Recent Dubai Court of Cassation judgment - Decennial liability and contractual relationships in construction matters
Dispute Resolution / UAE
Naief YahiaPartner, Head of Litigation - Dubai
Mohamed Abou SakrSenior Counsel,Dispute Resolution
Dina AssarProfessional Support Lawyer,Dispute Resolution
On 12 December 2023, the Dubai Court of Cassation issued a significant judgment (Judgment No. 539 of 2023 – Real Estate), in relation to the legal issues that can arise in large construction projects.
The judgment, which concerned a dispute involving contractual requirements, design flaws, quality standards, and complying with civil defence rules, provides clarification of the potential liabilities of consultants and contractors in these respects. In addition, the judgment affords an in-depth examination of decennial liability under Article 880 of the Civil Transactions Law, which holds the contractor and the architect or engineer who designed or supervised the building liable for defects in the building from the date of delivery of the building with a view to ensuring the long-term safety and reliability of construction projects.
This article provides a brief summary of the background to the dispute and the lower court judgments, before proceeding with a review of the Cassation judgment and concludes with some comments on the significance of the judgment.
The Project Owner (who was the Appellant in the case) had entered into two contracts in 2006 and 2007 with the Project Consultant (who was the first Defendant): one for the provision of infrastructure design services and the other for the provision of supervision services for the development of a new landmark real estate project in Dubai. The Project Owner had also entered into multiple contracts with the Project Contractor (the second Defendant), for the performance and completion of maintenance work for roads, infrastructure, and the remaining works of the project.
In August 2017, the Project Owner claimed that it discovered defects in the design and supervision works of the Project Consultant, namely that the firefighting system was not working properly and that there was no connection between the fire pumps. He also claimed that the system did not operate in “Auto” mode and that the fire hydrant spacing did not comply with the civil defence regulations and guidelines as the fire hydrant spacing exceeded the specified distance of 120 meters.
The Project Owner filed a case before the Dubai Conciliation Centre seeking the appointment of an expert. The appointed expert concluded that there were flaws in the Project Consultant's design and supervision works and that the estimated cost of repairs for the Project Consultant's defective work was AED 45 million.
The Project Consultant challenged the findings of the court expert and thus the Project Owner filed the present lawsuit against the Project Consultant. It attempted to add the Project Contractor as a party to the proceedings at a later stage.
The Project Owner requested compensation from the Project Consultant for alleged defects in the design and supervision that caused damage to the project’s fire and irrigation systems on the basis that it gave rise to liability for damages or to warrant the application of the decennial liability rule under Article 880 of the Civil Transactions Law.
In a judgment dated 20 March 2023, the Court of First Instance dismissed the Project Owner's application to join the Project Contractor, finding that the Project Owner had a separate contract with the Contractor that governed their relationship and that the issue of the completion of the fire and water network works in the project had been decided by a final court judgment in a previous dispute between them. The Court of First Instance further stated that the Project Owner could seek separate recourse against the Project Contractor if the Project Owner believed it had a right to claim damages in connection with the works.
The Court of First Instance appointed an expert panel to examine the works and the case documents. The expert panel’s mandate was to investigate whether there were any flaws, errors, or defects in the Project Consultant's design and supervision works that would give rise to liability for damages or invoke the decennial liability rule under Article 880 of the Civil Transactions Law.
The expert panel concluded that there were no flaws in the work supplied and installed under the Consultant's supervision, in accordance with the designs.
The expert panel further concluded that the Project Owner’s assertion concerning fire hydrant spacing was not damage caused by the Project Consultant or a breach by them of their design and supervision obligations. It was clear that the Consultant had contacted the Civil Defence at the time of supervision and obtained the necessary approval. Further to such approval, the Consultant then commissioned the works and their execution to the Contractor. There was no letter from the Project Contractor in which they objected to the plans on the grounds of non-conformity with the directives of the local departments.
The Court of First Instance accepted the expert panel's conclusion and dismissed the Project Owner's claim for lack of cause and evidence.
The Court of First Instance also noted, based on the expert’s panel report, that the Civil Defence had issued new regulations and directives in 2011, five years after the design contract and one year after the completion of the works, and that the Project Consultant could not be liable for the non-conformity of their 2006 designs with the new code and the 2011 directives. It further noted that the Project Contractor was responsible for the outstanding works, especially when there was no evidence of formal handover of the project and commissioning to capture final defects and observations regarding execution which took place with the Project Owner's knowledge and approval.
In addition, the Court found that the Project Owner was claiming a sum for a network upgrade, not repair works in accordance with the terms of their contract with the Consultant and that there was no case for repairs per se because the works were completed.
The Court stated that the project was already in use and that the Project Owner must carry out maintenance as these pumps could not run without an upgrade or replacement for eight years. The cost of such upgrades was not connected to the Consultant’s designs. Accordingly, the 2006 designs could not be compared with or considered in light of the consultative report titled “Network upgrade” which the Project Owner submitted to the court as the 2006 designs predated the report by nearly 12 years.
The Court emphasized that the Project Owner failed to prove that there were any design flaws or errors in the Consultant's 2006 contract drawings or deficiencies in how the Consultant oversaw the Contractor's construction activities. Construction was completed in 2010. Additionally, there was no evidence of structural failures at the site that would invoke the application of Article 880 of the UAE's Civil Transactions Law concerning decennial liability insurance for damages.
In view of the fact there was no basis to invoke Article 880, the Court concluded that the Consultant was not liable to pay damages as there was no evidence of structural defects or failure.
The Project Owner appealed the Court of First Instance judgment.
In its judgment, the Court of Appeal upheld the decision of the lower Court, finding that the issues raised at the first instance and on appeal were substantially the same and were addressed in the Court of First Instance's reasoning.
The Court of Appeal agreed with the Court of First Instance that the joinder application was inadmissible, as the Project Owner had a separate contractual relationship with the Project Contractor and that the issues relating to the completion of the works had been determined by a previous final judgment.
The Court of Appeal also agreed with the Court of First Instance that the Project Owner had failed to prove any errors or defects in the Project Consultant's design and supervision works that would give rise to liability for damages or warrant the application of the decennial liability rule under Article 880 of the Civil Transactions Law.
The Project Owner appealed the Court of Appeal’s judgment to the Court of Cassation.
The Court of Cassation dismissed the appeal and affirmed the Court of First Instance and Court of Appeal decisions.
In reviewing the merits of the claim, the Court of Cassation focused on the application of decennial liability, considering the absence of defects in the works completed under Defendant's supervision. The expert panel's findings, which were recognized by the Court, indicated no design or supervisory failures in relation to the fire hydrant spacing and other alleged defects. Notably, the Court highlighted that Consultant had complied with all relevant regulations in effect at the time of the design and completion, dismissing the relevance of subsequent regulatory changes and advancements to this case.
The Court emphasized that decennial liability under Article 880 of the Civil Transactions Law mandates clear evidence of structural defects within ten years of completion, which the Project Owner failed to provide. In view of the lack of evidence confirming structural failure evidence and the fact that the claimed damages pertained to network upgrades rather than rectifying design or construction flaws, the Court concluded that the conditions for invoking decennial liability were not met. Therefore, the Court upheld the dismissal of the Project Owner’s appeal, reaffirming the strict standards for applying decennial liability in construction-related disputes.
The Dubai Court of Cassation's judgment is a significant judgment that clarifies the scope and application of the decennial liability rule under Article 880 of the Civil Transactions Law, as well as the conditions and effects of the joinder of parties in civil proceedings.
The judgment confirms that the project owner bears the burden of proving any errors or defects in the design and supervision works of the project consultant that would give rise to liability for damages and that the project consultant cannot be held liable for the non-conformity of their designs with new regulations and directives that were issued after entering into the design contract (or in particular after the completion of the works).
The judgment's consideration of decennial liability clarifies the standards required to uphold such a claim. It demonstrates the judiciary's role in interpreting the scope and application of decennial liability and a consultants/designers’ liability within the framework of the Civil Transactions Law, providing valuable guidance for industry stakeholders.
The judgment also confirms that the Project Contractor is responsible for the outstanding works that were not formally handed over to the Project Owner.
For further information,please contact Naief Yahia and Dina Assar.
Published in March 2024
