A subcontractor has no contractual claim against the project owner, even if the owner paid some of its invoices

The principle

The main construction contract creates no rights for a subcontractor against the employer. Following the employer's instructions does not make the subcontractor a party to the main contract or entitle it to compensation for its breach, and an employer that pays part of a subcontractor's dues does not thereby become a party to the subcontract. Being named in a contract does not make someone a party to it. Where the contract fixes no interest rate on a liquidated sum paid late, interest runs at the market rate at the time of dealing, capped at 12% a year, and the judge assesses it if the creditor cannot prove that rate.

The case and the decision

Under a 2018 subcontract worth AED 67.5 million, a subcontractor carried out the mechanical, electrical and plumbing works for a staff accommodation camp being built for the project owner. After completion and the municipality's completion certificate in June 2020, it sued the main contractor and the owner jointly for about AED 13.59 million and AED 1 million for lost profit. The owner had paid it AED 836,014 directly, which was deducted from the main contractor's dues. The main contractor counterclaimed for about AED 36.8 million. The courts below held that the claim against the owner was inadmissible because it was not a proper defendant, awarded AED 5,135,358 against the main contractor with interest at 1% a year, and dismissed the counterclaim.

The Court of Cassation dismissed the subcontractor's appeal. The main contract does not create rights for the subcontractor against the employer, and the subcontractor does not become a party to it by carrying out the employer's instructions during the works. Only a person who expresses a will matching another's to create, transfer, modify or extinguish an obligation is a party; not everyone mentioned in a contract is. The owner was not a party to the subcontract, and its agreement to pay part of the subcontractors' dues did not make it one. Under Articles 872, 877, 878 and 885 of the Civil Transactions Law, whether the contractor completed the works to the agreed specifications and on time is for the trial court, which may rely on the expert's report. Under Articles 76, 77, 88 and 90 of the Commercial Transactions Law, interest on a liquidated sum paid late runs from the due date at the agreed rate or, failing that, the market rate up to 12%; as the subcontractor had not proved the market rate, the court's 1% was lawful. The claim for compensation failed because the additional work was needed to complete the project and the subcontractor had not carried out post-handover maintenance.

Laws applied

In the court’s words

“ان عقد المقاولة الأصلي لا ينشئ أية حقوق للمقاول من الباطن قبل صاحب العمل”

Short quotation from the judgment as published by the court. The full judgment is on the court’s official service.

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