This is the first of two articles which look at various self-help remedies available for the unpaid contractor.
From a contractor's perspective the prospect of being required to work, but yet not be paid, is distinctly unattractive, to say the least. Given that in the normal course of events payment terms may mean that payment can be due months after work has been performed or goods and materials bought, the financial risk can be considerable, and quickly mount. But can the contractor be compelled to carry on working despite non-payment?
In this article, comparisons will be drawn across the UAE Federal Law No. 5 of 1985 - the Civil Transactions Law ("Civil Code") and FIDIC (namely, the Red Book 1999 and 1987), but we start with some comments on the Roman Law maxim of the Exceptio Non Adempleti Contractus ("ENAC").
ENAC and the right to suspend under UAE Law
ENAC is a Roman Law maxim and stems from the concept of reciprocity of obligations. A party is not obliged to perform its obligations if the other party has failed to perform its obligations. Therefore a party can withhold performance if the other party has failed to perform its obligations. In jurisdictions where it applies, ENAC is used as a defence and is a temporary remedy. Some jurisdictions did not recognise it. For example, in the United Kingdom, it was only with the coming into force of section 112 of the Housing Grants, Construction and Regeneration Act 1996 that contractors caught by that Act had, in certain circumstances, a non-contractual right to suspend for non-payment.
However, ENAC is also an out-and-out method to compel performance and most certainly does provide the reciprocal party with some encouragement to perform. Although ENAC can be used as a weapon to compel payment, it can also be used to withhold payment should the contractor have failed to discharge its contractual obligations.
Article 247 of the UAE Civil Code, embodies a very similar mechanism which can (with caution), be relied upon in the absence of or in addition to a contractual right to suspend; an English translation of the Arabic text of that Article reads:
Whilst the Civil Code does not expressly provide for a right of suspension, the right to suspend can be construed through the application of Article 247. Should (say) the employer fail to discharge the obligation to make payment the contractor may, in turn, refuse to perform its obligations, namely execution of the works.
The obligation of 'good faith' embodied in Article 246(1) of the Civil Code still remains applicable, and it may be seen to be contrary to the concept of good faith if the contractor suspends for something minor – arguably, there needs to be an element of proportionality, and the contractor should consider all the reasons why the employer failed to make payment or has defaulted in terms of its obligations, before suspending the works. It should also be kept in mind that unlike under the FIDIC form, Article 247 does not expressly provide for an extension of time and the contractor's cost of suspension; presumably, the contractor's remedy for the damages it suffers will lie in a claim for breach of the relevant contractual obligation by the other party.
Under UAE Law a prolonged suspension is not of itself a ground for the termination of a construction contract (or, as it is called in the Civil Code, a 'Muqawala' contract). There are only three termination grounds set out in Article 892 of the Civil Code for a Muqawala contract, namely completion of the works, cancellation of the contract by consent, or by an order of the court. Therefore it is highly unlikely that a short term suspension will of itself be recognised as giving the contractor a valid ground for termination.
FIDIC
Both the 1987 and 1999 versions of the FIDIC standard form Red Book contracts are still common place in the UAE, and both provide the unpaid contractor with an express contractual right to suspend or reduce the rate of performance of its work. (References in this article to 'FIDIC' are to the 1987 and 1999 versions of the Red Book.)
FIDIC (1987 version), clause 69.4, provides the contractor with a right, after giving 28 days prior notice, to suspend or reduce the rate of performance of its work in the case of non-payment of any amount due under any certificate if such payment is not made within the time specified in the contract.
Clause 16.1 (1999 version) expands upon the 1987 version and states the following:
Under both the 1987 and the 1999 version, the contractor, if it has followed the correct contractual procedures, is entitled, in most instances, to an extension of time and payment of costs (plus reasonable profit, 1999 version).
Pausing here, it is useful to remember that under FIDIC the right of suspension is not only available to the contractor, as the employer (through the engineer) may instruct the contractor to suspend performance; clause 40.1 of the 1987 version and clause 8.8 of the 1999 version. Under the FIDIC, suspension may also give rise to the eventual termination of the contractor's employment.
Some final thoughts
A right to suspend can arise under the UAE Civil Code and may also arise under the terms of a contract. But suspension by itself does not mean that payment of outstanding sums will be made – it may, of course, force the non-paying employer to make payment – assuming the employer has the money, or to negotiate. So, whilst suspension is a useful remedy to stem the contractor's outflow of money, it is not a complete remedy, and it should be seen as forming part of the contractor's strategy to obtain payment or escape the contract.
A contractor seeking to suspend should proceed with caution; if wrongly executed the contractor may find the tables turned on it and face termination for breach of contract and a claim for damages. Therefore, if a contractor is considering suspension, a careful and informed view needs to be reached, with the benefit of legal advice.
* No performance is due to one who has not himself performed. A plea available in some jurisdictions, that a claim can be met with the defence that the claimant did not perform their side of the bargain.
1 Martin Hogg in "Promises and Contract Law: Comparative Perspectives", states that mutual obligations arise when 'a duty or duties on one side of the relationship are offered in exchange for one or more on the other side."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
