Managing settlement of construction project claims in Qatar

Disputes regarding compensation and damages for delays, variations and defects are common in Qatar under normal conditions, but the immovable FIFA tournament deadline has led to unprecedented levels of acceleration. That, together with the impact of Covid-19, material price escalation, a reduction in summer working hours and a new minimum wage has caused a significant number of claims advanced by the supply side of the construction industry.

Achieving amicable settlement of these claims is a top priority for both developers and contractors and will be pivotal to the successful conclusion of projects – both in the eyes of the construction community and the future foreign investors which Qatar is trying to attract in order to deliver its ambitious post-World Cup infrastructure and energy sector strategies.

Main contractors are working hard to complete and hand over projects and settle final accounts without dispute escalation, while at the same time holding off claims from subcontractors and vendors.

Developers such as the Supreme Committee for Delivery & Legacy (the body responsible for World Cup related infrastructure development), the Public Works Authority (Ashghal), and Kahramaa (the public water and electricity company) are applying pressure on main contractors to achieve completion sufficiently in advance of the November group stages start date, to ensure major ‘snagging’ items are identified and resolved before media and fans arrive in Qatar.

Contractors are insisting on settlement workshops and discussions with developers in the hope that the leverage they have with ongoing projects nearing completion will encourage a deal to be done. There is a risk that post-tournament, the incentive for developers to offer settlement deals will not be there, and if the project did not complete on time, there is a risk that liquidated damages for delay will be levied.

Confidentiality

When holding settlement discussions, parties should bear in mind that without an express non-disclosure agreement (NDA) in place, signed by both parties, any concessions made by either side can be referenced in litigation or arbitration if settlement is not achieved. Such concessions may prejudice the position taken in formal proceedings, or contradict a party’s position and be damaging to the likelihood of success.

The common law concept of privilege does not exist in Qatar, except in the context of exchanges between a lawyer and their client. These are protected by the principles of confidentiality in Qatar’s Code of Law Practice, and the Code of Civil and Commercial Procedure.

Scope of settlement

Settlement or ‘conciliation’ agreements are distinguished from ordinary contracts. They are known in Arabic as ‘Sulh’ agreements and are described in articles 573 to 581 of the Qatar Civil Code. Reconciliation is defined in article 573 as “a contract under which the parties settle a dispute between them or avoid a possible dispute by each party waiving the corresponding part of their claim”, with more detailed principles following:

• parties must have proper capacity to settle or vary rights under the contract;
• the settlement agreement must only affect the rights of the contracting parties;
• the settlement agreement must be in writing or recorded in formal minutes in order to be effective;
• the effect of a reconciliation is to settle the relevant disputes only and as a result of reconciliation, rights and claims finally waived by the parties shall lapse;
• the wording of the waiver in reconciliation will be narrowly construed and the waiver will apply to rights that are clearly the subject matter of the dispute settled by the reconciliation. This means the settlement agreement must show clearly which terms are being varied, which rights are being extinguished, and which terms are excluded;
• reconciliation is indivisible – so where part of it is or becomes invalid, the whole contract becomes invalid, unless it is otherwise agreed by the parties or indicated by circumstances that the parties to the settlement agreement consider the agreement to be severable.

This means that a conciliation contract can be considered to have satisfied the elements of a ‘Sulh’ when the parties’ intention is to settle the dispute between them, either by ending a pending dispute or preventing it if a dispute is likely.

Authority to settle

Article 44 of Law No. 13 of 1990 (the Procedures Code) provides that the person signing a settlement agreement requires specific authorisation for non-managerial acts including in particular to give waivers or enter into conciliation agreements. If there is no mandate such as power of attorney to enter into a settlement agreement, it is rendered invalid.

In addition, article 721 of the Civil Code can also be relied on to demonstrate the need for specific authorisation or a special power of attorney empowering the signatory to execute a conciliation agreement.

Parties could argue that signatories had ostentatious or apparent authority. Although the principle of apparent authority is not addressed expressly in Qatari law, it is recognised and understood in Qatari jurisprudence and court decisions. These have examined to what extent the principal has contributed to circumstances that led others to reasonably believe that a third party has been appointed by that principal to represent him.

However, there is a basis to argue that the principle of apparent authority does not apply to agreements of conciliation or ‘Sulh’, because the law requires specific authority of the signatories to validly execute such agreements.

Indivisibility

The general legal principle under article 166 of the Civil Code is that if only a part of a contract is found to be null and void or voidable, then only that part is affected and not the whole of the contract except where in the absence of that part, the contract itself becomes incapable of being performed.

However, the nullity of settlement agreements is dealt with separately under article 581 of the Civil Code which provides that the nullity of a part of a conciliation leads to the nullity of the whole because conciliation is indivisible. For example, parties cannot divide issues that are waived or made the subject of conciliation.

Key provisions

Set out below are examples of provisions which often are included in settlement agreements. In every case, these clauses require careful and clear drafting:

• details of the correct corporate entities entering into the settlement agreement (by reference to the underlying contract);
• clear and detailed description of the claims which are the subject of the settlement agreement (often defined as the “Settled Claims”);
• agreement not to pursue the settled claims;
• the amount and date on which payment is to be made together with the currency and bank account into which payment is to be made and whether VAT is to be applied;
• how performance, retention, or advance payment guarantees are to be treated;
• agreement on liability for latent defects;
• confidentiality agreement (other than to pursue a claim for breach of the settlement agreement itself). This clause is sometimes caveated to allow a party to disclose the agreement where doing so will resolve related claims
• if applicable, conditions attached to payment of the settlement sum and a time by which they should be fulfilled;
• a governing law and jurisdiction clause and a dispute resolution agreement (typically arbitration);

There is likely to be an increase in the number of settlement agreements executed in the coming months in Qatar as a result of the number of projects completing in time for the World Cup. The negotiation of the terms of a settlement, and the settlement agreement itself, should be prepared with legal input, and under the protection of an NDA.

Co-written by construction expert Katie Bremner of Pinsent Masons