This week, we turn to
, the regional head of construction and engineering at
Al Tamimi & Company
, who tells us about some of the latest issues in his sector. His comments come at a time of increased disputes in the construction industry. Some developers have been delaying on payments and others are refusing to pay unless the contractors accept a unilateral discount.
At the heart of these disputes is the issue of "good faith", referred to in Shariah law as
Huson Alniyah
.
See his responses after the jump ...
Steven Hunt
: In the cut and thrust of today's business environment what compels us to conduct our commercial dealings properly and fairly? Does anything go as soon as the ink has dried on our contracts? Do the terms of the written contract prevail regardless of what we have said or done?
For the most part, we act fairly and responsibly because we recognize the importance of maintaining good commercial relations and the benefit this has for our business; being in constant conflict with our contracting partners would be counter-productive. Even so, as business people, we must not be fearful of taking advantage of our commercial edge (more often than not there is an imbalance in the relative strengths of the parties to a commercial contract) but sometimes we may overstep the mark. This is where the idea of good faith may come into play.
Whether under common or civil law, most jurisdictions will imply equitable provisions into a contract. Under the English common law equitable doctrines have developed such as misrepresentation and estoppel which essentially protect an injured party against statements or promises which later turn out to be untrue or which contradict or undermine later actions or statements from those originally stated. In the same way, under a civil law jurisdiction, like the UAE's, the requirement to act in good faith plays an important role in ensuring that contracting parties administer their contracts properly and fairly and in a way that the contracting parties had envisaged (perhaps by reference to custom or the parties' previous business dealings).
Principles of fairness are enshrined the UAE civil code and are derived from principles developed under Sharia law and which includes a duty of good faith (Huson Alniyah):
"the contract must be performed in accordance with its contents, and in a manner consistent with the requirements of good faith". (Article 246(1) of the UAE civil code)
How then are we to administer our contracts if we are continually at risk of falling foul of the requirements of good faith or, in other words, what is good faith?
The short answer is there is no precise definition against which we might measure our conduct; the effect of the duty of good faith is determined by reference to the prevailing facts and contract terms. By way of an example, a pre-contract representation about, say, the subsurface conditions of land on which a building is to be erected, which later turn out to have been made knowing it to be untrue or misleading will, in all likelihood, amount to a breach of the duty of good faith (and, possibly, notwithstanding how the contract treats that risk). A claim for a loss arising from a breach of contract is likely to fail where that loss might have been prevented through the cooperation or mitigation of the 'injured' party. Similarly, a later reliance on a time bar clause (i.e. which seeks to prevent what would otherwise be a right to compensation on the basis that the time for presenting the claim has passed) where earlier the party had waived the right to relay on the time bar or perhaps, had previous knowledge of the existence of the claim is also likely to amount to a breach. In that event the duty of good faith would, in all likelihood, stop the guilty party from relying on the strict application of the contract.
In a similar vein, the duty of good faith would generally require a party seeking to enforce a contractual or legal right to appear before the court (or arbitration) with 'clean hands'; a party cannot expect the full support of the law, if that party, had itself, been in breach or otherwise at fault. So, for instance, the court might reject an entitlement to terminate a contract for delay in performance if the aggrieved party was itself partly responsible for the delay.
The duty of good faith is not designed to curtail or fetter the ability of the contracting parties to negotiate at arms length; the law is not concerned with the perceived fairness of a properly negotiated deal and recognizes the sanctity of the contract. The law will, however, interfere where circumstances suggest that conduct has been improper or designed to mislead. There are many examples of how the duty of good faith might be applied which can be gleaned from various sources of Sharia and Arabic civil law. The effect of good faith on our commercial transactions is certainly not something we should dismiss lightly.
