Qatar's construction boom: The legal risks

The train departing from platform 1 is the 2012 train to multi-billion infrastructure projects in the Middle East, calling at Qatar, UAE, Oman, Kuwait, Bahrain and Saudi Arabia. Since its selection to host the FIFA 2022 World Cup, Qatar has a critical deadline. Those on board Qatar’s train to 2022 should be aware of the legal risks ‘en-route’.

A myriad of legal issues arise doing business in Qatar; company laws, foreign investment laws, tax, employment, immigration, tendering, and engineering laws. Some of these are one-off administrative hurdles for setting-up, so assuming you have crossed all these bridges; what legal risks might lie within your contracts?

Certain mandatory provisions of Qatar law will apply despite anything in the contract

Its no secret that by Western standards, Qatar construction contracts are onerous for contractors. Limited rights to extensions of time and to variations, long certification/payment periods, and a range of ‘on-demand’ performance guarantees, are just a few examples. But are these terms binding?

One of the general principles of Qatar law is:

“The contract is the law of the contracting parties; it may not be revoked or amended except by the parties’ agreement or for reasons decided by law ” .

So generally, your contract will ‘do what it says on the tin’. However, certain mandatory provisions of Qatar law will apply despite anything in the contract. Other legal provisions will apply by default, unless expressly agreed to the contrary.

Let’s take one of the common concerns: liability caps.

Although ‘freedom of contract’ will apply to some express liability caps, some notable types of contractual limits or exclusions of liability will be void.

Liability for “deceit or gross mistake” is one such area of statutory unlimited liability. Another is decennial liability. This is a strict liability, under which contractors and designers jointly guarantee, for 10 years from completion:

“…the total or partial collapse or fault in the buildings … even if … resulted from a defect in the land itself … and this guarantee shall cover whatever defects … threaten its sturdiness and safety.”

Pre-agreeing damages does not fix liability in the same way as under English law

Serious thought should be given to these with your lawyers and insurers.

A liability perhaps more likely to arise in practice, is liquidated damages for delay. Under Qatar law, pre-agreeing damages does not fix liability in quite the same way as under English law. Where a contractor can show the employer did not suffer any loss, then it is possible no liquidated damages are due. This may be difficult for a contractor to prove, but more realistically, if he can show the pre-assessment “was exaggerated to a high degree” or “the obligation has been partially performed”, the liquidated damages may be reduced by the court. Any agreement to the contrary is void . The opposite does not apply for employers: even if losses are greater than anticipated, he cannot claim more than the agreed amount. Liquidating damages therefore, serves more to cap the damages, rather than to fix the damages regardless of how losses materialise in the event.

Finally, what about a net contribution clause to help mitigate exposure to risk?

Net contribution clauses arise in English law due to joint and several liability. Under Qatar law however, joint and several liability only arises: (a) if contractually agreed; or (b) under some statutory liabilities which (as seen above) may apply regardless of any contractual terms to the contrary. Net contribution clauses therefore, are of limited value.

Down the line… risk assessment and risk management should be taken seriously if you are on board Qatar’s train to 2022. It is critical to understand the practical and legal risks. Where negotiation is unlikely, ensure risk is priced and you have appropriate management processes in place.

Julie Tuck is a senior associate in the Doha office of SNR Denton