Feature

Limitation of Liability in Construction Contracts

Aymen Masadeh 1 and Femeena Mohamed 2

Abstract: This paper explores the importance of limitation of liability in construction contracts and associated legal framework in the United
Arab Emirates (UAE) with an objective of assessing its adequacy in comparison to its economic counterparts. It points out that since there is
no independent statute dealing with the unfair contract terms, there is no equilibrium in contract provisions. This can cause several challenges
for the industry and contracting entities. Despite the fact that the UAE law does not mandate reasonableness in limitation of liability contract
Downloaded from ascelibrary.org by Zhejiang University on 04/11/24. Copyright ASCE. For personal use only; all rights reserved.

clauses, client organizations must adopt best practices from industries around the world and they should be driven by the numerous ad-
vantages they offer. The paper lists the importance of limiting liability in a construction contract and accompanying benefits. It also enlists
the measures and recommended approach that shall be adopted by contracting parties and the state in order to achieve equipoise in the
contracting setup. This study focuses on the law of the United Arab Emirates. DOI: 10.1061/JLADAH.LADR-829. © 2023 American
Society of Civil Engineers.

Introduction be impelled by many advantages it offers (Mohamed 2014). As a

Unlike in many developed nations, there is no independent
legislation that deals with the unfair terms in contracts in the
United Arab Emirates (UAE). As a result, most bespoke forms
of contracts used in the UAE that are developed and maintained
by client organizations tend to be less balanced with regards to risk
allocation and fairness of terms (Elliott 2015). With such imbal-
anced provisions, contractors and consulting engineers (hereinafter
“engineers”), with little bargaining power, are often subjected to
imposition of unreasonable and onerous contract terms, and to
unrealistically high or unlimited liability in the event of breach or
negligent default.
This paper aims (1) to explore why it is important to limit liabil-
ity in a construction contract, (2) to explore seemingly ambiguous
limitation of liability provisions in the laws of the UAE, and (3) to
recommend an approach that need to be adapted by all relevant
parties. The study adopted an analytical approach by comparing
provisions in UAE Civil Code1 with similar provisions in other
jurisdictions. It also scrutinizes the necessity for regulatory im-
provement to support the industry.
A party who wishes to exclude their liability against a particular
type of loss or consequential damage should have such language
included in the contract. Limitation of liability clauses involve risk
allocation in contract. Despite the fact that the law does not man-
date reasonableness in limitation of liability provisions, there must
be willingness from client organizations to adopt practices from
industries around the world with proven records and they should
1
Dean of the Faculty of Business & Law, Professor of Law, British Univ.
in Dubai, Block 11, Dubai International Academic City, P.O. Box 345015,
Dubai, United Arab Emirates; Tenure Professor at Law Faculty, Yarmouk
Univ., Irbid, Jordan (corresponding author). ORCID: https://orcid.org/0000
-0002-9313-4301. Email: aymen.masadeh@buid.ac.ae
2
Contracts and Procurement Expert, Al-Raidah Digital City, Riyadh,
Kingdom of Saudi Arabia; Senior Manager—Procurement, Red Sea
Global, Kingdom of Saudi Arabia. ORCID: https://orcid.org/0000-0002
-8356-5669. Email: femeenamohamed@gmail.com
Note. This manuscript was submitted on December 27, 2021; ap-
proved on October 16, 2022; published online on January 18, 2023.
Discussion period open until June 18, 2023; separate discussions must
be submitted for individual papers. This paper is part of the Journal of
Legal Affairs and Dispute Resolution in Engineering and Construc-
tion, © ASCE, ISSN 1943-4162.
matter of fact, such measures or initiatives that are embraced by
client organizations in order to assess and limit liability of the con-
tracting parties have far reaching impact on the life span of organ-
izations and the industry.
The scope of this study covers the law of the UAE. Reference to
foreign law and practice is made solely for the purpose of showing
the strength and weakness of the UAE law in the area of limitation
of liability.
Why is Limitation of Liability Necessary?
All legal systems place some forms of limitations on damages
awards (Gotanda 2006). There are varied reasons for advocating
limitation of liability in a contract as detailed subsequently.
Engineers and contractors who are best rated and known for pro-
viding cost-effective and highly innovative solutions are resolute in
their risk management standards and often opt out of contracts that
are onerous or precarious. Consequently, the pool of vendors is re-
duced, thus affecting competition (Summersby et al. 2013). This,
along with high risk built into the price of services, diminishes the
prospects of a competitive procurement model and best project
outcomes.
Another major drawback on imposing harsh liabilities on the
designer may be that they hesitate to embark on any innovative
measures in the project’s life and life cycle cost. This results in an
extremely unfortunate situation as this would limit and even curtail
the prospects of new ideas and technologies (Mohamed 2014).
High liability provisions are also poor value for money consid-
ering that the risks do not eventuate most often and the client ends
up paying pertinent sums under the contract value. The contractors
and engineers usually include high premiums in their contract price
as cover for higher liability imposed under the contracts. Uninsura-
ble risks are priced and included as high-risk items. To cover unlim-
ited liability undertaken in the contract, contractors and engineers
often take out insurance policies with extensive and expensive cover-
age. However, the insurance would only pay for damages that they
are liable for under the law.
Any contractual term that encompasses liability beyond the le-
gal position creates an uninsurable risk, which is harmful to both
parties of the contract. Numerous clients produced bespoke con-
tracts containing aggressive indemnification provisions. Many such

© ASCE 03723001-1 J. Leg. Aff. Dispute Resolut. Eng. Constr.

J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 03723001

 provisions are not insurable and when these losses are triggered, it
can place contracting parties in an uncovered position (Mohamed
2014). This may lead to insolvency of the firm and even personal
bankruptcy of the directors albeit in a limited liability company.
Furthermore, expert standards and fitness for purpose require-
ments are generally uninsurable risks, which subjects these firms
to unreasonable exposure. The contractor or engineer usually only
makes a one-time net profit from the overall fee, whereas the em-
ployer is most likely to produce long-term benefits from the com-
pleted contract. It is thus only fair to allocate risk on the basis of
prospective reward.
Unrealistically high professional indemnity insurance require-
ments can also become a deterrent for locally based small to me-
dium engineers to participate in such tenders. This means that
Downloaded from ascelibrary.org by Zhejiang University on 04/11/24. Copyright ASCE. For personal use only; all rights reserved.
the work ultimately gets awarded to larger and more international
firms, which can curb experience and progression of potential tal-
ents and innovative firms among the resident establishments. Con-
tractor’s and engineers find it difficult to price a no cap provision
as the risks involved are not quantifiable. Such aggressive stipu-
lations can be also considered as an exhibition of poor risk man-
agement and procurement vision of the employer.
Under the UAE law, there is no specific requirement for engi-
neers or contractors to take out precise insurance policies for liabil-
ities that may arise either from a breach of contract or other civil
liability. The law should ideally mandate this to provide maximum
protection to employers and contractors or engineers as without
this, in the event of a claim, the service provider could go out of
business from the impact of the claim. Conversely, if the service
provider is no longer in business, the employer will end up without
insurance protection.
There is a disastrous effect on the industry and contractors in
the case of accrual of liability beyond one’s capacity. There is para-
mount risk in accepting liabilities for consequential losses that are
not clearly spelled out in the contract (Mohamed 2014). It is impos-
sible to quantify these risks in advance and therefore adequate in-
surance coverage is inaccessible. Another factor to be considered is
the background of professional indemnity insurance wherein the re-
insurance industry is mostly based in the common law world. All
players in the contract have to be mindful of this fact and ensure
that the demands from civil law nations are adequately covered.
Decennial liability2 insurance is either not available or extremely
expensive, which is a huge concern. Besides, UAE does not provide
a security of payment legislation or a statutory adjudication, which
makes it very hard for contractors or engineers to pursue issues
related to nonpayment or delayed payment. This, accompanied by
a high level of imposed liabilities, becomes a dangerous situation
(Mohamed 2014).
The client favored position of the UAE Civil Code can be con-
sidered beneficial for a consumer business contract. However, when
the contract is between two commercial parties, especially where the
client is in a better bargaining position, the imposed terms need to be
fair and balanced. There is a general perception that by imposing
unlimited liability or liability for consequential damages, the con-
tractor may exercise a greater degree of care during execution of
contractual obligations (Manahan 2004). However, this method of
disciplining the contractor or engineer in fact is not a prudent method
of ensuring proper care of work (Mohamed 2014).
Limited liability can also be deemed to achieve sustainable
procurement as part of realizing best value for money by building
long-term business relationships with contractors and engineers.
Securities of payment legislations or convenient and accessible
dispute resolution mechanisms such as adjudication or mediation
are not currently mandated by law. Coupled with these issues, lack
of controls in liability allocations presents massive uncertainty for
© ASCE 03723001-2
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 03723001
contractors and engineers. Statutory intervention thus becomes
crucial to businesses to realize and account for just business risks
(Mohamed 2014).
The contracting community in UAE attempts to transfer risk
back to the employer with contract languages such as back-to-back
and pay-when-paid clauses, indemnity clauses, waiver of conse-
quential damages, and capping of liquidated damages. However,
these provisions stand a high chance of scrutiny for unenforceabil-
ity and re-assessment by judiciary where the loss incurred is greater
than limitations agreed (Hadef and Partners 2019). While limitation
and exclusion of liability provisions are good commercial practices,
the UAE court has the power to nullify limitations and compensate
the aggrieved party to the full amount of actual losses.
Limitation Provisions in UAE
The UAE is a civil law nation and its primary source of law lies in
its statutes. The UAE Civil Code governs all types of contracts in-
cluding but not limited to construction contracts. Articles 872 to
896 provide the requirements specific to construction contracts re-
ferred to as the muqawala3 provisions. There are other significant
provisions found throughout the code that impact a construction
(muqawala) contract.
It is apparent that a meagre 25 articles of the code are not suf-
ficient to cater to the vibrant, young, and unparalleled construction
industry of the UAE, which has seen unprecedented growth that is
fueled by inspiring leadership and an entrepreneurial community
(Mohamed 2014). All situations that cannot be remedied by these
articles often require case-by-case interpretation by the judiciary,
which relies on the provisions that are embodied in various decrees
and ministerial decisions in addition to the civil code. Therefore,
this insufficiency can be considered as a lacuna in the law (Law
Teacher 2019).
As the contractual liabilities are formed on a consensual basis,
and because the UAE recognizes the freedom of contract principle
(Bueno 2011); the parties to a contract may agree on a liability cap
and exclude certain types of indemnities or losses. However, the
civil code has imposed certain statutory exceptions to what agree-
ments may be regarded as enforceable under law. Article 31 of the
UAE Civil Code is of a particular importance, which states that
mandatory provisions of law take superiority over terms in contrac-
tual provisions. Of course, mandatory articles of law are not vol-
uminous in the UAE Civil Code. Most articles are supplementary,
which can be simply contracted out by an express contract clause.
There is a widespread uncertainty about how these statutory pro-
visions shall be interpreted in courts or rather how these shall affect
a contracting party in case of a dispute leading to litigation (Kanakri
and Massey 2017). In order to bring some insight into this, some
legal and statutory requirements in the UAE are examined in the
following sections.
Provisions for Contractual and Tort-Based Liability
and Limitation Factors
The test in the UAE for tort and contract liability is similar. In com-
parison to common law, the foreseeability and mitigation factors
are not apparent in the UAE Code. With reference to natural result,
the foreseeability requirement is found adequate. Nonetheless, mit-
igation factor as covered under Article 290 of the UAE Civil Code
states that it shall be permissible for the judge to reduce the level of
damages by which an act has to be made good or to order that it
need not be made good if the person suffering harm participated by
his own act in bringing about or aggravating the damage.
J. Leg. Aff. Dispute Resolut. Eng. Constr.
 It seems that this article applies only under contributory negli-
gence and not in instances where a contractor or engineer’s default
is claimed. It is applicable in situations where “own” act is involved
in causing and accruing of damage. Thus, the UAE law does not
seem to mandate the claimant’s duty to avoid accumulating of dam-
ages unlike the provisions in common law principles. However, it
can be argued that the term “act” may include positive and negative
acts that caused or increased the damage and may also include rea-
sonable acts that could have helped to avoid or reduce the losses
(Mohamed 2014).
In regards to the causation factor, there is fundamental differ-
ence between UAE law and English law. A third-party intervention
is fatal in that it breaks the chain of causation in the UAE law
whereas in English law that does not happen. A causal connection
Downloaded from ascelibrary.org by Zhejiang University on 04/11/24. Copyright ASCE. For personal use only; all rights reserved.
can be established between the breach and harm or loss.
It seems liability under tort cannot be limited as made clear by
Article 296 of the UAE Civil Transactions Code, which states that
any agreement purporting to provide exemption from liability for a
harmful act shall be void. While limitation of liability in tort is
invalid under UAE law, it would be helpful to have such provisions
in contract law. This is a highly contentious issue and it can be argued
that without express limitation of liability provision in construction
contracts, Article 878 of the same code makes the contractor re-
sponsible for all damages (Mohamed 2014). Consequential damages
may be foreseeable and besides this, the code under the muqawala
provisions does not differentiate between direct and consequential
damages.
For example, the FIDIC Red Book 1999, which is the most
common form of contract under use in the UAE, provides under
Clause 17.6 that the total liability of the contractor to the employer
(with a few exceptions under some other subclauses) shall not ex-
ceed the sum stated in the particular conditions. Or if such sum is
not stated or agreed, the limit shall be the accepted contract amount.
This subclause goes on to provide that it does not limit liability
in any case of fraud, deliberate default, or reckless misconduct by
the defaulting party. Thus, under the FIDIC Redbook 1999, the
overall liability of the contractor, including tort, is limited subject
to a few exclusions. It is unclear how far this agreement would be
upheld in UAE courts if contested by one of the contracting parties
(Mohamed 2014). If the breach of contract constitutes also a breach
of law (tort liability), any limitation of such a liability may not
apply.
The following sections will explain some rules of law that are
directly related to limitation of liability such as liquidated damages,
decennial liability, exclusion of liability for consequential losses,
validity of exclusive remedy clauses, indemnification in the UAE,
and proportionate liability.
Liquidated Damages
Article 390 allows the contracting parties to fix the amount of com-
pensation in advance by agreeing on predetermined sum specified
in the contract, for a loss sustained due to a breach. However, the
same article also grants the courts a discretionary power to scruti-
nize and vary the limits agreed in the contract. It provides that if one
of the parties makes a claim, the judges may vary such pre-agreed
amount in order to make the damages and loss equal. Article 390 is
a mandatory rule and any contract excluding this right shall be void
and this has been upheld by courts. This is reflecting the Shari’ah
(Islamic law) principles according to which remedies or compen-
sation shall be equal to the actual loss suffered. Thus, agreement on
liquidated damages also has no certainty under the existing system.
However, including a liquidated damages clause is an effective
© ASCE 03723001-3
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 03723001
method to limit liability and it is widely practiced in UAE by speci-
fying maximum limit under the contract (Mohamed 2014).
It is a settled practice that Article 390 does not apply to govern-
mental contracts in UAE. This is probably because governmental
projects are usually not commercial, and, thus it is hard to quantify
the actual loss of the government. For example, if the project is a
school or a hospital or a road, it is difficult to see how the actual loss
of the government can be quantified. Therefore, the UAE courts ap-
ply the liquidated damages clause as such.
However, this does not cover the complete picture under UAE
law, which imposes further liabilities on the contractors, such as the
decennial liability and no fault provisions (Mohamed 2014).
Decennial Liability
As per Article 880 of the UAE Civil Code, contractors and engi-
neers are jointly liable for structural defects or collapse of the work
that happens within 10 years from the time the works are taken over
by the employer. This liability, which has its roots in French law,
is known as decennial liability. It is a strict liability under the
UAE Law.
Main contractors and engineers are liable for cost of remedying
structural defects that surface within the time period of 10 years
from the day of handing over the project. When structural integrity
of a building is uncertain within 10 years of handover, it is deemed
that both the contractor and engineer are in default; the only excep-
tion to this rule is when the life of the building was meant to be for
less than 10 years (Mohamed 2014).
If the contractor did not perform the contract according to the
conditions and specifications, the liability for any resultant damage
or loss will lie with the contractor, despite the fact that there was no
shortcoming. Article 878 provides that “The contractor shall be li-
able for any loss or damage resulting from his act or work whether
arising through his wrongful act or default or not, but he shall not
be liable if it arises out of an event which could not have been
prevented.” Consequently, default or negligence by a contractor
or architect need not exist. The only way the contractor or engineer
can escape this liability is proof of force majeure or extraneous
circumstances.
It was held in another UAE case that “one of the effects of such a
contract is that the contractor guarantees any harm or loss arising
out of his act or the thing he has made, whether or not arising
through his infringement or shortcoming. There will also be a
liability if a defect appears in the building.”
Article 880(2) further provides that such decennial liability can-
not be excluded by contract. The obligation to compensate will
remain even if it is proved that the cause for defect or failure of
the building was due to defective land or despite the fact that the
employer had consented to the construction of a faulty building or
installation. Thus, Article 880(2) makes the contractor liable for
all types of unforeseeable physical and ground conditions. In sum-
mary, for liability to arise no fault is necessary. The contractor and
the engineer may be jointly and severally liable.
Article 882 states that agreement the purport of which is to
exempt the contractor or the architect from liability or to limit such
liability shall be void (Mohamed 2014). Thus, it seems in contracts
in the UAE, the exposure of engineers or contractors for decennial
liability cannot be capped or excluded.
As per Article 881, if the role of the architect/engineer was only
in making the designs or plans, he shall only be liable for any defects
in the plans. If the engineer also took the role of the resident engi-
neer or supervisory consultant and supervised the construction ac-
tivities, he will be jointly and severally liable with the contractor,
J. Leg. Aff. Dispute Resolut. Eng. Constr.
 for design and quality of workmanship. This is notwithstanding the
fact that designs were defect free and only the workmanship was
defective. Here severally liable means it is a duty of purpose.
Insurance for decennial liability seems not widely prevalent in the
UAE. This is a huge concern considering the amount of risk the
contractors and engineers are exposed to. The UAE law does not
make decennial liability insurance as mandatory. A point to be
noted is that it is mandatory in Egyptian and French law (Palmer
2021) from where UAE law derives (Kamal Hafez Property &
Construction 2011) this principle. However, a method to circum-
vent this and achieve cover for decennial liability may be through
a professional indemnity (PI) insurance that indemnifies civil or
legal liability (Mohamed 2014).
Articles 880, 881, 882, and 883 of the UAE Civil Transac-
Downloaded from ascelibrary.org by Zhejiang University on 04/11/24. Copyright ASCE. For personal use only; all rights reserved.
tions Code thus establish key ultimate principles; liability related
to structural or major defects in a building could be unlimited. The
exception to this could be force majeure and faults by third parties
and that the burden to prove these external causes falls on the con-
tractor or designer/engineer.
There are some fundamental questions the decennial liability
provisions raise (Grimmitt 2021):
• Does jointly liable mean if one of the liable parties is liquidated,
the other party may be liable for the full liability above and
beyond their fault?
• When there is proportionate liability, is the liability apportioned
on a fault basis between contractor and designer?
• If only one party was at fault, will the other party be relieved of
the liability?
• Is there a liability toward other professionals engaged such as
the project management consultant?
Current legal provisions in the UAE do not offer sufficient
clarity about these matters and this ambiguity poses assumed risks
to the businesses of construction professionals who are not able to
duly account for these risks (Mohamed 2014).
Duty of Care or Duty of Purpose—What is the
Position in the UAE?
The normal standard of works expected from any professional
under common law is reasonable skill and care, which is a duty of
care not a duty of purpose. The courts would not imply that a spe-
cific result would be achieved except in a contract where a strict
liability or fitness for purpose element was agreed. The contract or
law does not impose a strict obligation on the professional. Bolam
v. Friern Hospital Management Committee established this rule.
Professionals experienced in common law jurisdictions will be
in for an unpleasant surprise as in the UAE, the situation is totally
different from rest of the developed world. The requirement to
achieve a specific result seems to be imposed in all muqawala
contracts (Bueno 2011). This is an additional liability imposed
on contractors or engineers.
Exclusion of Liability for Consequential Losses
A particular definition for consequential loss does not exist under
the laws of both the UAE and England. Under English law, the
consequential loss is perceived as the indirect loss explained under
second limb of Hadley v. Baxendale. However, this rule is not with-
out criticism (Carnie 2011), as seen in many modern cases such as
Caledonia North Sea Limited v. British Telecommunications PlC
(Scotland) and Others. Recently a new concept of “assumption
of responsibility” is seen to be preferred over the second limb of
© ASCE
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 03723001
Hadley v. Baxendale as held in Transfield Shipping Inc v. Mercator
Shipping (Carnie 2011).
In the onset, it may seem that the concept of consequential loss
in the UAE is as covered under Articles 282 and 283 of the UAE
Civil Transactions Code, are restricted to tort and tortious liability
as interpreted by some commentators. Contrary to this, following
judicial interpretation of the relevant articles, it now appears to gen-
erally cover all forms of losses or damages resulting from a contract
breach as recognized and covered by the code. Therefore, all in-
tended exclusions must be clearly worded and expressly stipulated
in the contract.
Validity of Exclusive Remedy Clauses
Exclusive remedies clause is another area where contractors in the
UAE seem to place a lot of reliance without realizing or evaluating
the reliability of terms included (Mohamed 2014). This clause is
one among the boilerplate clauses and hence not given much atten-
tion by the contractors or employers. One typical such clause limits
contracting parties’ rights, obligations, and liabilities as exhaustive
under the terms in the contract. Recourse for liabilities, including
but not limited to breach, damage, and negligence, would be lim-
ited to express provisions contained in the contract thus making
only specific remedies available for breach of obligation.
A contract may require discharge of numerous obligations and
it is not possible to comprehend remedies for all types of breach
within the contract. Therefore, notwithstanding the freedom of con-
tract principle and article that provides that contractual provisions
should be given their intention of meaning, rights under mandatory
provisions shall most likely be made available to the aggrieved party.
Article 31 of the UAE Civil Code provides that mandatory provi-
sions of law may take precedence over terms agreed in contract. This
places uncertainty to the application of Article 258, in the interpre-
tation of an exclusive remedies clause (Lloyd 2013). Besides this,
other provisions in the code listed subsequently also place threats
to the authority of exclusive remedies clauses which conflicts with
binding provision of law:
• Article 106(2) makes unlawful the exercise of a right, if such
action would mean excessive harm to other.
• Article 246 also restricts exclusion of provisions of law that
apply to contracts.
• Article 309(2) empowers courts to adjust the remedies equal to
the loss incurred.
• Article 878 seems to hold the contractor responsible for all
losses resulting from his act whether it involves his fault or
not except in force majeure situations.
Hence in the UAE the exclusive remedies clauses cannot be
considered as a straightforward way to limit or exclude liability
as there is an inherent danger of unlimited exposure to contractors
if the clause is proven void (Mohamed 2014). Similarly, it is also
not considered in the interest of the employers as it brings in un-
certainty to available remedies for damages and in case the clause
if found reasonable would mean uncovered liability and hid-
den risk.
This position is quite different from English law, which provides
that the exclusive remedies clause shall be upheld in courts if found
to be reasonable and unambiguous and in general not opposing to
the UCTA (Unfair Contract Terms Act 1977) requirements.
Indemnification in the UAE
In UAE law, there are no provisions with regards to unreasonable
indemnity. However, the courts look for solid proof for claims under
03723001-4 J. Leg. Aff. Dispute Resolut. Eng. Constr.
 an indemnity. The compensation granted may be up to the level of
all damages suffered including all foreseeable consequential losses
such as loss of profit, etc.
In cases where the insurer sought to rely on exclusion or limi-
tation of liability or exclusion clauses, it has been held that these
shall be reliable only if such language were part of the body of the
insurance policy itself by means of which it was easily detectable
by the insured. The effect of this is that it can be highly persuasive
for case decisions, and to be considered valid such exclusion must
be clearly worded and endorsed by the assured (Willan 2013).
Hence the contractors and engineers have to be very careful with
wording in contracts and insurance instruments to ensure that ex-
clusions are clearly spelt out and unreasonable claims will not be
withdrawn from their insurance policies.
Downloaded from ascelibrary.org by Zhejiang University on 04/11/24. Copyright ASCE. For personal use only; all rights reserved.
Proportionate Liability
Under a proportionate liability regime or legislation, the claimant
would be able to only recover damages from a defendant that is
equivalent to the defendant’s share in causing the loss (Walker
2012). Without legislative support in this regard, the claimant would
usually be able to recover 100% of the losses from one of the defend-
ants where more than one party is held liable. This type of legislation
would protect contractors and engineers to a great extent by making
them compensate only for their errors and not others’ errors. Such
legislation has been enacted in countries like Australia, US, Canada,
and some countries in European Union and has been proposed in
the UK.
The situation in the UAE is again different. The judge has a wide
discretion to impose a joint or a several liability. In certain cases,
the law dictates joint liability, such as decennial liability and debt-
ors under a commercial contract; in addition, there is a lack of
clarity if there is also joint and several liability.
Outcome and Recommended Approach
From studying the various provisions of UAE Civil Code, it is evi-
dent that there are a multitude of challenges to understand how a
rule of law will be interpreted under a specific situation or case.
Clashes regarding the likely interpretation of various ambiguous
provisions of law may cause uncertainty in the construction indus-
try. The legal system will certainly improve by time by the assis-
tance of the judicial interpretation.
The previous discussion shows that the limits may be applicable
for liquidated damages but not in cases of and do not apply to de-
cennial liability and tortious liability. Each case will need to be
raised and resolved on a case-by-case basis in the absence of access
to binding judicial advice (Mohamed 2014). The obvious uncer-
tainty leads to conflicting legal opinion and makes it a huge chal-
lenge for contracting parties to understand their full exposure to
liability.
To progress the legal system and bring about clear legal posi-
tions, it is submitted that the legislators shall mandate provisions to
assure the following:
• Unfair terms prohibition;
• Reasonableness of terms;
• Negligence and duty of care;
• Proportionate liability;
• Duty to mitigate loss (claimant’s duty);
• Mandatory insurance provisions;
• Security of payment; and
• Clarity related to recoverable losses.
© ASCE 03723001-5
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 03723001
Until adequate legislative intervention and reforms are accom-
plished, the contracting parties must be vigilant and practice fair
and just contract terms.
Conclusions
Employers command unlimited liability as it seems to offer all-
encompassing answer to allocate contractual risks. However, this
is far from reality. Employers must limit liability of contractors and
engineers based on proper risk assessment as a fair measure and to
obtain best value for their money.
Muqawala provisions are currently applied in a similar fashion
in a trivial carpentry contract as well as in sophisticated and novel
multibillion-dollar construction contracts. This factor along with
the lack of body of jurisprudence, unlike in the common law world,
make it highly imperative to introduce a comprehensive law that
caters to the unique and specific requirements of the specialized
construction industry.
Freedom of contract is an essential element for a thriving
economy but this principle can be abused in the absence of regu-
lations, hence the state has to implement proper controls to ensure
the weaker contracting party is not taken undue advantage.
The economy of the UAE has been developing at a staggering
pace. However, there are apprehensions about the current setup of
the current construction law. It can be inferred that other economies
that have adapted appropriate controls have had very good reason
for doing so and UAE should conduct studies as to what may apply
best to its economy.
The construction industry needs better attention by the local
legislator. The 25 articles of the UAE Civil Code to govern the ever-
booming construction industry leave the parties with a huge burden
to agree on many details. Perhaps an independent construction stat-
ute can be a positive step toward providing an efficient legal secu-
rity of payment, unfair contract terms, and the limitation of liability.
In the absence of a statutory regulation to ensure security of pay-
ment and convenient dispute resolution mechanisms, the limitation
of liability in contracts becomes a protracted problem. Unfair terms
in commercial construction contract have to be controlled to ensure
that businesses do not fall.
Data Availability Statement
No data, models, or code were generated or used during the study.
References
List of Cases
Abu Dhabi Court of Cassation, 125/Judicial Year 1, 2007.
Abu Dhabi Court of Cassation, 339/Judicial Year 3 391-JY-3.
Bolam v. Friern Hospital Management Committee (1957) 1 WLR 582.
Caledonia North Sea Limited v. British Telecommunications Plc (Scotland)
and Others (2002) 1 Lloyd’s Rep.
Dubai Court of Cassation no. 27 of 2009.
Dubai Court of Cassation no. 298 of 2008.
Hadley v. Baxendale (1854) 9 EX 341.
Transfield Shipping Inc v. Mercator Shipping (2008) 4 All ER 159.
UAE Union Supreme Court, 103/Judicial Year 24, 2004.
Endnotes
1
The Civil Transactions Law No. 5 of 1985 (as amended) is a federal law
known as the “Civil Code.” Its content was influenced by the French
J. Leg. Aff. Dispute Resolut. Eng. Constr.
 Civil Law (Code Napoléon) and some older civil codes in the
region. It provides for a general regulation of most of the private
law subjects, such as types of rights, real estate, construction, sales, rent,
insurance, etc.
2
Decennial liability is considered further in this paper. It refers to the joint
liability of the contractor and the engineer for structural and safety
defects that appears within 10 years from the day of the handover of
the project.
3 law.” Accessed May 1, 2013. https://www.tamimi.com/pdflawupdate
Muqawala contract refers mainly to building and infrastructure contracts.
While the UAE Civil Code regulates the construction contracts in gen-
eral, it makes special emphasis on building and infrastructure contracts.
Works Cited
Bueno, J. 2011. The projects and construction review. London: Law
Downloaded from ascelibrary.org by Zhejiang University on 04/11/24. Copyright ASCE. For personal use only; all rights reserved.
Business Research.
Carnie, J. 2011. Exclusion and limitation clauses: Current developments.
Auckland, New Zealand: Clendons Barristers & Solicitors.
Elliott, F. 2015. “Descoping in construction contracts in the UAE.”
Annual Review 2015/2016. Accessed February 15, 2021. https://
www.fenwickelliott.com/research-insight/annual-review/2015/descoping
-construction-contracts-uae.
Gotanda, J. Y. 2006. Damages in lieu of performance because of breach of
contract. Villanova, PA: Villanova Univ. of School of Law.
Grimmitt, M. 2021. “Uncertainty in the application of UAE Laws. Tales of
the unexpected: Where liability lurks unseen.” Accessed February 16,
2021. https://www.cmguide.org/archives/2200.
Hadef and Partners. 2019. “Limiting liability under contract.” Accessed
February 16, 2021. https://www.hadefpartners.com/News/403/Limiting
-liability-under-contract.
Kamal Hafez Property & Construction 2011. “Managing the risk of decen-
nial liability.” Law Update 244: 61.
© ASCE 03723001-6
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 03723001
Kanakri, C. A. H., and A. Massey. 2017. “Legal issues relating to construc-
tion contracts in the United Arab Emirates.” Accessed February 21,
2021. https://uk.practicallaw.thomsonreuters.com/0-619-1946?transition
Type=Default&contextData=(sc.Default)&firstPage=true.
Law Teacher. 2019. “Construction law in UAE a distinct body.” Accessed
June 4, 2019. https://www.lawteacher.net/contract-law/essays/construction
-law-in-uae-a-distinct-body-contract-law-essay.php.
Lloyd, E. 2013. “Exclusive remedies clauses: UAE law and the common
/?pageID=4709.
Manahan, B. 2004. “Owners should seek a limitation of liability for con-
sequential damages.” NJPA Real Estate Journal, November 26, 2004.
Mohamed, F. 2014. “Limitation of liabilities—Analysing a balanced
approach to limiting liabilities in construction contracts.” M.S. thesis,
Faculty of Business, British Univ. Dubai.
Palmer, C. 2021. “Decennial liability: A potential time bomb for US design
professionals.” Accessed February 3, 2014. https://www.beazley.com
/documents/architects%20and%20engineers/risk%20insights/insight
_decennial_liability.pdf.
Summersby, A., A. Davis, and P. Walker. 2013. A guide to limiting supplier
liability in ICT contract with Australian government agencies. 3rd ed.
Canberra, Australia: Dept. of Innovation, Industry, Science and Research.
Walker, S. 2012. “Australian Contract Law, Response to discussion paper.”
Consult Australia. Accessed February 20, 2021. https://cyberprecedent
.com.au/lawcouncil/images/LCA-PDF/docs-2600-2699/2609%20-%20
Improving%20Australia's%20Law%20and%20Justice%20Framework
%20-%20A%20discussion%20paper%20exploring%20the%20scope%20
for%20reforming%20Australian%20contract%20law.pdf.
Willan, H. 2013. “The incorporation and interpretation of exclusion clauses,
conditions precedent and warranties in re-insurance policies under UAE
law.” Accessed February 15, 2021. https://www.hfw.com/downloads
/Client%20Brief%20-%20UAE%20law%20[A4%204pp]%20February
%202013.pdf.
J. Leg. Aff. Dispute Resolut. Eng. Constr.