suspension of works on site in order to contain the virus or to counteract its spread, or a delay in material supply due to closing the relevant manufacturing industries.; and
  3. the UAE local court will have wide discretion to determine whether Coronavirus is considered a force majeure event, or not.

 

Al Tamimi & Company’s Construction & Infrastructure team advises clients across the region involved in the construction and infrastructure industry. For further information, please contact Ahmad Ghoneim (a.ghoneim@tamimi.com).