Fenwick Elliott reviews the legal implications of COVID-19
Fenwick Elliott tells CW the mechanisms to relieve contractors from legal disputes through the impact of COVID-19
As restrictions ease from the COVID-19 pandemic that has disrupted global economies, preparations will now be put in place to revive businesses that have plunged into a financial hole.
While the construction industry was one of the less impacted sectors, the real cause of concern is whether stakeholders can perform their contractual obligations.
The GCC, particularly Saudi Arabia and the UAE, is filled with an abundance of multi-million dollar projects, and the risk of payment delays and cost overruns could arguably be the next headache along the line.
So what are the next steps for contractors and employers to prevent legal disputes from arising and what are their rights?
To try and get some advice and answers from experts in the legal field, Construction Week joined forces with global construction and energy specialists Fenwick Elliott for The Legal Table webinar edition last month.
Joining the discussion was Fenwick Elliott’s managing partner for its Dubai branch, Ahmed Ibrahim, and other partner, Patrick Stone, to share their expertise and insights on how the impact of the pandemic might be dealt with under common forms of construction contracts used across the MENA region.
Both legal experts have a considerable amount of experience within the legal field in the Middle East, with Ibrahim establishing Fenwick Elliott’s growth in the region by opening a Dubai office in 2015 and Stone specialising in International Arbitration.
The most likely clause for construction contracts in providing relief to contractors is the Force Majeure clause, but Ibrahim said the clause will only provide some relief to contractors facing legal issues from COVID-19 if they can prove that the pandemic makes it an impossibility to perform their obligations.
“My view is that the coronavirus could qualify as a Force Majeure event if the contracting party intends to rely on Force Majeure as a defence, only if you can prove that the pandemic resulted in the impossibility to perform their obligations and establish a causal link,” Ibrahim told Construction Week.
“It’s very important to know that Force Majeure is a defence that can be raised to defend yourself against liabilities including avoiding to pay liquidated damages for delay in completing works. In other words you may be entitled to an extension of time due to the impact of the Force Majeure on the critical path of the project.”
However, Ibrahim clarified that Force Majeure cannot be used in a UAE civil court as a means for compensation.
“Force Majeure is not a ground to seek compensation such as additional payment or any kind of adjustment of contract price,” added Ibrahim. “If you see a provision of Force Majeure within context of contractual liability, you have article 273 of the UAE civil court that speaks about impossibility of performing contractual obligations and therefore these obligations will cease and the contract should be automatically cancelled.”
While fellow partner Patrick Stone echoed the majority of Ibrahim’s views on defences that contractors can take, he said the virus is likely to have an impact on the progress and costs of works, which could contribute to increases in the number of disputes between employers and contractors.
“It is fair to say that the coronavirus adds another possible ground for disputes on projects where claims already existed. It’s likely that if contractors think they have an entitlement where an extension of time and money under a contract, then they likely will use the pandemic has an excuse,” Stone told Construction Week.
“It’s equally likely that if an employer thinks they have the better of the argument in relation to the coronavirus under its contract then it is likely to use this as a defence to the contractor’s claims.”
Looking ahead for the industry in terms of mitigating legal disputes, Stone advises employers and contractors to take a “realistic approach” to any claims that they become involved in and take a “sensible pragmatic approach” to measures being undertaken and to keep proper records that is vitally important to resolving any disputes that may arise.
“Ultimately, if you find yourself in a formal dispute, as a result of the coronavirus, then your access to justice is still there. There are ways and means for disputes to be heard from tribunals during the crisis, and I think this also applies to the earlier steps in the dispute resolution process like mediation or dispute boards that are quite common in the FIDIC Red Book contracts,” said Stone.
In terms of negiotiating contracts, Stone believed that we will no doubt see employers push the risk of the pandemic onto the contractor, but said employers should think about whether this is in their interest.
“I think in terms of negotiating subsequent contracts, I believe that both parties will have to look at what impact current provisions will have on future projects,” he added.
“We talk about some of the clauses that may well give rise to the entitlement for an extension to time or money in a situation to the current pandemic, but that position may change if there are future pandemics of this nature.
He concluded the webinar by saying: “If provisions rely on the pandemic being unforeseeable then could it be said, if another pandemic occurred in two years time, that is an exceptional event under the Force Majeure provision."
The Legal Table webinar edition with Fenwick Elliott and Construction Week will return once again for another exclusive webinar in due course with more expert insights.