The State of Qatar’s construction market is attracting a lot of interest with a large programme of work related to hosting the 2022 World Cup. Andrew Jones of Dentons explains what contractors and consultants need to look out for under Qatar’s unfamiliar decennial liability regime.
- Contractors and engineers are liable to the employers for structural defects
- The liability is for a mandatory period of ten years ‘decennial liability’
- Parties may be able to reduce their risk for decennial liability
- Decennial liability arises when the defect threatens the safety and/or stability of the structure
In Quatar many firms are undertaking or planning to undertake significant, high value projects related to the FIFA 2022 World Cup™ and the Qatar National Vision 2030, so it’s vital that the risks involved are clearly understood. Late payment is a familiar risk for contractors in Qatar and the wider Gulf region, but a less-familiar risk, particularly to those coming from common law countries, is decennial liability.
So, what exactly is it, and what can contractors and construction professionals do to manage the associated risks?
Strict liability, no fault required
Decennial liability is a federal statutory provision found in the Qatar Civil Code (Law No 22 of 2004) in arts 711 to 715. The contractor and designer (architect or engineer) are jointly liable for any total or partial collapse or defect that threatens the stability and safety of the building or fixed structure built and/or designed by them for ten years following project handover.
Interpreting ‘collapse’, ‘defect’ and ‘fixed structure’
The terms ‘collapse’ and ‘defect’ are not defined in the Qatar Civil Code and are therefore subject to interpretation and only defects significant enough to threaten the safety and stability of the building or fixed structure will trigger decennial liability, minor defects will not.
A collapse is fairly self-evident, but a defect or defects impeding the stability and safety of a building or fixed structure could be hotly debated in formal legal proceedings, and would likely require expert evidence.
The term ‘ fixed structure’ is also not defined in the Qatar Civil Code and is therefore subject to interpretation.
When does the liability arise?
This liability arises even when the employer has approved of the defective building or fixed structure. Liability will also arise where the collapse or defect arises due to a defect in the land itself, so unforeseen ground conditions, causing subsidence or other geotechnical deficiencies provides no defence to a decennial liability claim. This is of particular concern in Qatar, given that reclaimed land is a regular feature of construction projects. Additionally, significant excavation works are being undertaken to realise Qatar’s ambitious metro network. Decennial liability is triggered when the project has been ‘handed over’, the meaning of which will depend on the individual circumstances of the project.
This liability cannot be contracted out of, and any contractual provision purporting to do so will be deemed void.
Equally, any attempt to reduce the timeframe or level of damages by agreement between the parties will not be enforceable.
If the architect/engineer’s scope or services is limited to the design of the project then he will only be liable for defects attributable to the design. However, where the architect/engineer has also supervised the works his liability is extended to liability for the supervision of the execution of the works.
Similarly, the contractor is only responsible for defects arising from the performance of the works and not from a fault in the design unless that defect should have been apparent to him in the execution of the works. However, unless the design was undertaken by the contractor (or a designer employed by the contractor) then the contractor will also be liable for the collapse or defect threatening safety/stability where it is deemed to have arisen out of the design.
In contrast, decennial liability does not extend to sub-contractors engaged by the contractor, and it would be prudent to obtain indemnities from sub-contractors on a back-to-back basis. The reality is that such indemnities are not likely to be agreed to by the relevant sub-contractor.
Duration of liability
The clock on decennial liability starts to run from handover, and the employer has three years from the total or partial collapse or discovery of the defect(s) impeding the stability and safety of the building or fixed structure in which to bring a claim.
Reduced lifecycle, reduced liability
Where the intended lifecycle of the building or fixed structure is less than ten years, then liability for any partial or total collapse or defect that threatens the safety and stability of the aforesaid works will only last for as long as the shorter lifecycle. A temporary football stadium built with the intention that it would be used for five years from completion, then liability would be reduced to five years.
The Qatar courts are empowered (under art 263 of the Qatar Civil Code) to assess the compensation payable in actions, and this extends to decennial liability claims.
In addition to the cost of repairing the defects or re-instating the collapsed building, the Qatari courts (or appointed arbitrators) could include an award of damages for loss of profit or loss of use and enjoyment arising out of the defects or collapse.
Many projects currently under construction in Qatar involve hospitality facilities, sporting stadia and mass transport which are expected to generate significant profits, in particular with regard to the FIFA 2022 World Cup™. Therefore, loss of profit claims associated with such projects would escalate the overall amount of damages that could be awarded.
Liability to third parties
The right to claim against a consultant or contractor under the statutory decennial liability provisions rests with the employer and does not extend to third parties, however under the general rules for liability, third parties may have a claim for damages where harm is suffered by third parties, eg the owner/occupants of an adjoining building damaged as a result of the collapse of the building in question.
Limiting your liability by other means
International contractors and professionals entering the Qatari market have the option of setting up a WLL (with limited liability) company or, where the contract that they are performing relates to a public project in which case they would be able to set up a branch.
It could be argued that a WLL would ring fence the contractors’ liability and cut off ties with HQ overseas that would otherwise be liable to pay out on an award of damages if the branch office didn’t have sufficient funds to do so.
However, employers in construction contracts in Qatar typically require parent company guarantees. There are a number of practicalities to consider when determining the most suitable company vehicle to set up and legal advice should always be sought in this regard, making a fully informed decision.
Enforceability of a Qatari court judgment or arbitral award for decennial liability
In the absence of a parent company guarantee a building owner may find it challenging to pursue assets held overseas. Qatar is party to the GCC Convention for the Execution of Judgments, Delegations and Judicial Notifications so any award from a Qatar court would be enforceable within the GCC.
However, Qatar is not a signatory to the two main international conventions of the enforcement of judicial awards, the Hague and Lugano Conventions. Therefore any attempt to access assets outside the GCC would be difficult if not impossible.
If the contract provides for disputes to be settled by arbitration, the employer may have a better chance of recovering his losses against an overseas contractor or design professional as Qatar is a signatory to the New York Convention, meaning an arbitral award could be enforced in more than 150 overseas jurisdictions where assets are identifiable.
The exact position on enforcement is individual to each contract and the parties to it, so again this is something that a concerned contractor or design professional would be well advised to seek legal advice on, as the merits of enforcement are subject to a number of factors that cannot be properly dealt with in a broad-brush manner.
Not covered by (most) insurance
The real sting in the tail is that decennial liability falls outside standard contractors’ all risk cover, which only insures against certain named events, and outside of an architect’s/engineer’s professional indemnity insurance, which will only cover faults caused by negligent performance.
While it is possible to purchase specific decennial liability insurance it is not commonplace to do so due in part to the expense of such cover as well as the conditions that are attached to it, for example, decennial liability insurance is typically only available for purchase before a tender is awarded so for many already working in Qatar it’s too late to obtain such cover.
Decennial liability is a recognised principle in civil law jurisdictions but contractors and construction professionals coming from common law jurisdictions often overlook or underestimate its potential impact on their bottom line.
When considering bidding for or accepting work in Qatar (or further afield in the Gulf or wider MENA region) it is sensible to consider the following:
- Consider obtaining decennial liability insurance and ensure the policy will cover the relevant lifespan plus three years for the claim period within which the employer has to commence its claim. Remember, you may have to take out the policy before bidding for the work so make these enquiries at the outset.
- Investigate the other parties that will be involved in the project. What is their reputation for good works/good design? Are these parties that you want to work with or should you turn down the opportunity? If it’s too risky or there are too many unknowns it may be advisable to walk away.
- Are you content with the ground condition assessment report? If not, consider having a further report produced – the cost of this will be significantly less than a future decennial liability claim.
- Understand the extent of your liability – build only/design only/both/design and supervision. There is argument that as designer if you also supervise the works you can reduce the risk of decennial liability by controlling the quality of the works performed by the contractor. On the other side of the coin, if the designer limits his involvement to designing the works he doesn’t become liable as a result of poor workmanship of the contractor (or his sub-contractors) which may occur no matter how vigilant the supervision.
- Ensure that you keep within the parameters of your liability; if you are the contractor and a design professional has produced the design for the employer, avoid participating in the design process where possible; if you are the design professional and have no responsibility for supervising the works – refrain from attending site and giving instructions on how the works should be carried out and make sure your scope of services expressly excludes this role. This is particularly important if you have decennial liability insurance and that insurance is only for one element, such as the design.
With the Gulf comprising a number of civil law jurisdictions which include decennial liability in their own federal laws, with such operating on a similar basis to that in Qatar, contractors and construction professionals alike looking to join those markets, or those already operating in those markets, ought to be fully appraised of the risks to which they are exposed on a contract by contract basis, as part of their overall risk management procedures.
This article was first published in the August 2016 edition of Construction Law. For a subscription, please complete the online subscription form at www.constructionlaw.uk.com. You can also sign up there for Construction Law's free newsletter.