Main Contractor vs. Sub Contractor

The Client
A sub-contractor based in Abu Dhabi and made a claim against the main contractor for unpaid dues. The sub-contractor had completed its obligations as per the agreement between parties, but had not been paid.

Our Approach
We reviewed the agreement and identified that the documentation contained back-to-back clauses, which are a common feature in construction contracts in the UAE. Such clauses are generally used to provide the main contractor with sufficient cashflow, and usually state that a sub-contractor will not be entitled to payment from a main contractor unless payment has been received by the developer.

Whilst such clauses are generally upheld by the courts, each agreement has to be reviewed in detail. The actions of the parties (or lack thereof) should also be looked at in the context of that scenario.

The Outcome
Art 246(1) of the UAE Civil Code, places an obligation on parties to act in good faith. It was found that the main contractor’s failure to make payment in the prevailing circumstances was in violation of its statutory obligations as well as its obligations under the agreement. The sub-contractor was awarded its payment, as due under the contract, plus damages.