The Gulf diplomatic dispute and construction claims - extensions of time

As Qatar continues its progresses towards the 2022 FIFA World Cup and the development strategy for the 2030 National Vision, the current diplomatic dispute occurring in the Gulf is impacting on many parties involved in construction projects occurring throughout the nation.

The question concerning many of these parties, whether consultants, contractors, sub-contractors, suppliers or employers, relates to claims and what relief, if any, the parties are entitled to under their respective contracts.

In this article, we will look at the Contractor’s right to an extension of time under the FIDIC suite of contracts where that extension of time has been caused by the late supply of goods being shipped to Qatar through the UAE.¹ Following the commencement of the diplomatic dispute, many Contractors have suffered delayed as a result of goods having to be shipped from the UAE to Oman before they could be transferred to a vessel that would deliver the goods onward to Qatar.

Clause 8.4(d) of the FIDIC Conditions of Contract for Construction 1999 (Red Book) and FIDIC Conditions of Contract for Plant and Design Build 1999 (Yellow Book) provides as follows:

The 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 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”

On its face, it would certainly appear appropriate to deem the embargo against the shipping of goods from the UAE to Qatar as a government action, however to be sure that it is applicable, there are a few items to consider more carefully.

Firstly, is there a shortage in the ‘availability’ of Goods? This is not immediately definitive, as the goods are available and it is only the fact that the delivery route to get them to Qatar is now much slower than originally planned. Although the meaning of ‘available’ is not defined, it would however be reasonable to argue that the goods would only be deemed to be ‘available’ when they are able to be in the possession of the Contractor. Although the goods are literally ‘available’ somewhere in the world, the fact that they cannot be utilized by the Contractor for the purpose of the works is arguably the intent of the clause. Either way, if the Contractor is going to suffer a delay by procuring the Goods from another source, or waiting for them to be delivered through an alternative route the Contractor is being prevented from utilizing the goods.

Secondly, we can consider if the actions of the UAE government were “Unforeseeable”, which is defined in the FIDIC suite as being “not reasonably foreseeable by an experienced contractor by the date for submission of the Tender”.

Although foreign policy experts may have been able to foresee such dispute, it appears that very few anticipated the types of prohibitions that have been levied. It could therefore only be reasonable to deem such knowledge or foresight to be well out of the realm of even an ‘experienced’ Contractor.

Finally, it is important to consider what was known at the ‘Tender Date’. Even if a tender is submitted after the commencement of the diplomatic dispute, the parties may have expected the matter to have been resolved quite quickly.

It is safe to say that Contractors who did not account for these delays in tenders submitted after the commencement of the diplomatic dispute will have a more difficult case to make that such delays were ‘Unforeseeable’. However, this will depend greatly on the timing and specific circumstances of each case, and as a result, there may be a genuine case here for many Contractors who were delayed and denied an extension of time.

It is noted that the Conditions of Contract for EPC/Turnkey Projects 1999, (Silver Book) does not include an equivalent provision to clause 8.4(d) of the Yellow and Red Books. The Contractor therefore needs to look further into the terms to consider if any other sub-clause of the Silver Book gives the Contractor an entitlement to an extension of time.

Firstly, Contractors may expect clause 13.7 [Adjustment for Changes in Legislation] to provide some relief. However, this clause only relates to the “Laws of the Country”. Assuming the law of the country is Qatar then a change of laws in the UAE that prohibits a ship from travelling directly from the UAE to Qatar will not be relevant.

The Contractor may also consider Sub- Clause 17.4 [Consequences of Employer’s Risks]. However it is submitted that this sub-clause would likely fail on two key aspects. The diplomatic dispute does not directly fall within any of the items listed in 17.3. In addition, the delay of shipping goods would not amount to “loss or damage to the Works”.

Finally, the Contractor’s may look to the application of clause 19 [Force Majeure]². This may, on balance, be the Contractor’s best option. Unlike clause 8.4(d) of the Yellow and Red Books, Sub-Clause 19.1 does not include any direct reference to ‘government actions’. However, as the list of circumstances is ‘not limited’ to the items listed in 19.1(i)-(v), Force Majeure will apply if the Contractor can show that it was “prevented from performing any of his obligations under the Contract” by an exceptional circumstance that:

(a) was beyond the Contractor’s control;

(b) was unforeseeable³ before entering into the Contract;

(c) could not have been reasonably avoided or overcome; and

(d) is not attributable to either party.

This is a more difficult claim and has more hurdles to clear than clause 8.4(d) of the Yellow and Red Books. Each element noted above will need to be considered and addressed by the parties, particularly (b) where the critical date is the ‘date of the Contract’ rather than the ‘date of the Tender’, and (c) where the Contractor will need to justify why such goods could not be procured from another source who could deliver them directly to Qatar.

If the scenario is deemed to be an event of Force Majeure then the Contractor will be entitled to an extension of time under clause 19.4(b) [Consequences of Force Majeure] (and by extension 8.4(b)) if:

(a) the Contractor has complied Sub- Clause 19.2 [Notice of Force Majeure]

and

(b) the Contractor has suffered a delay as a consequence of the Force Majeure event.

In conclusion, there may be more than one way for Contractors impacted by the diplomatic dispute to claim an extension of time under FIDIC Contracts, or indeed contracts based on such principals and risk allocation. It is therefore important that these options are considered and analyzed as early as possible and all necessary notices are issued in accordance with the Contract in order to protect this entitlement to the extent possible. Failure to do so may limit the Contractor’s likelihood of success in obtaining such relief and consequently result in exposure to delay damages.

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¹The Economist (Print edition – Middle East and Africa) reported on 19 October 2017, that prior to the diplomatic dispute, the port located in Jebel Ali of the UAE handled more than 85% of shipborne cargo destined for Qatar.

²This clause applies to the FIDIC Suite and is not only limited to the Silver Book.

³Note that this is not a reference to the term defined in the Contract.

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This article was written by Glenn Bull. For more information please get in touch via glenn.bull@crsblaw.com or +971 4246 1909