Construction Law: A Comprehensive Guide to UAE and PRC Regulations

Construction law plays a vital role in regulating commercial activities, particularly in the construction industry. This article aims to provide a detailed comparison between the construction laws of the United Arab Emirates (UAE) and the People’s Republic of China (PRC). By examining the relevant legal frameworks and principles, as well as the application of common law principles and FIDIC Red Book conditions, readers will gain valuable insights into the construction laws of these jurisdictions.

I. Overview of Construction Laws

In the UAE, all commercial activities, including building or construction activities, are regulated by Federal Law No. 18 of 1993, also known as the UAE Commercial Transaction Law or the UAE Commercial Code. However, in practice, Federal Law No. 5 of 1985, also known as the Federal Civil Transaction Law or the UAE Civil Code, is more regularly applied or referred to due to its general and mandatory laws governing contractual relationships in the UAE. The UAE Civil Code contains a specific chapter called “Muqawala,” which governs the relationships between employers, contractors, subcontractors, and engineers/architects.

Similarly, in the context of the People’s Republic of China, the relevant law is the Contract Law of the People’s Republic of China, which contains general and mandatory laws that regulate contractual relationships in the country. It has two specific chapters containing provisions applicable to contracts of work and contracts for construction projects.

II. Comparison of Legal Systems

Although the political structures of the UAE and the PRC differ, their respective legal systems are similar as both belong to the civil law family. Unlike the common law system, the civil law system does not apply the principle of stare decisis or case law precedent. Judicial interpretations and decisions from civil law countries tend to be less prescriptive, with courts focusing on the meaning and intent of the law. In the UAE, lower courts tend to follow the principles and approaches laid down by the Court of Cassation, the highest appellate court. Similarly, the People’s Republic of China follows a similar practice with judicial interpretations from the Supreme People’s Court carrying persuasive weight.

In the context of construction law practice in the UAE, common law or English law principles are often referred to, sometimes erroneously. However, foreign legal principles, including common law principles, have no force in law in the UAE unless they are widely used and recognized in the industry as part of local custom or practice.

III. The Principle of Good Faith

The principle of good faith is of utmost importance in construction contracts due to their long-term nature and the multitude of obligations between parties. While common law jurisdictions have extensive discussions on the principle of good faith, it is not explicitly required in most cases. However, in the UAE, the UAE Civil Code imposes an obligation on contracting parties to abide by the terms of their agreement and discharge their obligations consistent with the requirements of good faith. The principle of good faith aligns with the principles of Islamic Shari’ah, which underlie all laws in the UAE. While the UAE Civil Code does not prescribe specific requirements for good faith, it is a matter for the court to decide based on relevant facts and circumstances.

Similarly, the PRC Contract Law also imposes a duty of good faith on contracting parties. It states that “The parties must act in accordance with the principle of good faith, no matter in exercising rights or in performing obligations.” While the PRC Contract Law does not have an exact equivalent to Article 106 of the UAE Civil Code, which prevents a party from exercising its rights in certain situations, it includes provisions promoting fairness, character and purpose-based performance of obligations, and equal legal status between contracting parties.

IV. Liquidated Delay Damages

In construction contracts, the agreed completion date or period is a fundamental term. To ensure adherence to the agreed timeline, contracting parties often include a compensation mechanism or formula for calculating liquidated delay damages. The UAE Civil Code and PRC Contract Law both allow parties to fix pre-agreed compensation amounts in their contracts. However, unlike common law jurisdictions, both laws allow courts, upon request, to vary the pre-agreed compensation or damages. In the UAE, the court may adjust the amount to make it equal to the actual loss or harm. In the PRC, the court also has the power to reduce or increase the liquidated amount.

It is worth noting that English law includes the prevention principle, where an employer must not prevent or hinder a contractor from completing the contracted work. If the employer’s actions or inactions lead to delays and there are no provisions for time extensions, the agreed completion time may be rendered null, and liquidated damages become unenforceable. In the UAE, while contractors may attempt to apply the prevention principle, the courts can review or vary liquidated damages regardless of acts of prevention. The burden of proving actual losses shifts to the employer if the prevention principle is successfully argued.

V. Key Construction Issues

This article also covers important construction issues such as suspension of works, taking over of works, defects liability, and subcontracting. It examines the relevant legal provisions in the UAE and the PRC and highlights any similarities or differences with common law principles and FIDIC Red Book conditions.