Risks of non-payment to suppliers in the Qatari construction industry
Our previous article outlined precautionary measures and remedies that building material suppliers in Qatar can take to help facilitate the successful recovery of debts. In this article, we provide additional directions for resolution of payment issues in the Qatari construction industry.
Efficient credit control, meaning timely invoicing and chasing, is the first defense mechanism against payment issues. Unsuccessful attempts to recover payment can still be of benefit if they produce written records. Records showing the debtor’s broken promises to pay are particularly useful. However, debts which aggregate in the long term become more challenging to collect than more recent ones. Thus, non-confrontational recovery efforts should not be pursued beyond their useful purpose.
As it becomes evident payment will not be made, either within a satisfactory time frame or at all, the creditor has the following options:
Where they remain valid and effective, bank guarantees, performance bonds, letters of credit, parent company or personal guarantees or other forms of security can be actioned. It is important to manage payment issues early. Otherwise, these forms of security may be overlooked and eventually expire. If credit risk insurance has been purchased, insurers should be contacted at this time.
As explained in the previous June 2022 article, non-payment resulting from a dishonoured cheque is an offence under Article 357 of Law No. 11 of 2004 (the "Penal Code"). Police action may be initiated, ranging from local police station questioning to arrest and detention. In addition, a General Manager and local partner of a limited liability company ("LLC") may be personally liable for dishonoured cheques issued by them on the LLC's bank account under Article 28 Law No.5 of 2002 (the “Commercial Companies Law”).
Increasingly, construction contracts and professional appointments provide for a right to suspend for non-payment. Local law also supports a statutory right of retaliatory suspension. Any recourse to a contractual or statutory right of suspension should be considered carefully, preferably with legal advice.
Legal or contractual rights of retention and repossession can be exercised over debtor’s property, pending payment, or over goods and materials delivered to site which have not been paid for. These rights may be beneficial to an ongoing project and/or upstream insolvency but again, should be exercised with care.
Some construction contracts, including industry standard ones, reserve a client's right to pay the nominated subcontractor of a supplier directly and make corresponding deductions from the contractor's account. Clients may be unwilling to exert this right, fearing the payment will be made twice. However, if the conditions are clearly drafted comfort can be sought through this mechanism. In the case of sub-contractors, Article 702 of Law No. 22 of 2004 (the "Civil Code") permits seeking direct payment from the employer, which may assist when a main contractor is reluctant to release funds.
Pursuant to Article 154 of Law No. 13 of 1990 (the "Civil & Commercial Procedure Code") local courts can issue a precautionary or provisional attachment in respect of a claimed debt. Most commonly, an attachment order freezes the debtors bank accounts. This is done without prior warning and may affect other non-tangible assets (e.g. third party debts), or tangible assets, such as construction machinery, equipment and materials.
It is also possible to obtain an attachment order over an individual debtor’s passport or, in certain cases, the managers and/or shareholders of an LLC. Before making such an order, the court must be satisfied there is a risk the debtor might flee the jurisdiction. Applicants requesting that the court grant a passport attachment are usually required to provide a bank guarantee as security for damages in the event of wrongful attachment. After a precautionary order is granted, formal legal proceedings must be issued within the specific time limits outlined by the Civil & Commercial Procedure Code.
Depending on the contract terms or dispute resolution procedure chosen, local courts or arbitration may provide the final options against intransient debtors.
Legal proceedings may be issued alongside or instead of the measures outlined above. However, thought should be given to the availability of assets against which any court judgment or arbitration award may be enforced. The precise nature of this complex issue is beyond the scope of this article. However, where an LLC has failed to comply with certain local law provisions (such as company stationary or company stamps) shareholders may be personally liable for company debts.
For further information on this topic, or any other points of Qatar law related to construction/engineering, please contact Jonathan Parker or James McLellan.
Note: All Qatari Laws (save for those issued by the Qatar Financial Centre (QFC) to regulate its own internal business) are issued in Arabic and there are no official translations, therefore for the purpose of drafting this article we have used our own translation and interpreted the same in the context of Qatari laws and regulations.