Understanding 'good faith' in ME construction contracts

Out-Law Analysis | 14 Nov 2016 | 12:01 pm | 2 min. read

FOCUS: The duty of good faith – sometimes referred to as 'fidelity to the bargain' – is enshrined in many civil codes of the Middle East. What does this mean for parties to a construction contract that is subject to the laws in the region?

Defining good faith is difficult, but it is commonly understood to mean co-operation, honesty and reasonableness in the dealings between two parties, with the principle potentially applying to both the pre-contractual as well as the contractual relationship.

Many civil codes of the Middle East were inspired by the Egyptian civil code, which enshrines a principle recognised within the Islamic jurisprudential tradition: that a right should not be exercised unlawfully, or contrary to a principle of good faith.

This is a very broad duty that can manifest itself in a number of ways. Within contraction contracts, the principle is likely to have most impact on variations. The Qatari civil code, for example, says there is no right to compensation if an employer did not authorise or cause a change, but a court may consider the fact that it gave an informal instruction to change the scope of work as relevant under the duty of good faith. The principle could also be used to terminate or rescind a contract if a breach of good faith can be shown.

In practical terms, the concept of good faith can help contractors when arguing that an employer has a duty to make interim payments in a timely manner, for example, or a duty to use the change management procedure properly.

The scope of the principle of good faith also varies across the Middle East. In Bahrain, for example, the civil code includes the concept of 'honesty' in the definition of the principle, which can change how it is applied. Under the Qatari and UAE civil codes, the good faith obligation relates to the performance of the contract, and it is questionable whether it would extend to dealings during the pre-contractual period. In this respect the Qatari and UAE position may well be similar to that in English law: a bare agreement to negotiate is unenforceable.

While English courts have in recent years sounded-out the possibility of introducing the concept of good faith into contractual dealings, the English view tends to be that any such duty must be spelled out expressly in the contract. And indeed, that view is increasingly taken across the Middle East. While it is important to be aware of the potential benefits and the burdens arising from the principle of good faith when disputes arise in Middle East courts or arbitral trials, most contracts will expressly cover any issues independently of good faith.

Any business operating in the Middle East therefore has to strike a balance between understanding the principle of good faith, and the specifics of how it applies in different countries, and ensuring that all potential disputes are in fact covered by specific clauses in contracts. 

Paul Fisher is a construction law expert with Pinsent Masons, the law firm behind Out-Law.com.