DAMAGES UNDER UAE LAW

The Jane Lemon QC Memorial Lecture

A paper given at a meeting of the

Society of Construction Law (Gulf)
in Dubai on 6 October 2019

Richard Harding QC

October 2019

www.scl-gulf.org
 DAMAGES UNDER UAE LAW

Richard Harding QC
Keating Chambers

‫ﻻ ضرر وﻻ ضرار‬

Overview
1. Issues relating to damages form an essential element of almost every construction
dispute. In jurisdictions such as England and Wales, there is extensive
jurisprudence on the entitlement to, and quantification of damages. However in
UAE, the guidance provided by the law and the courts is quite limited1, and, for
common lawyers, difficult to follow. The aim of this paper is to identify and clarify
the relevant rules, in the context of construction contracts subject to UAE law.2

2. Under the laws of England and Wales, the basic measure of damages is “that sum
of money which will put the party who has been injured, or who has suffered, in the same
position as he would have been in if he had not sustained the wrong for which he is now
getting his compensation or reparation.”3 In other words, the rule is that the claimant
is entitled to be placed, so far as money can do it, in the same position as he would
have been in had the contract been performed.4

3. Under UAE law, the purpose of the law is similar, but the legal rules are different,
and the sums to be awarded may be different too.

Performance and compensation

4. Under UAE law, a claimant’s primary remedy for breach of contract is not
damages, but performance.5 Damages are only relevant where performance is not
possible.6 However in construction contracts, it is rarely the case that a failure to
comply with an obligation can be remedied by an order for performance. For
example, if a design document was not provided by the engineer 3 years previously,
an order for performance would not provide any relevant compensation. It will also
rarely be appropriate for performance to be ordered where the defendant is not

1
See, for example, Construction Law in the United Arab Emirates and the Gulf by Michael Grose, p.205.
2
Issues relating to punitive and moral damages rarely arise in construction disputes, and so are not considered
here.
3
Livingstone v Rawyards Coal Co. (1880) 5 App Cas 25, at 39
4
Robinson v Harman (1848) 1 Ex Rep 850
5
UAE Civil Code, Art. 380: “(1) An obligor shall, after being given notice, be compelled to discharge his
obligation by way of specific performance, if that is possible. (2) Provided that if specific performance would be
oppressive for the obligor, the judge may, upon the application of the obligor, restrict the right of the obligee to
a monetary substitute unless that would cause him serious loss.” [Translations of the UAE Civil Code in this
paper are by James Whelan, unless otherwise stated.]
6
UAE Civil Code, Art.386: “If it is impossible for an obligor to give specific performance of an obligation, he
shall be ordered to pay compensation for non-performance of his obligation…”
© Richard Harding QC, 2019
-2-
 willing or able to perform, such as would generally be the position in a construction
dispute. Professor Sanhouri wrote:7
If performance becomes impossible, except where the impossibility derives from a foreign
cause or the fault of the debtor, there is no benefit to demanding specific performance. The
creditor can claim compensation if the impossibility was due to the fault of the debtor, or he
can claim the ending of the obligation without compensation, if the impossibility was due to a
foreign cause…
Specific performance is considered impossible if its performance requires the personal
intervention of the debtor and the debtor refuses to perform his obligation. That is particularly
true for painters, actors and artists in general, and all specialist work such as that of doctors and
engineers…8

5. However, an order from a court for performance may be relevant in the context of
a failure to remedy defects.9 But in arbitration, enforcement of any such award
would be extremely difficult.

6. The alternative to ordering performance, is to order the payment of monetary

compensation. Under the common law, courts and arbitrators award “damages”.
But this should not be confused with “damage”. They are different concepts.
“Damage” is the harm suffered by a person, whereas “damages” is a monetary
award of compensation. In Arabic, the term “ta’wid” (‫)تعويض‬, meaning
compensation or damages, comes from a root word meaning to substitute. In other
words, the money awarded as compensation is a substitute for the performance of
the obligation or the loss in fact suffered.

7. The compensation which a court or tribunal may award, is unlikely to be the same
as the harm suffered. For example, money cannot provide full compensation for
the loss of a limb or a relative. Even in commercial cases, there are limits on the
compensation which can be awarded, so that it is usually less than the full extent
of the harm which the claimant considers that he has suffered. These limits on
compensation are defined by the law, and are considered in this paper.

Origins of UAE law

8. The UAE Civil Code has its origins in the Egyptian Civil Code drafted by Professor
Abd El-Razzak El-Sanhouri in 1948. This was based on both French civil law, and
Islamic concepts. However the laws of the UAE10 also retain a number of features
of Islamic law from the Ottoman Majalla, making them different from Egyptian
law in certain respects.

9. But the laws relating to contracts and compensation, in both Egypt and UAE, are
clearly derived from the French civil code.11

7
In his authoritative commentary on the Egyptian Civil Code, Al-Wasit, Vol.2, p.760, s.408
8
The translations of Sanhouri’s Wasit in this paper are by the author.
9
See Grose, s.19.1
10
Like those of Jordan and Iraq
11
See, for example, Articles 1147 to 1151. For example: “Art. 1149 Damages due to a creditor are, as a rule, for
the loss which he has suffered and the profit which he has been deprived of, subject to the exceptions and
modifications below. Art. 1150 A debtor is liable only for damages which were foreseen or which could have
© Richard Harding QC, 2019
-3-
10. It is therefore helpful to consider the provisions of the Egyptian Civil Code relating
to contractual liability, in order to compare them with those of the UAE Civil Code.
The most important provision is Article 221 of the Egyptian Civil Code, which
says:
‫ ويشمل‬،‫ فالقاضى هو الذى يقدره‬،‫ اذا لم يكن التعويض مقدرا فى العقد أو بنص فى القانون‬-1
‫ بشرط أن يكون هذا نتيجة طبيعية لعدم الوفاء‬، ‫التعويض ما لحق الدائن من خسارة وما فاته من كسب‬
‫ ويعتبر الضرر نتيجة طبيعية اذا لم يكن فى استطاعة الدائن أن‬، ‫بااللتزام أو للتأخر فى الوفاء به‬
.‫يتوفاه ببذل جهد معقول‬
‫ فال يلتزم المدين الذى لم يرتكب غشا أو خطأ جسيما اال‬، ‫ ومع ذلك اذا كان االلتزام مصدره العقد‬-2
.‫بتعويض الضرر الذى كان يمكن توقعه عادة وقت التعاقد‬
1- If the compensation is not quantified in the contract or by a provision of the law, it shall be
quantified by the judge, and will include compensation for the loss suffered by the creditor,
and the gain which he has not made, provided that this is the natural result of the non-
performance of the obligation or the delay in its performance, and the harm will be
considered to be the natural result if the creditor is not able to protect himself against it by
making a reasonable effort.
2- However, if the source of the obligation was a contract, a creditor who does not commit
fraud or serious fault is only obliged to pay compensation for the damage which could
normally be expected at the time the contract was made.

UAE law
11. UAE law contains effectively the same provisions, but they are not expressed in the
same way, or all in the same place.

12. Article 389 of the Civil Code simply says: “If the amount of compensation is not fixed
by law or by the contract, the judge shall assess it in an amount equivalent to the damage in
fact suffered at the time of the damage occurred.”12 No further guidance is provided in
the Code. However the official Commentary on the UAE Civil Code13 adds, in
relation to this article:
Compensation includes all damage and loss of earnings sustained by the oblige [creditor],
provided that that is a natural result of non-performance or delay in performance of the
obligation. Damage is regarded as being a natural result if it was not within the power of the
obligee by making reasonable efforts to avert it. In general, in the case of obligations that have
their origins in contracts, the obligor who has not committed any fraud or gross error is obliged
to pay compensation only for the damage that could have been ordinarily foreseen at the time
the contract was made.
In the cases of fraud and gross error, contractual liability falls under the same category as
liability for a harmful act, because with the exception of those two cases the obligor [debtor]
will not be liable for the natural result of his mere failure to perform, unless that result could
ordinarily have been foreseen at the time the contract was made. If the result that in fact ensued
does not satisfy that condition, then it will fall outside the scope of contractual liability and
there will be no obligation to pay compensation for it. In this respect, the law will take into

been foreseen at the time of the contract, where it is not through his own intentional breach that the obligation is
not fulfilled.”
12
Author’s translation
13
‫المذكرة اﻹيضاحية‬
© Richard Harding QC, 2019
-4-
 account what the contracting parties have foreseen by way of damage requiring compensation
not only in respect of the source or cause of such damage, but also the amount and extent of
such damage.14

Recoverable losses
13. In relation to the nature of losses for which compensation may be awarded, the
provisions of UAE law cited above can be summarised as follows:
(1) Compensation will be awarded for foreseeable losses which are the natural
result of the breach and could not be prevented by reasonable effort.

(2) Except in the event of fraud or serious fault, when compensation is assessed
on a tortious basis.

14. Foreseeability is considered by reference to what could ordinarily have been

foreseen by the contracting parties at the time the contract was entered into15 (and
not at the date of the breach or the harm).

15. Sanhouri distinguishes between material harm and moral harm.16 He then divides
material harm into 3 categories: préjudice actuel (al-darar al-hal)17; préjudice future (al-
dara al-mustaqbil)18; and préjudice éventuel (al-darar al-muhtamal)19. The first
category relates to harm which has occurred, and compensation is payable for this.
The second category relates to harm which is certain to occur in the future 20, but
the compensation can be ascertained now. The third category concerns possible
harm, which is not certain to occur. This is not compensable. However Sanhouri
distinguishes between this third category, and loss of an opportunity, for which
compensation may be awarded.

16. Applying these principles, compensation for loss of profit (i.e. lost gains) can be
awarded, but only where the profit is certain. This would not apply where, for
example, a product is purchased which the buyer hopes to sell at a higher price, but
this has not been secured by another contract. That price may or may not be
achieved. But where a contractor has been terminated, and he can show that his
costs were going to be less than the contract price, then the difference (his profit)
ought to be recoverable.

17. Sanhouri also distinguishes between direct damage (which is the natural result of
the breach21), and indirect damage (which is not). He said:22
Indirect damage is not compensated at all, either pursuant to contractual or tortious
responsibility. Under the two types of responsibility only direct damage is compensated.

14
Whelan’s translation
15
See the Commentary above, and cf Egypt Art.221.
16
Wasit, Vol.1, p.680
17
S.445
18
S.446
19
S.447
20
‫محقق الوقوع في المستقبل‬
21
Wasit, Vol.1, p.840 (2010 ed.)
22
Wasit, Vol.1, p.683, s.451
© Richard Harding QC, 2019
-5-
 But under tortious responsibility, all direct harm is compensated, whether it is anticipated or
not. As for contractual responsibility, only anticipated direct harm is compensated, in the
absence of fraud or serious fault.

18. Sanhouri goes on to give the following example of direct and expected loss:
A tenant is forced to leave a house before the expiry of the term of the lease because the landlord
has not fulfilled his obligation to carry out the renovations required by the tenant. So he moves
to a house which is equal to the first, but at a higher rent. Some of the furniture is damaged
during the move. Then there are infectious germs in the new house which make him ill.

The difference between the rents of the two houses is expected, direct harm. The value of the
furniture which was damaged is direct, unexpected damage. The illness is indirect damage. The
landlord is only responsible for the damage which is direct and expected, provided that he did
not breach his obligation deliberately and through a serious fault, in which case he would be
responsible for the direct damage which was expected and unexpected, as in the case of tortious
responsibility. And the debtor is not responsible for indirect damage at all, even in the case of
tortious responsibility.

Mitigation/defendant’s fault
19. Under the common law, the victim of a breach of contract is said to be under a duty
to act reasonably to mitigate his loss. To the extent that this duty is not complied
with, the damages to be awarded will be reduced. Similar considerations apply
under UAE law.

20. Sanhouri said23:

…if the injured party fails to exert reasonable efforts to avert the damage, the injured party,
itself, would also be at fault, and a mutual fault would exist. The injured party should be
responsible for the effects of his fault by being responsible for the damage which results from
it. And so, if a person is injured, the direct damage resulting from the injury should be borne by
the one responsible, and the indirect damage resulting from the injured party’s failure to look
after himself, should be borne by that injured party.

21. Therefore, to the extent that the damages claimed could have been avoided “making
reasonable efforts to avert it”24, that element of the loss will not be recoverable.

22. In addition, Article 290 of the UAE Civil Code provides that: “It shall be permissible
for the judge to reduce the level by which an act has to be made good or to order that it need
not be made good if the person suffering harm participated by his own act in bringing about
or aggravating the damage.” This would also have the effect of reducing the
recoverable damages to the extent that the loss was caused by the claimant.

Global claims
23. A “global claim” has been described as “a contractor’s claim which identifies numerous
potential or actual causes of delay and/or disruption, a total cost on the job, a net payment
from the employer and a balance which is attributable without more and by inference to the

23
Wasit, Vol.1, pp.839-840 (2010 ed.)
24
As set out in the Commentary to Art.389
© Richard Harding QC, 2019
-6-
 causes of delay and disruption relied upon.”25 The law of the UAE requires a causal link
between the breach and the damage.26 It is therefore sometimes contended that the
law of the UAE therefore does not permit such global claims (unlike the law of
England and Wales). However the real legal issue concerns what is required to
prove causation, where a number of causes are alleged to have resulted in losses,
but the loss resulting from each specific cause has not been identified.

24. Where two events are proved to be the only causes of the loss of a sum of money,
there would be no basis in law for a court or tribunal to find that the claim failed
unless the claimant identified the specific loss attributable to each cause. This
principle would be equally applicable no matter how many events are shown to be
the defendant’s responsibility and to have caused the loss. As a result, there can be
no rule of law that global claims are not permitted.

25. Under UAE law “the existence of a causal link between breach and harm is presumed.”27
That is, it is presumed that if a person does not perform an obligation and a person
suffers a loss, then that loss was caused by the breach. However there is no
presumption of damage resulting from the breach. Sanhouri said:28
It is the creditor who has the burden of proving the harm, because he is the one who claims it.
The existence of the damage is not presumed just because the debtor has not performed his
contractual obligation. He might not have done so, and the creditor might not have suffered
harm from that.

26. The result is that there is a presumption of causation, but not that the breach caused
the loss claimed. As a result, the presumption as to causation is of little assistance
to a claimant with a global claim. The problem is essentially one of evidence. The
greater the number of events, the more difficult it will be to show that these events,
and only these, caused all of the loss claimed.

27. Causation is usually proved by inference rather than by direct evidence. (For
example, it is reasonable to infer that delay to a critical activity is the cause of the
cost of the project manager for the same period.) However, a tribunal can only draw
such an inference where the evidence shows that the many events relied on were
(on the balance of probabilities) the only cause of the losses claimed. To the extent
that some of those events were the contractor’s own responsibility, that inference
cannot be properly drawn. Under such circumstances, it is necessary for the
claimant to demonstrate what part of the loss is attributable to those events. But
that is an evidential challenge, not a legal one.

25
Walter Lilley v MacKay [2012] BLR 503
26
See, for example, Sanhouri, Wasit, Vol.1., p.687, s.454
27 Wasit, Vol.1, p.687, s.454:

‫والمفروض ان عالقة السببية ما بين الخطأ والضرر‬

28
Wasit, Vol.1, p.679, s.442
© Richard Harding QC, 2019
-7-
Serious fault
28. As noted above, if the defendant has committed a “serious fault”, then the
recoverable compensation will not be limited to what is foreseeable. Sanhouri
identified three types of fault, based on Roman and French laws:29
There is an ancient and archaic opinion which divides unintentional contractual fault into 3
parts: serious fault (culpa lata) which is the fault which is only committed by a careless person,
and it is the fault which is closest to wilfulness and is connected with it; simple fault (culpa
levis) which is only committed by a person unintentionally; and petty fault (culpa levissima)
which is only committed by a prudent and careful person.

29. It is only the first of these categories (serious fault) which is relevant to this paper.
Unfortunately, for the common lawyer, there is no definitive definition of this
concept. It depends on the circumstances of the case and the behaviour of the
defaulting party.

30. A respected Egyptian writer has referred to ‘serious fault’ as follows:30

…the different criteria that were posed by [Roman law] doctrine for defining serious fault,
were: probable fraud, personal or self-created fault, or fault which is deduced from the
application of jurisprudence when assessing it, i.e. the gravity of the damage, the scope of the
obligation, the grouping of the faults, and the degree of likelihood of the damage.31

…[serious fault] is born from serious recklessness in contractual relationships, or reveals a great
failure in the performance of the obligations due to stupidity, ignorance or inattention.32

31. In practice, arbitral tribunals are likely to consider the consequences of finding that
a party has committed a ‘serious fault’, and make their findings in light of this. For
example, if (as is considered in the following section of this paper), a finding of
‘serious fault’ would result in the loss of a right to rely on a contractual limitation
of liability, tribunals are likely to require a higher degree of culpability.

Limitation and exclusion of liability

32. Sanhouri explained that the origins of contractual and tortious liability are
different, so that the parties’ rights to regulate their relationships are different:33
When contractual liability has its origin in a contract, and the contract is born from the will of
the contracting parties, free will is the basis for contractual liability. And so free will is what
established the rules of this type of liability…
As for tortious liability, it is not born from free will, but instead from the rules of the law. …and
so it is not permissible to amend its rules by agreement, as is permitted for contractual liability.

33. Under UAE law it is not permitted to exclude tortious liability. Article 296 says:
“Any condition purporting to provide exemption from liability for a harmful act shall be

29
Wasit, Vol.1, p.662, s.430
30
Mahmoud Gamal Eldin Zaki, “Problems in Civil Liability”, 1990
31
pp. 96-97
32
p.107
33
Wasit, Vol.1, p.673, s.438
© Richard Harding QC, 2019
-8-
 void.” It is likely that this prohibition extends to purported limitations of liability,
since they have the effect of excluding part of the original liability.34

34. Sanhouri confirms that parties can limit or exclude contractual liability by
agreement.35 But this right is limited by law. He said:36
First, the contracting parties are free to amend the rules of contractual liability…
Secondly, public order restricts the freedom of the contracting parties. They are not permitted
to reduce contractual liability to the extent of an exemption from intentional or similar acts, or
from serious fault. That is because, if the debtor could excuse himself from responsibility for
intentional failures to perform contractual obligations, then those obligations would only relate
to the conditions which had been agreed. But that it not allowed. Serious fault is connected with
deliberate acts and with the taking of decisions.

35. In short, it is permissible to limit or exclude ordinary contractual liability, but

parties cannot limit or exclude liability for fraud or serious fault, which are
considered by the law to be equivalent to tort, and hence matters of public order.37

36. An example of a contractual provision which seeks to limit liability, is clause 17.6
of FIDIC 99, which states (in part):
Neither Party shall be liable to the other Party for loss of use of any Works, loss of profit, loss
of any contract or for any indirect or consequential loss or damage which may be suffered by
the other Party in connection with the Contract…
This Sub-Clause shall not limit liability in any case of fraud, deliberate default or reckless
misconduct by the defaulting Party.

37. The last part of this clause excludes from its effect most of the matters which would
fall under “fraud or serious fault”. However, in so far as other acts of the defendant
amount to “serious fault”, but do not fall within the terms of this part of the clause,
the clause would still not be effective. Parties cannot contract out of the effects
defined by the law for tortious acts.38

38. It should be noted that it is common for this type of clause in standard form
contracts, to seek to exclude “consequential” losses. This relates to a type of loss
which is relatively well defined in English law39, but has no obvious meaning under
the law of the UAE. Some people have been misled by a widely used translation of
Article 283 of the UAE Civil Code which says that “Harm may be direct or
consequential.”40 But a more accurate translation of this article would be:
(1) Harm may be caused directly or indirectly.

34
See also Sanhouri, Wasit, Vol.1, p.979
35
Wasit, p.677, s.441: “If the condition exempting contractual liability is valid in the way we have set out, then
it excuses the debtor from liability to the extent provided by the condition. And the debtor remains liable for the
remainder.”
36
Wasit, p.672, s.439
37
cf Commentary on Art.389 at para.12 above: “In the cases of fraud and gross error, contractual liability falls
under the same category as liability for a harmful act”.
38
See UAE Art.296, referred to above.
39
Traditionally, the “second limb” in Hadley v Baxendale (1854) 9 Exch. 341, i.e. losses “such as may
reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as
the probable result of it.”
40
Whelan’s translation
© Richard Harding QC, 2019
-9-
 (2) If the harm is caused directly, it must unconditionally be made good, and if it is caused
indirectly there must be a wrongful or deliberate element...

39. The Commentary on this article states:

This article deals with the modes of causing harm, and the question whether it is necessary for
there to have been a deliberate act or a wrongful act, or not. The words 'deliberate' and
'wrongful' are not synonyms. The meaning of deliberate here is the deliberate causing of harm,
and not the deliberate doing of the act. The meaning of a wrongful act is that the person doing
it does not have the right to perform the act out of which the damage has arisen… These two
rules are worded in Islamic jurisprudence in two rules, which are firstly that the direct causer is
liable notwithstanding that he may not have acted deliberately or wrongfully, and that the
indirect causer is liable only if he has acted deliberately or wrongfully.41
40. These provisions therefore relate only to tort, and the causation of physical damage.
They do not relate to contractual liability, or to “consequential” loss as understood
by the common law, or as intended by standard form contracts.

Liquidated damages42
41. Art.390(1) permits parties to “fix the amount of any compensation in advance by the
provisions of the contract”. The effect of this is to quantify, by agreement, the amount
of compensation due in the event of an applicable breach. All other aspects of the
law of damages still need to be fulfilled, except that the law presumes, in this regard,
that damage has been suffered. Sanhouri said:43
As for liquidated damages, proof of harm is not dispensed with. But the burden of proof is
transferred from the creditor to the debtor. Harm is presumed unless the debtor proves that it
did not occur.

42. Sanhouri then refers to Article 224 of the Egyptian Civil Code, which says:
“Damages fixed by agreement are not due, if the debtor establishes that the creditor has not
suffered any loss.” There is no equivalent provision of the UAE Civil Code, but
similar rules are likely to apply. The general law is that if there is “no loss” there is
no damage and so one of the essential elements of a claim is missing. Alternatively,
a defendant might rely on Article 390(2) of the UAE Civil Code, as explained
below.

43. There are three further defences under UAE law to a claim for liquidated damages:
(1) The contractor has no responsibility for the delay - Article 287 of the UAE
Civil Code states: “If a person proves that the damage is due to a foreign cause
beyond his control, such as an act of God, an unexpected event, force majeure, an act
of a third party, or an act of the victim, he shall not be liable for the damage unless
the law or the agreement provides to the contrary.”

41
Whelan’s translation
42
This issue has been dealt with in full in the author’s paper: “Making and Defending Claims for Liquidated
Damages in The United Arab Emirates”, May 2006, which is available on the SCL(Gulf) website.
43
Wasit, Vol.1, p.680, s.442
© Richard Harding QC, 2019
-10-
 (2) The contractor and the employer are both at fault - Article 290 says: “The
court may reduce the liability or award no damages, if the victim contributed to the
events which caused the damage, or increased the damage.”

(3) The rate for liquidated damages should be adjusted to equal the employer’s
actual loss, under Article 390(2):
(a) The court or tribunal “may” adjust the rate for liquidated damages.
This is therefore a discretionary remedy, and not one that the
contractor can insist on as of right.

(b) There is no express limit to the court’s power to make the

adjustment. But in practice, a commercial agreement will be
respected, so that an adjustment will only be made where the loss
and the agreed sum are very different.

(c) The adjustment will be made so that the liquidated damages equal
the actual loss, and it is for the party challenging the liquidated
damages to prove the actual loss.

(d) The application for an adjustment can be made by either party. This
indicates that the adjustment could be either to decrease or increase
the rate.

(e) The parties cannot, by the terms of their agreement, restrict the
powers of the court (or arbitrator) under this Article. This means that
issues such as notices and conditions precedent cannot prevent the
contractor from applying to the court for an adjustment.

Conclusion
44. Compensation for breach of contract will be awarded for foreseeable losses which
were the natural result of the breach, and which could not be prevented by
reasonable effort, including profit which was certain. But in the event of fraud or
serious fault, compensation is assessed on a tortious basis. In that case, the parties
cannot limit or exclude the defendant’s liability, and the person who breaches the
contract in this way will be liable even for unforeseeable losses.

RICHARD HARDING QC is a barrister and arbitrator practicing from Keating

Chambers, London. He has an MA in Arabic and Persian from Oxford University, and
specializes in construction disputes arising in the Middle East. He is the founder Chairman
of the SCL(Gulf).

This paper has been published for the purpose of raising general awareness of issues of law in the Gulf
region. The contents must not be relied upon or applied without taking appropriate professional
advice.
© Richard Harding QC, 2019
-11-