By: Ahmed Durrani – Partner
Hanro Kolbe – Associate
The ongoing regional escalation and its accompanying effects may disrupt construction projects, even where the parties themselves are willing to and/or may have performed their obligations diligently and in good faith. This short note considers the potential avenues available under Qatari law for claims that may arise under construction contracts as a result of the ongoing situation.
Three legal mechanisms may be considered: Article 188, Article 171(2), and Article 172 (read with Article 63) of the Civil Code No. 22 of 2004.
First, under Article 188, the parties should consider whether the performance of an obligation under their contract has become fully or partially impossible. In the former case, the parties’ obligations will extinguish and the contract will automatically be revoked. While in the latter scenario, the creditor may elect to either enforce the remaining obligations (i.e., the part that is possible to perform) or request the revocation thereof. The applicable scenario will be determined by the facts and circumstances of each project. By way of example, it may be that the closure of airspace and general disruption to the supply chain has made it impossible for a contractor to procure materials that are critical for the performance of its obligations. In such a scenario, the affected contractor may have recourse under Article 188.
Second, under Article 171(2), where performance is not impossible but has become burdensome as a result of unforeseen or exceptional circumstances, such that it threatens the obligation debtor with a significant loss, the judge (or arbitral tribunal, where appropriate) may reduce the onerous obligation to a reasonable level. Importantly, the parties are prohibited from contracting out of this provision. It is important to note here that the threshold to engage this provision is high, in the sense that the event must be unanticipated, general in nature (i.e., applicable to the public at large), exceptional or rare. However, commentary from leading jurists in the region would indicate that general exceptional events of a public nature include “wars, sudden strikes, the imposition or abolition of price controls, excessive price increases or decreases, administrative expropriations”, amongst others. Likewise, the “reasonable level” to which an obligation may be reduced would depend on the facts of each case. Using the same example of procurement of materials, it might well be the case that procurement is nevertheless possible but has become more burdensome (e.g., due to higher costs or longer durations); in which case, it may be possible to rely on Article 171(2) to have the obligation reduced to a reasonable level (such as to grant an extension of time to account for delay in procurement).
Third, every contract under Qatari law is imbued with the duty to act in good faith. It might be possible for contractors to rely on good faith performance of an employer to, for example, permit additional time or costs where the reasons for delay or additional costs is caused by the regional conflict and ancillary effects, in respect of which the contractor would not be in a position to take any or any meaningful mitigation measures. Allied to this is the principle of abuse of rights where the exercise of a right is considered unlawful. Article 63 of the Civil Code sets out four circumstances in which this may occur; however, the threshold to establish abusive exercise of rights is high.
Whilst each of the foregoing provisions does not contain language permitting parties to opt out therefrom, their application must be balanced against the cardinal principle of Qatari law: pacta sunt servanda, a contract is the law governing parties’ relationship. Articles 188, 171(2), and 172 (read with Article 63) operate as narrowly defined exceptions to the fundamental rule that contractual obligations remain binding. In the context of current regional developments, parties should therefore approach such remedies cautiously, recognising that the starting point under Qatari law remains the continued enforceability of contract, ensuring compliance with their contractual obligations to the extent possible, and maintaining formal and proper records (including issuance of notices timeously) of any impact on performance caused by the ongoing regional conflict and its accompanying effects.
