Types of Compensation in Construction Arbitration

In construction arbitration, particularly in the context of FIDIC-based contracts, understanding the available remedies for breach of contract is critical.

This article presents a structured comparison between the UAE Civil Code, the FIDIC suite of contracts, and UK law, focusing on types of compensation.

Such as liquidated damages, actual and consequential damages, loss of profit, quantum meruit, and interest claims.

Each category is matched with relevant legal provisions and precedents for clarity in arbitration practice.

Liquidated Damages

Definition: A pre-agreed sum payable in case of specific breaches, usually delay.

  • FIDIC Reference: Sub-Clause 8.7
  • UAE Civil Code:
  1. Article 390(1): Parties may pre-agree compensation.
    1. Article 390(2): Courts may reduce if excessive or if the obligation was partially fulfilled.
  • UK Law:
    1. Dunlop v New Garage (1915) – must be a genuine pre-estimate.
    2. Cavendish v Makdessi (2015) – clause must protect a legitimate interest and not be penal.

General (Actual) Damages

Definition: Direct, provable losses resulting from breach.

  • FIDIC: Permitted through general claims (Sub-Clause 20.1).
  • UAE Civil Code:
  1. Article 282: Liability for harm.
    1. Article 292: Includes both loss and deprivation of profit.
  • UK Law:

Hadley v Baxendale (1854): Recoverable if within the usual course of things or in contemplation.

Consequential / Indirect Damages

Definition: Losses occurring as secondary consequences of breach.

  • FIDIC: Generally excluded unless contractually preserved.
  • UAE Civil Code:

Articles 282–284, 292: Recoverable if natural and foreseeable.

  • UK Law:

Hadley v Baxendale (2nd limb): Recoverable if both parties foresaw the possibility.

Quantum Meruit / Unjust Enrichment

Definition: Compensation for work performed or value delivered outside or beyond the original contract.

  • FIDIC: Arises where partial works are completed or where variation lacks instruction.
  • UAE Civil Code:

Articles 318–326: No one shall unjustly enrich themselves at the expense of another.

  • UK Law:

Planche v Colburn (1831): Quantum meruit claim when a contract is terminated after partial performance.

Loss of Profit

Definition: Anticipated income that was lost due to a breach.

  • FIDIC: Typically excluded unless explicitly preserved.
  • UAE Civil Code:

Article 292: Includes deprivation of expected profits.

  • UK Law:

Covered under Hadley v Baxendale — direct and foreseeable lost profits are recoverable.

Interest on Damages

Definition: Additional compensation for delay in payment of sums due.

  • FIDIC: May allow interest depending on the governing law.
  • UAE Civil Code:

Interest must be contractually agreed upon or awarded judicially, there is no statutory interest in damages.

  • UK Law:
  1. Section 35A, Senior Courts Act 1981 – allows statutory interest.
    1. Late Payment of Commercial Debts Act 1998 – allows business claims for statutory interest.

Specific Performance

Definition: A remedy requiring the defaulting party to fulfil their contractual obligations.

  • FIDIC: Rarely used; compensation is preferred.
  • UAE Civil Code:

Article 379: The obligee may demand specific performance unless it is impossible.

  • UK Law:

Equitable and discretionary; awarded only if damages are inadequate.

Conclusion

Arbitration in construction disputes in the UAE must account for a mix of contractual (FIDIC), statutory (UAE Civil Code), and occasionally foreign (UK) construction legal services & standards.

Each type of compensation carries different implications depending on the governing law and seat of arbitration.

For practitioners and contract drafters, clarity in drafting and anticipating applicable legal standards can dramatically influence the outcome of dispute resolution.