construction monthly newsletter - pinsent masons · qatar’s construction activity up 14.5% in q2...
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Key IndicatorsQatar private sector credit growth accelerating9 October 2014, The Gulf Times: Private sector credit growth in the country is starting to accelerate, driven by a strong demand for funds from the construction, real estate and services sectors, says Dun & Bradstreet in a report.
Qatar’s construction activity up 14.5% in Q2 on infrastructure expansion13 October 2014, The Gulf Times: A 14.5% year-on-year expansion in local construction activity was seen in the second quarter of this year on the back of major infrastructure projects in the country, a QNB economic commentary shows.
Qatar’s gross national income up 8% in Q222 October 2014, The Gulf Times: Qatar’s gross national income (GNI) is estimated to have grown 8% year-on-year in the second quarter of this year, according to the official figures.
Construction NewsQatar’s contract awards may touch $30bn this year9 October 2014, The Gulf Times: Qatar 2014 contract awards are already larger than last year and may touch $30bn for the “very first time” in 2014, a report has shown.
EOI floated for Doha Metro Phase 1 MEP/architectural works12 October 2014, Zawya: Qatar Rail, owner and manager of Qatar’s rail network, has invited Expressions of Interest (EOI) from contractors for the MEP subcontracts as well as the architectural finishes contracts for Doha Metro Phase 1. EOI and requests for information were due by 26 October 2014. Qatar Rail will invite companies meeting the required criteria to attend an industry awareness presentation on 5 November 2014 in Doha and also to participate in the prequalification process.
Qatar to launch HIA phase 314 October 2014, Emirates 24/7: Qatar will soon launch phase 3 of its Hamad International Airport (HIA) following its official inauguration in April 2014, the CEO of the state-owned Qatar Airways has said, following completion of the design phase due in a few months. The initial capacity of the $15.5 billion airport was estimated at 30 million passengers a year, which could be expanded to 50 million by 2020.
Ministry of Transport allocated $40 billion for transportation projects across Doha23 October 2014, Al Raya Newspaper: HE Mr. Jassem Bin Seif Al Suleiti, the Minister of Transportation confirmed that the State of Qatar has allocated $40 billion for transportation projects and railway projects in the country.
Legal NewsNew sponsorship law this year16 October 2014, The Peninsula: A new sponsorship law the government is working on is expected to see the light of day this very year, says Qatar Chamber, representative body of the private sector. The business community has given its remarks on the draft sponsorship law, said Deputy Chairman of the Chamber, Mohamed bin Ahmed Tawar Al Kuwari.
‘Single’ GCC visa targets frequent travellers20 October 2014, Arab News: The Gulf Cooperation Council (GCC) will soon introduce a Schengen-style, unified visa for tourists and businessmen from 35 foreign and Arab countries, according to Samira Al-Gharib, assistant undersecretary for tourism at the Kuwaiti Ministry of Trade.
This Issue:Featured topic: Termination and Bond Calls
Construction Monthly NewsletterIssue No. 4
November 2014
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Legal Issue – Termination and Bond CallsWith the pressures of FIFA 2022 looming, contractors are under pressure to perform and employers are scrutinising their performance closely. If there is a real risk that the project will not complete successfully, termination, whilst draconian, may be the answer. The consequences, particularly where bonds are called, are serious.
This article explains termination under the Qatar Civil Code and what to do in the event of a bond call being made.
How did we get here?Termination may be on a contractor’s radar if, for example, the employer is complaining the contractor is not performing, the work is defective or the project is in serious delay. In those scenarios, difficult questions arise; are they/we entitled to terminate? How do we terminate? How do we stop them from terminating? What happens after termination? If ever there was a time to be careful as to both the facts and the law, it is now.
Article 171 of the Qatar Civil Code gives parties freedom to include whatever contract terms they wish including terms governing the grounds and procedure for termination. However, if they are ambiguous or open to interpretation, provisions of the Code will apply in the following circumstances.
Termination for Convenience Article 707 (1) entitles the employer or main contractor to bring the contract to an end ‘at will’ or ‘for convenience’ at any time, provided he compensates the terminated party for costs it has incurred, work performed and money he could have made had he completed.
Article 707 (2) gives the court discretion to decrease that compensation to account for mitigation measures the terminated party has taken to protect itself from losses and, based on fairness, to account for the terms of the contract and the work performed.
No judicial order is necessary if the contract is terminated at will and the termination will have immediate effect.
Termination for Default/Automatic DissolutionA contract can be terminated for the default of one party pursuant to Article 183 (1). Upon the giving of notice to the defaulting party, the terminating party must request an order from the court requesting the dissolution of the contract. Compensation can also be requested. Article 183 (2) gives the judge wide discretion to extend the time for compliance by the defaulting party or to refuse the dissolution if the default is minimal compared to the whole of the contractual obligations.
A contractor may challenge such a termination if a court order has not been obtained or if there are grounds to argue there has been no default. In practice, Employers do terminate without obtaining court orders (in breach of Article 183) and it is for the contractor to challenge the termination in court or through arbitration. Upon termination, the contractor should consider making a ‘status quo’ application, requesting the court to appoint an expert to opine on the contractor’s progress and the value of the work completed prior to termination. The expert’s report (if helpful) may be persuasive in any subsequent proceedings.
Article 184 allows parties to include a clause which automatically dissolves the contract (provided notice is given) following the default of one party. If the clause is well drafted, no judicial order is needed to bring the contract to an end. The provision must, however, be clearly indicative of the parties’ intentions to restrict a judge’s authority to terminate the contract. This is applied strictly by the courts, who will closely consider the language of the clause. Contracts often fail to meet the threshold by expressing the clause as a right which can be invoked upon the occurrence of a specific default, rather than being automatic and without a judicial order.
Bond CallsMost contractors in Qatar are required to obtain an on-demand performance guarantee of a percentage (usually 10%) of the contract price. The bond gives the employer an immediate route to payment in the event of performance failure by the contractor. Often upon termination a demand will be made on the bond.
Once a bank has paid out ultimately repayment ends up coming from the contractor. This can have a devastating impact on cash flow, reduce credibility for future tenders and affect the company’s ability to obtain guarantees in the future.
There are remedies available to the contractor in the event of a bond call, although succeeding is difficult since courts are reluctant to interfere with irrevocable agreements made by banks (the lifeblood of international commerce).
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Before the call is made the contractor may seek injunctive relief from the court. This is dependant on the contractor convincing the court it has a strong claim against the employer and will require evidence that the works in issue have been performed. The court can award interim relief, suspending the employer’s right to encash the bond and/or the banks obligation to pay, pending the outcome of a hearing on the merits of the contractor’s claim.
After the call is made an injunction can be sought on an urgent basis stopping the bank paying until a full merits hearing takes place. The action must have been, or imminently be, filed by the contractor against the employer. Often this is impractical since banks usually respond to a demand within a matter of days, which
gives the contractor little time to issue proceedings. If a contractor fears a bond call it should issue powers of attorney and translate relevant documents into Arabic in preparation.
Failing obtaining of injunctive relief from a court, contractors may defend allegations against them and possibly bring claims of their own by commencing court of arbitral proceedings. In doing so, the full amount of the performance guarantee can be claimed.
To protect themselves, contractors should include a definite expiry date in the guarantee, prohibit assignment, require an indemnity from the beneficiary against a wrongful call and ask the bank to give immediate notice of any demands made.
This note does not constitute legal advice. Specific legal advice should be taken before acting on any of the topics covered.Pinsent Masons LLP is a limited liability partnership registered in England & Wales (registered number: OC333653) authorised and regulated by the Solicitors Regulation Authority and the appropriate regulatory body in the other jurisdictions in which it operates. The word ‘partner’, used in relation to the LLP, refers to a member of the LLP or an employee or consultant of the
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Construction Monthly NewsletterIssue No. 4
November 2014