Legal Strategies for Ensuring Payment and Protecting Business Interests

The construction industry in the United Arab Emirates (UAE) is the driving force that contributes to economic development and helps deliver essential infrastructure. Due to the rapid pace of construction and the complicated contractual frameworks, disputes relating to non-payment or delays frequently arise.

Regardless of whether you are a contractor, subcontractor, supplier, or employer, you must understand your legal entitlements and the mechanisms for debt recovery that are available to you, especially in order to maintain your economic viability and protect your commercial interests. In this context, construction debt recovery UAE has become highly important to all parties to the construction industry in the UAE.

We regularly assist both local and international clients with the resolution of construction debt recovery UAE issues and other construction-related debt disputes in the UAE. We have set out below a legal overview of the types of remedies available under UAE law.

Understanding Contractual Obligations and Risk Allocation

In any successful debt recovery action, a sound construction contract is an essential foundational document.

 Most disputes arise as a result of poor drafting of contracts, which can include poor definition of payment periods and terms, and poor references to inspection of essential milestones. To eliminate these issues, you will form and have defined your key contractual elements, including:

• Payment schedules and payment triggers (i.e., completion certificates, milestones)
• Retention clauses, penalties, and variations
• Dispute resolution mechanisms (i.e., whether by court or arbitration).
• Termination clauses and implications of potential breach

Under UAE law, to be specific, under the Civil Transactions Law (Federal Law No. 5 of 1985), the courts will enforce the terms of a contract unless they are contrary to public order or mandatory provisions of law. It is important to have high-quality drafting and legal foresight in the contracts for the purposes of effective construction debt recovery UAE and dubai debt recovery.

Initial Steps in Construction Debt Recovery UAE: Amicable Settlements and Formal Legal Notices

Parties should always seek to resolve matters amicably before making any decisions concerning legal action, and in fact, a formal notice or demand letter may elicit payment from the other party in most circumstances – especially if the payment that is overdue is simply because of transitory cash flow issues.

To be impactful, the legal notice should:

• Properly identify the sum that is owed and the basis in law for the claim
• Reference specific provisions in the contract and relevant correspondence
• Place a strict time limitation on payment, usually between seven and fourteen days
• Identify the potential legal outcomes of continued non-payment

Should the parties send a properly crafted legal notice, and particularly, if sent through a law firm in the UAE, this depiction of serious intent is often sufficient to lead the parties to resolve the dispute without litigation. 

Arbitration as an Alternative Dispute Resolution Mechanism

UAE construction contracts, especially high-value contracts, will have clauses for arbitration. The parties to a contract, therefore, look to arbitration centres like DIAC (Dubai International Arbitration Centre) or ADCCAC (Abu Dhabi Commercial Conciliation & Arbitration Centre). 

Arbitration can be an effective method of resolving disputes for the following reasons:

• The arbitration proceedings are confidential
• The arbitral tribunal can be selected to include members with expertise in construction
• Complex technical disputes can be resolved more quickly

On the flip side, arbitration carries a significant cost burden on the parties and requires strict observance of procedures.

The parties must recognize that once the arbitral award has been handed down, the parties will need to get it ratified in a UAE court to be enforceable. This step cannot be overlooked if a party intends to pursue the debt recovery UAE with relevant parties. 

Cheque Bounce and Criminal Proceedings

In many construction contracts in construction the parties provide each other with post-dated cheques. When a cheque bounces, the beneficiary can initiate criminal proceedings under the UAE Penal Code. 

Although recently amended by Federal Decree-Law No. 14 of 2020, to remove most of the criminal cases for bounced cheques.

Conclusion 

To recover construction debts in the UAE successfully, it is imperative that contracting parties have carefully drafted contracts with clear payment processes and clearly identified dispute resolution provisions.

Before proceeding with litigation, it is preferable to try to settle the matter amicably with the sending of a formal legal notice, which in most cases will prompt payment from the debtor.

While arbitration is often the preferred process for complex construction disputes and particularly if there are significant sums involved in the contract, arbitration is costly and adds to the procedural burden.

Bounced cheques can be legally pursued, despite the recent lifting of all criminal sanctions for bounced cheques. Legal support from Khairallah Law Firm, recently recognized among the Best Lawyers in Dubai, is helpful in providing adequate support in dealing with these types of processes.

Overall, preventing issues through proper legal planning and enforcing rights when necessary can help protect financial and business interests in the construction industry throughout the UAE.

Having said that, contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.

*Disclaimer: our blogs, law updates, and FAQ’s are freely distributed for educational purposes and to showcase recent updates and regulations in the UAE’s framework.

If you have any questions and need assistance, contact us at our number or book an appointment online.