Building law and regulation in the UAE during Covid-19

1. Is there construction-relevant COVID-19 regulation?

The UAE government has not enacted any construction only COVID-19 laws or regulations at the present time. The Dubai Supreme Committee of Crisis and Disaster Management has (i) required all commercial offices and premises to close and (ii) imposed a 24-hour curfew on all residents to enable a city-wide sterilisation programme.   However, the construction sector has been deemed a “vital sector” and is exempted from the 24-hour restrictions, subject to employers and contractors obtaining permits from the Dubai Municipality and the Permanent Committee for Labour Affairs to continue operating.  Nevertheless, various governmental measures have been introduced which may have a negative impact on the progress of construction projects in the UAE, including:

  • The Dubai Municipality has also issued a circular restricting the movement of workers to other emirates. 
  • A similar restriction has also been put in place for Abu Dhabi. 
  • In relation to the transportation of labour workers, the Ministry of Human Resources and Emiratisation has announced that transported workers should not exceed 25% of vehicle seating capacity. 
  • Certain safety measures are being taken on site by all contractors, in line with decrees issued by the UAE government. These measures include maintaining the required physical distancing between workers on site, increased frequency of disinfection and cleaning and workers’ temperatures must be tested before entering and leaving site or labour accommodation.

Ministerial Resolution No 279 of 2020 (“MR 279”) applies to all private sector employers in the UAE including those operating in the construction sector. This decree was issued by the UAE Minister of Human Resources and Emiratisation on 26 March 2020 and regulates employer-employee whilst COVID-19 precautionary measures are in force. MR No 279 puts processes in place for employers and employees to agree unpaid leave and temporary and permanent salary reductions.  It also allows employers to cease payment of salaries to “surplus” employees for the period the resolution remains in force, provided certain criteria are met.  The Employer must continue to provide accommodation, medical insurance and other contractual allowances until any surplus employees find new employment or are repatriated to their home countries. 
 

2. Subsidies and other government support for employer, contractor and other involved parties? (generic, high level only).

The UAE government has yet to put in place any subsidies or financial support specifically for employers, contractors or other parties involved in the construction sector.  

However, in general, the UAE Central Bank has introduced a Dh100 billion (circa $27.3 billion) economic stimulus package to offset the impact of the pandemic. The Targeted Economic Support Scheme includes Dh50bn from Central Bank funds through collateralised loans at zero cost to all banks operating in the UAE. The remaining Dh50bn allows banks to free-up their regulatory capital buffers to boost lending capacity and support the UAE economy. UAE banks can use the Central Bank funds to provide "temporary relief" to private sector businesses and individual clients for a period of up to 6 months. The Central Bank also issued a directive to local banks to allow a "re-scheduling of loans contracts, granting temporary deferrals on monthly loans payments, and reducing fees and commissions for affected customers". 

Whether the effects of the Coronavirus would constitute force majeure will need to be assessed under the applicable construction contract as well as under the laws of the UAE. 

If there is a reference to "pandemic" or "epidemic" in the force majeure clause in a contract, the affected party may be excused performance of its obligations upon giving notice to the other party for so long as the force majeure event prevents or delays performance. Generally, the remedy available is an extension of time and, in some limited circumstances, additional costs. 

If there is no contractual force majeure provision, whether COVID-19 constitutes a force majeure event entitling a party to some form of relief, is to be assessed in accordance with UAE law.  Article 273 or Article 249 of the UAE Civil Code may apply. 

  • Article 273 of the UAE Civil Code provides that if a force majeure event renders performance of a contract impossible, all contractual obligations will cease and the contract will be cancelled. Any party claiming force majeure will have to show that COVID-19 renders the performance of the contract impossible. It is insufficient that COVID-19 causes general hardship or additional financial burden or that it causes a period of delay.  If a contract is cancelled under Article 273 of the UAE Civil Code, the parties are restored to the position they were in before they entered into the contract. 
  • Article 249 of the UAE Civil Code provides the UAE Courts a wide discretionary power to reduce a party’s obligations under exceptional circumstances to a reasonable level if justice requires it. Contrary to Article 273 where performance of the contract may be found impossible, Article 249 does not result in the termination of a contract but instead, a  modification of a party’s original obligations. 

If a project is delayed due to government regulations to curb the virus and/or a critical supplier of the project is located in another country under lockdown, Article 249 may be useful for the affected party in arguing for an extension of time, increased costs and relief from liability for liquidated damages for delay. However, ultimately, a court is required to “weigh the interest of both parties” which questions whether the court would allocate all of the risk of COVID-19 to  an employer. 

The muqawala provisions (which apply to employers and contractors) of the UAE Civil Code may also be relied upon:

  • Article 893 of the UAE Civil Code provides that if any cause arises that prevents performance or the completion of a contract, any of the parties may seek an order from the court to terminate the contract. 
  • In addition, Article 894 of the UAE Civil Code provides that if a contractor becomes incapable of performing a muqawala contract due to an external cause beyond the contractor’s control, the contractor shall be entitled to the value of the work done and any expenses incurred for the execution of the works, up to the amount of value that the employer has benefited from the contractor’s performance.  

4. Does the Epidemic give rise to termination rights to either party?

See 3 above.

5. Do the measures currently being taken in relation to the Epidemic amount to change in law? What are the price and time consequences?

As mentioned above, even though the construction sector has been deemed a “vital sector” and is exempted from the 24-hour restrictions, the exemption  only applies if employers and contractors obtain a permits from the Dubai Municipality and the Permanent Committee for Labour Affairs to continue construction works. However, if the UAE authorities refused to issue a permit, it can be argued that this amounts to a change in law. For example, in the standard FIDIC 1999 Red Book, “Laws” are defined in general terms, including “all national (or state) legislation, statutes, ordinances and other laws, and regulations and by-laws of any legally constituted public authority.” In this regard, the refusal or delay by the authority to issue a construction permit can amount to a change in law. 

Generally, a contractor is entitled to time and additional costs if there is a change is law under a standard construction contract. 

6. Are there any other issues relevant to COVID-19 the construction industry should be aware of?

Not for the time being. 

Patrick McPherson
Randall Walker