In the last three to four years, the construction industry in the (Persian) Gulf Cooperation Council ((P)GCC) has shown positive signs of recovery. There is still some way to go before the numbers can be compared to the pre-recession era.
Qatar, Bahrain and Saudi Arabia have seen an influx of a number of foreign contractors entering the market space and competing for business. A lot of them come from countries which have a different legal set-up than the (P)GCC countries, TradeArabia reported Monday.
It is therefore easy for such contractors, subcontractors, consultants and similar entities to become a victim of the unfamiliar legal set-up in the civil law jurisdictions.
The courts in these countries have the power to revisit and alter the amount of damages irrespective of what the parties have agreed in the contract.
Recovery of Damages
Under the Bahrain Civil Code, direct and indirect damages are recoverable but such damages cannot be greater than those which could have normally been foreseen at the time of entering into the contract.
The only way in which the damages claimed can be greater than what is foreseen at the time of entering into the contract is when the defaulting party is guilty of fraud or gross negligence.
The position in Qatar is similar to Bahrain, whereas in Saudi Arabia, only actual, direct and quantifiable damages can be claimed.
Consequential damages, such as loss of anticipated profits, are not ordinarily claimable. The position is Saudi Arabia provides lesser scope for recovery of indirect damages than the position in Bahrain and Qatar.
Liquidated Damages
Liquidated damages are damages that are ascertained or pre-agreed by the parties at the time of entering into a contract for the injured party to collect as a compensation for certain breach (of the terms of the contract).
For instance, under Bahrain and Qatar laws, liquidated damages are permitted but will not be due if contractor establishes that the employer/developer has not suffered any loss.
Courts in Bahrain can adjust liquidated damages if they are greatly overestimated. If the employer’s actual loss exceeds the liquidated damages, it cannot claim for additional loss unless contractor is found guilty of fraud or gross negligence.
However, in Saudi Arabia, the liquidated damages are permitted but not claimable unless the damage has actually incurred. The liquidated damages cannot include compensation for loss of profit – only direct losses are claimable.
The courts in Saudi Arabia may not enforce where the agreed liquidated damages are very excessive. Government contracts contain an intricate penalties formula but the total amount of delay penalties may not exceed 10 percent of the contract value.
The courts in these countries have the power to revisit the contractual agreement between the parties and adjust the damages based upon principles of fairness and actual loss.
Hence, the recovery of indirect losses and anticipated profits is usually very difficult.
