Implications for Construction Disputes
In a recent judgment, the Abu Dhabi Cassation Court confirmed that back to back clauses can be rendered invalid in circumstances where the main contract was terminated; in the same judgement clarified (and one could say reaffirmed) the scope of application of unjust enrichment principles within the realm of contractual claim, in particular re construction contracts.
We succinctly set out these two points covered in the Judgement.
The first was raised in addressing the appellant’s argument concerning an alleged back-to-back clause. The lower court had found that clause unenforceable based on its assessment of the facts and surrounding circumstances. Effectively concluding that although the clause was valid at agreement stage, the Court found it to have later become invalid as a result of its impossibility. The event of impossibility was that the main contract was terminated.
The Court found that pursuant to 894 of the Civil Code entitled the subcontractor a right to be paid notwithstanding any restrictions caused by the back to back clause. That liability rested with the main contractor, not even the employer, concluded the Court.
This Judgement represents an alert for those main contractors who rely on back to back clauses hoping to avoid exposure from their subcontractor. Their strategy might not be full proof.
The second interesting aspect of the Judgement was regarding unjust enrichment. The established principle is claims in tort cannot be heard in the realm of contractual relationship. Accordingly claims of unjust enrichment cannot be pursued when there is an underlining contract between the parties in dispute. This principle is enshrined in numerous judgments. The issue in the case however, resulted in the court permitting a claim in unjust enrichment notwithstanding the existence of a contract. The Court found that this was permitted because the contract had come to an end (as a result of the main contract termination). Accordingly, the sub contractor can escape any restrictions in the contract and can pursue a claim purely on unjust enrichment claim basis to recover the benefit received by the contractor for his works. The Judgement disregarded the fact that the main contractor might have not yet received any monies from the employer/owner.
Again this aspect of the Judgement will require main contractor’s to take additional steps if they decide on terminating contracts to ensure they do not leave themselves exposed to subcontractor claims, particularly in circumstances where they have not even been paid by eth employer.
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