New enforcement law and amendments to the QFC arbitration regulations
Civil and commercial arbitrations are primarily governed by the Qatar Arbitration Law, which was adopted in 2017 and is based on the UNCITRAL Model Law. This law regulates the arbitration process, including the conduct of proceedings, as well as the setting-aside, and recognition and enforcement of arbitral awards.
Law No 4 of 2024 on judicial enforcement
On 7 October 2024, Law No 4 of 2024 on Judicial Enforcement (New Enforcement Law) came into force. Under the New Enforcement Law, the Enforcement Court has sole authority in Qatar to determine requests for the enforcement and execution of, among other things, arbitral awards, which are included within the New Enforcement Law’s definition of "writs of execution" (Article 3, New Enforcement Law).
One significant aspect that this law introduces is the emphasis on digital transformation, allowing enforcement requests to be filed electronically (Articles 29 and 30 of the New Enforcement Law). Additionally, cheques and lease contracts are now recognised as enforceable documents, enabling creditors to enforce these directly without lengthy court procedures, thus addressing issues like bounced cheques more efficiently (Article 6).
The law also grants to the enforcement judges enhanced powers, such as the ability to seize assets, impose travel bans, and restrict the business activities of debtors who obstruct enforcement (Articles 34 to 44). The amendments outline a clear appeals process, allowing affected parties to appeal enforcement decisions within 10 working days, although such appeals do not automatically suspend enforcement actions, preventing delays in executing judgments (Article 12). Lastly, stricter penalties have been introduced for individuals attempting to evade enforcement, including potential prison sentences and fines (Article 13).
Amendments to the QFC Arbitration Regulations
Qatar's secondary onshore jurisdiction, the QFC, enacted its own arbitration regulations in 2005 (QFC Arbitration Regulations). Like the Qatar Arbitration Law, these are also based on the UNCITRAL Model Law. The QFC Arbitration Regulations were amended with effect from 1 September 2024.
These amendments introduced detailed rules concerning interim awards, including rules for their recognition and enforcement (Articles 22A – 22I). Among other things, the amendments also introduced some much-welcome detail to the rules concerning costs (Article 38) as well as an explicit rule on confidentially (Article 12), provision for virtual hearings and electronic communication (Article 26), and a process for appointing an arbitral panel in multi-party arbitrations where there is no agreement on the process of appointment (Article 14A).Civil Cassation Appeal No. 1460 of 2023: Implications for the Pay-When-Paid Clause
Recent developments in Qatar's construction industry have highlighted significant payment pressures faced by contractors, particularly following a pivotal ruling by the Qatari Court of Cassation. This ruling addresses the contentious use of "pay-when-paid" clauses in subcontractor agreements, which have long been a source of contention in the construction sector.The role of pay-when-paid clauses
Pay-when-paid clauses are designed to protect the contractors by linking the timing of subcontractor payments to the receipt of funds from clients. In short, they stipulate that the subcontractor will receive owed payment only after the client has paid the contractor. While pay when paid clauses intend to protect contractors from, for instance, cash flow issues, they often place subcontractors in precarious positions, especially when payment delays occur.
In Qatar, the use of pay-when-paid clauses has been controversial. Critics argue that these clauses can create an unfair burden on subcontractors, who may find themselves waiting indefinitely for payments that are rightfully owed to them. This concern has prompted legal scrutiny and called for reform in how such clauses are interpreted and enforced in Qatari courts.
Factual background
The case arose from a dispute between a subcontractor and a main contractor, where the subcontractor claimed payment for completed work, citing the main contractor's failure to receive payment from the client as the basis for withholding payment.
The lower courts had previously ruled in favour of the main contractor, citing the pay-when-paid clause as a valid defence. However, the subcontractor appealed this decision, arguing that the clause should not be enforced in a manner that effectively denies them their rightful payment. This appeal then reached the Court of Cassation, Qatar's highest court.
The implications of the ruling of Qatari Court of Cassation
The Qatari Court of Cassation allowed the appeal, holding that there was no basis to consider that the payment claim was premature. The Court of Cassation noted that the Court of Appeal has wrongly delegated to the court appointed expert the power to interpret the contract.
The Qatari Court of Cassation's decision further clarified that contractors cannot indefinitely withhold owed payments to subcontractors based on their own payment delays from clients. The Court emphasised that while pay-when-paid clauses can provide temporary relief for the contractors, i.e., achieve the very purpose of these provision – to manage cash flow, they should not extend indefinitely. Instead, a reasonable timeframe must be established for payments to be made, which the court will determine based on the specifics of each case.
This ruling aims to balance the dynamic between the parties in a project in a context where they agreed to delay payment to manage cash flow, ensuring that subcontractors are not left waiting indefinitely for payments that are rightfully owed to them. It also expects to empower subcontractors to pursue claims for overdue payments more aggressively, potentially leading to an increase in disputes within the industry.
Future considerations
As the construction industry adapts to this recent ruling, several key considerations will shape the future of these provisions. One significant area for potential change is legislative reform. There may be a concerted push for new regulations that clearly define the use of pay-when-paid clauses. Establishing specific conditions under which these clauses can be enforced will be crucial to ensuring that they do not undermine the rights of subcontractors.
The judgment's scope is limited to pay when paid provisions and does not extend to pay if paid provisions which allocate the risk of the employer's failure to pay between the main contractor and subcontractor.
In this context, adopting best practices for contract drafting will be essential. Main contractors and subcontractors are advised to review their contracts carefully and subcontractors are expected to price for the pay if paid provisions' risk allocation. In the presence of pay when paid clauses, contractors should prioritise clear payment timelines and conditions in their main contract agreements. This proactive approach will help mitigate potential disputes and foster better relationships between all parties.
Moreover, as the industry evolves, there is likely to be an increased emphasis on mediation and alternative dispute resolution (ADR) mechanisms. These methods offer efficient pathways for resolving payment disputes without the need for lengthy litigation. By promoting mediation, the construction sector can facilitate quicker resolutions, preserving business relationships and minimizing disruptions to ongoing projects. This shift towards ADR could become a standard practice, enhancing the overall efficiency of dispute resolution in the industry.
